KFF: Medicare's 340B Drug Payment Cut Reduces Revenue for Safety-Net Hospitals While Raising It for For-Profit Ones

The 2027 Medicare Hospital Outpatient Prospective Payment System final rule, taking effect January 1, 2027, includes a steep cut to what Medicare pays hospitals for drugs purchased through the 340B Drug Pricing Program. The reimbursement rate falls from average sales price plus 6 percent to average sales price minus 28 percent, a reduction of 32 percentage points. A KFF analysis published November 6 estimated that the change will reduce Medicare spending on 340B drugs by about 4.65 billion dollars in 2027.

Federal budget-neutrality rules require that those savings be offset by a 7.5 percent across-the-board increase in payments for other outpatient hospital services. But the tradeoff affects hospitals very differently depending on whether they participate in the 340B program. Safety-net hospitals, which qualify for 340B because they treat large shares of low-income and uninsured patients, absorb the full force of the drug payment cut while receiving only a partial benefit from the services increase. KFF calculated that they will face a net reduction of 5.2 percent in their total Medicare outpatient revenues. For-profit hospitals, which are generally ineligible for the 340B program, receive only the services-side increase and will see a net gain of 6.8 percent in their outpatient revenues.

The 340B program was created to help qualifying hospitals afford covered drugs for underserved patients. CMS has argued that prior 340B reimbursement rates were above market and that the outpatient services offset largely compensates hospitals. Hospital associations representing safety-net facilities have pushed back, saying the cut will reduce their capacity to fund services for vulnerable patients. The rule takes effect in less than two months.