CMS Finalizes 32% Cut to Medicare's 340B Drug Payments Starting January 2027

The Centers for Medicare & Medicaid Services (CMS) has finalized its 2027 Hospital Outpatient Prospective Payment System (OPPS) rule, which cuts how much Medicare reimburses hospitals for drugs obtained through the 340B Drug Pricing Program. The 340B program requires drug manufacturers that participate in Medicaid to sell outpatient drugs at a discount to certain nonprofit and government hospitals and clinics that serve low-income patients. According to a November 6, 2026 analysis from KFF, a nonpartisan health policy research organization, the final rule lowers Medicare's payment rate for 340B drugs from average sales price (ASP) plus 6% to ASP minus 28%, a 32% reduction. The change takes effect January 1, 2027.

Because federal law requires CMS to keep total Medicare outpatient spending roughly flat (a rule known as budget neutrality), the agency paired the drug payment cut with a 7.5% across-the-board increase in payments for non-drug outpatient hospital services, per the KFF analysis. CMS estimates the drug payment reduction will cut Medicare spending on 340B drugs by about $4.65 billion in 2027, an amount the agency expects the service-payment increase to offset elsewhere in the system.

The effect is not evenly spread. KFF's analysis of CMS's own estimates finds that safety-net hospitals, those with the highest share of low-income patients, would see a net 5.2% drop in Medicare outpatient revenue in 2027. Large urban hospitals (500+ beds) would see a 4.8% decline, major teaching hospitals 3.9%, government hospitals 2.9%, and nonprofit hospitals 0.4%. For-profit hospitals, which are not eligible for 340B discounts, would see a 6.8% net revenue increase because they benefit only from the service-payment bump. Rural sole community hospitals (5.3%), small urban hospitals with fewer than 100 beds (4.5%), and non-teaching hospitals (3.5%) would also see gains. CMS's rule exempts rural sole community hospitals, children's hospitals, and cancer hospitals from the drug payment cut itself, and critical access hospitals, which make up most rural hospitals, are paid outside OPPS entirely and are unaffected by this rule.

This is not CMS's first attempt at this kind of cut. A similar reduction tried in 2018 under the first Trump administration was struck down by the Supreme Court in 2022 because the agency had not conducted a required cost survey first. For the 2027 rule, CMS set the final payment rate using what it describes as the maximum allowed acquisition costs under the 340B program, after also considering a separate cost acquisition survey that hospitals completed in early 2026. That survey had informed CMS's earlier proposed rate of ASP minus 33.4%, but the agency says it moved to the maximum-allowed-cost method in the final rule, in part to simplify future updates.

Read the full KFF analysis here: kff.org.

Key Takeaway

Starting January 1, 2027, Medicare beneficiaries who receive 340B-acquired drugs at an outpatient facility should see lower coinsurance on those drugs, since the 20% Part B coinsurance applies to a reduced payment amount. According to CMS's own estimate cited by KFF, this would save beneficiaries roughly $1.1 billion in total cost sharing in 2027. But beneficiaries who use other hospital outpatient services, such as imaging, infusion visits that aren't drug-related, or outpatient procedures, will likely face higher coinsurance because of the 7.5% payment increase CMS applied to those services to balance the budget.

Why the 340B Program Is Contested

The 340B program was designed to help hospitals and clinics that serve low-income and underserved patients stretch limited resources by letting them buy outpatient drugs at a steep discount and keep the difference between that discounted price and what insurers, including Medicare, reimburse them. Supporters argue that revenue supports care for vulnerable patients and helps fund hospital operations. Critics, as described in the KFF analysis, argue the program has grown substantially without being well targeted, that savings are not shared directly with patients, and that it has created an incentive for hospitals to acquire outpatient clinics and physician practices specifically to extend 340B discounts into those settings. CMS has stated that its 2027 payment change is meant to better align Medicare's reimbursement with what hospitals actually pay to acquire these drugs. Both the program's defenders and its critics have active positions in ongoing federal and state-level debates over 340B transparency and scope. Separately, some pharmaceutical companies have tried to shift how 340B discounts are delivered, moving to a rebate model where hospitals would pay full price upfront and get a rebate after submitting claims; according to KFF, those manufacturer efforts have been halted in court for lacking authorization from HHS, the agency that runs the 340B program. In a related but distinct action, the Trump administration's own 340B Rebate Model Pilot Program was halted by a court in 2025 after the hospital industry sued, and a revised version of that pilot, announced in July 2026, has also been challenged in court.

What This Means for Medicare Enrollees in 2027

This rule changes how Medicare pays hospitals, not what Medicare Advantage or Medicare Supplement plans cover, so it won't show up as a benefit change on a plan's summary of benefits. The practical effect for people enrolled in Original Medicare is in cost sharing at hospital outpatient departments: slightly lower coinsurance for drugs covered under 340B, offset by higher coinsurance for most other outpatient hospital services. People with Medicare Advantage plans that use cost sharing tied to Medicare's underlying payment rates could see similar shifts, though plan-specific cost sharing structures vary.

The bigger, slower-moving question for readers is access. KFF's analysis notes that safety-net hospitals already operate on thinner margins than for-profit hospitals, so a 5.2% reduction in Medicare outpatient revenue could add financial pressure at facilities that serve many low-income and rural patients, on top of strain these hospitals may already face from the 2025 federal reconciliation law's Medicaid spending reductions. If you or a family member relies on a safety-net hospital, a disproportionate share hospital, or a federally qualified health clinic for outpatient infusion, cancer, or specialty drug therapy, it's worth watching whether that facility makes any changes to services or appointment availability over the course of 2027.

During Medicare's Annual Enrollment Period and any time your health needs change, it's worth comparing how different Medicare Advantage and Medicare Supplement plans structure outpatient cost sharing, and checking whether your preferred hospital or clinic remains in-network. A licensed Medicare agent can walk through how a specific plan's cost sharing could be affected by payment changes like this one, and help you weigh options based on where you actually receive care.