The Centers for Medicare & Medicaid Services finalized a rule cutting Medicare reimbursement for 340B drugs to average sales price minus 28%, reducing safety-net hospital revenues while increasing for-profit hospital margins, kff.org reported.
The policy overhaul targets the federal 340B Drug Pricing Program, which requires participating pharmaceutical manufacturers to sell outpatient drugs at steep discounts to nonprofit and government providers caring for underserved populations. By slashing reimbursement from the previous rate of average sales price plus six percent down to average sales price minus 28 percent, the final rule implements a 32 percent payment reduction for these specific medications.
Federal regulators estimate the adjustment will trim Medicare spending on 340B drugs by $4.65 billion. Because federal law mandates budget neutrality within the Hospital Outpatient Prospective Payment System, the agency is pairing the drug cuts with an across-the-board 7.5 percent increase in payments for non-drug outpatient services.
Medicare Changes Payments for 340B Drugs and Outpatient Services
- Reimbursement Shift: Medicare is significantly reducing the payments it gives hospitals for discounted 340B drugs while boosting payments for standard outpatient clinic services.
- Patient Cost Sharing: Beneficiaries taking 340B drugs could see lower out-of-pocket costs, though patients utilizing general outpatient services may face higher coinsurance expenses due to the payment rate increase.
Financial Pressure on Safety-Net Facilities
The payment reduction takes effect on January 1, 2027, creating divergent financial outcomes across different classes of medical providers, according to kff.org. Safety-net hospitals face a projected 5.2 percent net reduction in outpatient prospective payment system revenue. Other institutions experiencing aggregate cuts include large urban hospitals with 500 or more beds at 4.8 percent, major teaching facilities at 3.9 percent, government-run hospitals at 2.9 percent, and nonprofit hospitals at 0.4 percent.
Conversely, for-profit hospitals will experience a 6.8 percent net revenue increase because they are ineligible for the 340B program and capture only the 7.5 percent bump for non-teaching and general outpatient services. Additional beneficiaries of the adjustment include rural sole community hospitals at 5.3 percent, small urban hospitals with fewer than 100 beds at 4.5 percent, and non-teaching hospitals at 3.5 percent, kff.org reported.
| Hospital Classification | Estimated Net Revenue Impact | Primary Driver |
|---|---|---|
| Safety-Net Hospitals | -5.2% | Reliance on 340B drug margin reimbursement |
| For-Profit Hospitals | +6.8% | Ineligible for 340B; benefits from non-drug payment bump |
| Major Teaching Hospitals | -3.9% | Exposure to both urban bed size and drug reimbursement cuts |
| Rural Sole Community Hospitals | +5.3% | Exemptions and non-drug outpatient adjustments |
Health Officials Complete Cost Survey to Comply with Judicial Standards
The finalized policy revives an earlier administrative effort first attempted in 2018 under the initial Trump administration. The Supreme Court ultimately overturned that 2018 iteration in 2022 because federal regulators had failed to conduct an empirical hospital acquisition cost survey beforehand, kff.org noted.
To comply with judicial standards prior to the current rulemaking, health officials completed a hospital acquisition cost survey in early 2026. The agency initially proposed setting the reimbursement rate even lower at average sales price minus 33.4 percent, but adjusted the final figure to the maximum allowed acquisition cost to simplify future calculations, according to kff.org.
Simultaneously, federal authorities have pursued alternative reform mechanisms, including a 340B rebate model pilot program. A prior iteration introduced in 2025 was halted in court following a lawsuit filed by the hospital industry, and a revised pilot announced in July 2026 faces ongoing legal challenges from healthcare providers.
Future Trajectory of the Pricing Program
Federal spending shifts will also influence patient cost-sharing calculations across the healthcare industry. Outpatient beneficiaries utilizing 340B-acquired medications are projected to save a combined $1.1 billion in 2027 due to lower baseline acquisition costs translating into reduced 20 percent coinsurance requirements, kff.org reported.
At the same time, beneficiaries utilizing general outpatient procedures will face increased cost-sharing obligations driven by the 7.5 percent payment increase.
References
- Centers for Medicare & Medicaid Services. Hospital Outpatient Prospective Payment System Final Rule. Federal Register.
- Medicare Payment Advisory Commission. Report to Congress: Medicare Payment and the Delivery System. MedPAC.
- Health Resources and Services Administration. 340B Drug Pricing Program Guidance. HRSA Office of Pharmacy Affairs.
