Policy & oversight
CMS Proposes Cutting What Medicare Pays for Discounted Hospital Drugs by 37 Percent, With Safety-Net Hospitals Projected to Absorb the Biggest Losses
A proposed 2027 Medicare hospital outpatient rule would sharply lower reimbursement for drugs purchased through the 340B discount program, redirecting an estimated 4.85 billion dollars away from drug payments toward other outpatient services, with the impact falling unevenly across hospital types.
By the Goodsurance editorial teamAugust 25, 2026
Federal regulators have proposed a significant change to how Medicare pays hospitals for drugs purchased through the 340B discount program, which allows safety-net hospitals to buy certain outpatient medicines at reduced prices from manufacturers and use the savings to fund services for low-income patients.
Under current rules, Medicare reimburses 340B hospitals for those drugs at the average sales price plus 6 percent. The proposed Calendar Year 2027 Hospital Outpatient Prospective Payment System rule, published in the Federal Register on July 7, 2026, would change that rate to the average sales price minus 33.4 percent, a cut of roughly 37 percent.
CMS proposes a 37% cut to Medicare payments for hospital discount drugs, with hospitals serving the most vulnerable patients projected to lose the most.
CMS estimates the change would reduce Medicare spending on 340B drugs by about 4.85 billion dollars in 2027. Because the outpatient payment system is required to be budget neutral, the agency also proposed an 8.44 percent increase in reimbursement for all other non-drug outpatient hospital services to offset the reduction.
A KFF analysis of the proposal found the tradeoff would not fall evenly on all hospitals. Safety-net hospitals, often called disproportionate share hospitals, typically generate a significant share of their revenue from 340B drug sales and use those margins to sustain charity care and expanded services. Those institutions could see net revenue decline under the proposal. For-profit hospitals, which generally rely less on 340B drug revenue, would benefit from higher rates on other outpatient services.
The public comment period on the proposed rule was set to close in early September 2026. A final rule is expected in November, with changes taking effect January 1, 2027.
In plain words
A program called 340B lets hospitals that serve a lot of low-income patients buy drugs at a big discount. Medicare then pays those hospitals a set rate for those drugs. CMS, the agency that runs Medicare, proposed paying hospitals much less for these drugs starting in 2027, a cut of about 37 percent.
To make up for the cut, CMS would pay hospitals more for other types of outpatient care. But hospitals that serve a lot of Medicaid and uninsured patients depend heavily on the drug discount revenue. They could end up losing money overall. Hospitals that do not depend on those drug sales would come out ahead.
The public could comment on this plan until early September 2026. A final decision is expected in the fall.
Understand the basics first
Source: CMS
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