Medicare Cuts to 340B Drug Funds Will Hit Security-Web Hospitals Whereas Benefiting For-Revenue Hospitals

The not too long ago finalized 2027 Medicare Hospital Outpatient Perspective Payment System (OPPS) rule from the Facilities for Medicare & Medicaid Companies (CMS) features a rule to scale back Medicare’s reimbursement for 340B medication. The rule will cut back reimbursement for 340B medication from common gross sales value (ASP) plus 6% (what Medicare usually pays for Half B outpatient medication administered by suppliers) to ASP minus 28%, a 32% discount (CMS initially proposed lowering reimbursement to ASP minus 33.4%). CMS indicated that this transformation will higher align Medicare reimbursement with hospitals’ prices of buying 340B medication.

The 340B Drug Pricing Program requires drug producers collaborating in Medicaid to promote outpatient medication to eligible nonprofit and authorities suppliers at a considerable low cost, permitting suppliers to earn bigger earnings when being reimbursed for 340B medication. The intent of this system is to help suppliers, corresponding to sure disproportionate share hospitals and federally certified Health clinics, that look after low-income and different underserved populations. Critics have raised issues that the 340B program, which has grown considerably over time, just isn’t well-targeted; that financial savings from this system will not be shared with sufferers; and that this system incentivizes hospitals to accumulate clinics and doctor practices with a purpose to lengthen 340B reductions to these settings, enabling them to generate extra income. Supporters of this system say that revenues generated by the distinction between Medicare (and different payer) reimbursement for 340B medication and the discounted value assist 340B suppliers look after underserved populations and spend money on operations.

CMS based mostly the quantity of the fee discount on the utmost allowed acquisition prices underneath the 340B program, after additionally contemplating a value acquisition survey of 340B medication accomplished by hospitals in early 2026 (CMS initially proposed setting reimbursement to ASP minus 33.4% based mostly on the survey, however set reimbursement utilizing the utmost allowed acquisition prices within the remaining rule to simplify future updates, amongst different causes). This variation revives an earlier effort by CMS to scale back Medicare funds for 340B medication that was carried out in 2018 underneath the primary Trump administration, however the Supreme Courtroom overturned that rule in 2022 as a result of the company had not first performed a value acquisition survey. CMS’s Medicare 340B fee discount will take impact on January 1, 2027, and can have disparate results on several types of hospitals, as described extra beneath.

CMS’s finalized minimize to 340B drug reimbursement will cut back Medicare spending on 340B medication by an estimated $4.65 billion in 2027, whereas rising spending on non-drug outpatient providers by the identical quantity due to finances neutrality necessities. Underneath federal legislation, CMS is mostly required to keep up the identical quantity of combination spending by way of OPPS no matter reimbursement adjustments (i.e., keep finances neutrality). Based mostly on this requirement, CMS finalized a 7.5% across-the-board improve in funds for non-drug outpatient providers coated underneath the OPPS, which the company estimates will offset the affect of cuts to spending on 340B medication in 2027.

The finances neutrality requirement implies that financial savings from reductions in 340B funds to 340B hospitals can be redistributed to each 340B and non-340B hospitals by way of greater funds for non-drug outpatient providers. Equally, Medicare beneficiaries would face decrease value sharing on 340B medication (e.g., based mostly on 20% coinsurance utilized to a decrease quantity) however greater value sharing for non-drug outpatient hospital providers. CMS estimates that Medicare beneficiaries who use 340B medication would save $1.1 billion in complete in 2027, however value sharing would improve for beneficiaries who use non-drug outpatient hospital providers based mostly on Medicare’s proposed 7.5% fee improve.

Proposed cuts will cut back revenues amongst safety-net hospitals whereas rising revenues amongst for-profit hospitals, amongst different variations. For 340B hospitals, complete Medicare revenues will lower or improve relying on how reliant they’re on revenues from 340B medication versus non-drug outpatient providers, however non-340B hospitals would expertise income will increase solely based mostly on the upper fee price for non-drug outpatient providers. CMS’s rule to scale back reimbursement for 340B medication will exempt rural sole neighborhood hospitals (SCHs) (rural hospitals which are the one supply of short-term, acute inpatient care in a area), youngsters’s hospitals, and PPS-exempt most cancers hospitals. Modifications won’t have an effect on hospitals that aren’t reimbursed underneath the OPPS, together with essential entry hospitals (CAHs), which make up the vast majority of rural hospitals.

Within the combination, some sorts of hospitals will lose or profit extra from these adjustments than others, based mostly on estimates from CMS (Determine 1):

• Security-net hospitals will face a 5.2% internet discount of OPPS income underneath this proposal (see determine notes for definition of “safety-net hospitals”). Different sorts of hospitals will even see internet reductions in OPPS income within the combination, together with massive city hospitals (with 500 beds or extra) (-4.8%), main educating hospitals (-3.9%), authorities hospitals (-2.9%), and nonprofit hospitals (-0.4%). Some hospitals that can see the biggest lower in income doubtless fall into multiple of those classes (e.g., main educating hospitals are usually massive city hospitals).
• For-profit hospitals will see a 6.8% internet improve in OPPS revenues. For-profit hospitals will not be eligible for the 340B program and so will solely see will increase in reimbursement for non-drug outpatient providers. Different sorts of hospitals will even face internet will increase in Medicare OPPS reimbursement in combination, together with rural SCHs (5.3%), small city hospitals (with 0 to 99 beds) (4.5%), and non-teaching hospitals (3.5%). 

Reductions in 340B funds may add to the monetary challenges dealing with safety-net hospitals whereas rising margins of for-profit hospitals. Security-net hospitals have lower working margins than common and so may have an particularly tough time absorbing any income losses from the 340B fee minimize, whereas for-profit hospitals have a lot higher working margins than the common hospital. Moreover, safety-net hospitals, that are notably depending on Medicaid revenues, are prone to be disproportionately affected by the 2025 reconciliation law, as IT achieves most of its Health Care financial savings by way of federal Medicaid spending reductions.

The substantial growth of the 340B program in recent times has led hospitals, pharmaceutical firms, and policymakers to give attention to whether or not and learn how to change this system. On the federal stage, lawmakers have proposed options that may protect or slender the scope of this system and have proposed rising transparency across the program, corresponding to by requiring hospitals to report 340B savings. On the state stage, some states have handed legal guidelines that may protect the flexibility of hospitals to make use of a number of contract pharmacies to dispense 340B medication, amongst different issues. Different states have carried out necessities for hospitals to reveal the quantity of financial savings generated from the 340B program (as required by Minnesota) or how these financial savings are spent.

Some pharmaceutical firms have tried to start out offering 340B drug reductions by way of a rebate mannequin, an strategy that may require hospitals to buy 340B medication at a non-discounted value and obtain post-sale rebates after submitting claims Information. These efforts have been halted by the courts as a result of lack of authorization from HHS, the company that administers the 340B program. In 2025, the Trump administration tried to implement the 340B Rebate Mannequin Pilot Program, however a court docket halted the pilot after a lawsuit was filed by the hospital business. HHS introduced a revised rebate mannequin pilot in July 2026, which has additionally been challenged in court docket.

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