340B Drug Payment Cuts Headline CMS Proposal to Lower Medicare Costs

Medicare payments for drugs purchased under the 340B Drug Pricing Program would be realigned to reflect what hospitals actually pay to acquire them, reducing total drug spending by approximately $5.7 billion in 2027 alone, under a proposed rule announced July 2 by CMS.¹ The 340B change anchors a broader package of payment revisions for hospital outpatient departments (HOPDs) and ambulatory surgical centers (ASCs) beginning in calendar year (CY) 2027 that the agency frames as a push to lower costs for beneficiaries, protect taxpayer dollars, and steer Medicare toward high-value care.

"Medicare beneficiaries deserve a program that pays for the right care, in the right setting, at the right time," CMS Administrator Mehmet Oz, MD, said in a statement, adding that the rule targets patient affordability by strengthening utilization management, aligning drug payments with acquisition costs, and removing site-of-care payment disparities.¹

How the 340B Payment Change Would Work

According to CMS, a survey the agency conducted found that hospitals acquire 340B drugs at an average cost significantly below the average sales price (ASP), consistent with MedPAC and industry reports showing Medicare payments have substantially exceeded 340B acquisition costs. Based on those survey results, the agency is proposing to pay for 340B-acquired drugs at ASP minus 33.4% beginning in CY 2027, down from the current rate of ASP plus 6%.²

CMS estimates the change would save beneficiaries with original Medicare a collective $1.15 billion in drug costs and taxpayers an additional $4.55 billion in drug expenditures in the first year. Because statute requires budget neutrality, Hospital Outpatient Prospective Payment System (OPPS) payments for nondrug services would increase by an equivalent amount. The agency says the proposal ensures hospital drug discounts are passed directly to the Medicare beneficiaries who receive the drugs and to taxpayers.

The proposal lands amid long-running questions about whether 340B savings reach the patients the program was designed to help. The American Journal of Managed Care^® (AJMC^®) has also reported on equity concerns surrounding CMS' remedy for its prior, court-invalidated 340B payment cuts, with research finding that hospitals left out of remedy repayments were disproportionately rural, publicly owned, and nonacademic.³

Where Else CMS Aims to Cut Outpatient Costs

Beyond 340B, the rule proposes equalizing payment rates between physician offices and off-campus provider-based departments for certain imaging services, such as x-rays and MRIs. CMS notes that beneficiaries can currently face higher copays for the same imaging test solely because it is performed in a hospital setting. This differential, the agency says, can push services into higher-cost settings and encourage consolidation as hospitals acquire independent physician practices to raise their Medicare prices. The site-neutral imaging proposal is projected to reduce Medicare Part B expenditures by approximately $260 million in the first year, including roughly $190 million in program savings and $70 million in reduced beneficiary premiums, with beneficiary cost sharing estimated to fall by another $70 million.

The agency is also expanding utilization management in the HOPD setting to additional botulinum toxin injection services after claim volumes for the procedures surged 42.8% from 2017 to 2024 despite an overall decline in HOPD services, with no clear explanation. CMS projects more than $17 million in net annual savings from ensuring the medical necessity of those services.

What This Means for Managed Care Stakeholders

The rule additionally would continue phasing out the inpatient-only list and expand the ASC Covered Procedures List, giving physicians more flexibility to shift appropriate surgical cases to outpatient settings. CMS is also issuing a request for information on standardizing the machine-readable and consumer-facing price transparency files that hospitals have been required to post since 2021, citing stakeholder concerns that inconsistencies across hospitals limit the data's usefulness.

For payers, health systems, and policy researchers, the 340B provision is the item to watch: it represents a survey-based revival of the acquisition-cost payment approach and a multibillion-dollar redistribution within the OPPS. CMS will accept public comments for 60 days following the rule's publication in the Federal Register, with final policies expected to take effect January 1, 2027.

References

1. CMS acts to strengthen care quality, cut drug costs, and slash out-of-pocket expenses for Medicare beneficiaries. News release. CMS. July 2, 2026. Accessed July 6, 2026. https://www.cms.gov/newsroom/press-releases/cms-acts-strengthen-care-quality-cut-drug-costs-slash-out-pocket-expenses-medicare-beneficiaries
2. Calendar year 2027 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) proposed rule (CMS-1850-P). Fact sheet. CMS. July 2, 2026. Accessed July 6, 2026. https://www.cms.gov/newsroom/fact-sheets/calendar-year-2027-hospital-outpatient-prospective-payment-system-opps-ambulatory-surgical-center
3. McNulty R. CMS' 340B repayment proposal may harm vulnerable hospitals, reward those with higher revenues. AJMC. April 26, 2024. Accessed July 6, 2026. https://www.ajmc.com/view/cms-340b-repayment-proposal-may-harm-vulnerable-hospitals-reward-those-with-higher-revenues