Medicare finalizes 340B drug payment cut and site-neutral imaging rates

Overview

Updated 2 hours ago

Starting January 1, 2027, Medicare will pay hospitals 28% below the average sales price for drugs they buy through the 340B discount program. The final rule, issued November 4, replaces today's rate of average sales price plus 6%.

The cut has to be budget neutral, so Medicare raises payments for non-drug outpatient services by 7.5% to offset it. Safety-net hospitals come out about 5.2% behind on outpatient revenue. For-profit hospitals, which cannot use 340B, come out about 6.8% ahead.

Why it matters

It moves roughly $4.65 billion a year from hospitals that treat poor patients to hospitals that don't.

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Key Indicators

$4.65B

Medicare 340B drug spending cut in 2027

CMS estimate, as summarized by KFF; the same amount is added back to non-drug outpatient payments.

32%

Drop in 340B drug reimbursement

KFF's calculation of the move from average sales price plus 6% to minus 28%.

7.5%

Increase in non-drug outpatient payments

Down from the 8.44% CMS initially proposed, per ASHP's rule summary.

-5.2%

Net outpatient revenue change, safety-net hospitals

CMS estimate cited by KFF; for-profit hospitals gain 6.8%.

$9B

Ten-year savings from site-neutral imaging

CMS estimate for taxpayers and beneficiaries combined.

$1.1B

Beneficiary savings on 340B drug cost sharing

Offset by higher cost sharing on non-drug outpatient services.

-2.31%

Physician payment rate change in 2027

Finalized in the companion Physician Fee Schedule rule; 1.83% for qualifying alternative payment model participants.

Voices

Curated perspectives — historical figures and your fellow readers.

People Involved

Ashley Thompson

Senior vice president of public policy analysis and development, American Hospital Association

Opposing the rule publicly

Ted Okon

Executive director, Community Oncology Alliance

Supporting the 340B cut

Organizations Involved

Centers for Medicare & Medicaid Services

Federal agency

Issued the final rule

The agency inside the Department of Health and Human Services that sets Medicare payment rates.

American Hospital Association

Trade group

Opposing the rule

The largest lobbying group for U.S. hospitals, and the plaintiff in the 2022 case that overturned the first 340B cut.

Community Oncology Alliance

Advocacy group

Supporting the rule

Represents independent cancer clinics that argue hospital-owned practices are paid more for identical care.

Timeline

2026 January 2027

4 events Latest: 3 days ago

Tap a bar to jump to that date

January 2027
New 340B and imaging rates take effect
Upcoming Implementation

The drug cut applies to all 340B hospitals except rural sole community hospitals, children's hospitals and cancer hospitals.
January 1st, 2027
November 2026
Final rule sets 340B drug pay at average sales price minus 28%
Latest Rulemaking

CMS also raises non-drug outpatient payments 7.5% and equalizes payments for imaging without contrast across hospital departments and physician offices.
3 days ago
2026
CMS surveys what hospitals actually pay for 340B drugs
Rulemaking

The acquisition cost survey was the procedural step the Supreme Court said was missing in 2022.
2026
CMS proposes paying average sales price minus 33.4%
Rulemaking

The proposed cut was deeper than the version the agency finalized in November.
2026

Scenarios

Court blocks the 340B cut before January

Possible Resolves by Jan 31, 2027

Discussed by: ASHP and hospital groups, which flagged problems with CMS's acquisition cost survey data and said those issues could support a lawsuit

Hospital plaintiffs ask a federal court for an injunction, arguing CMS again relied on flawed data to set the rate. The 2022 Supreme Court ruling gives them a template: it struck down the first cut because the agency skipped a required survey. This time CMS ran a survey, so challengers would have to attack the survey itself rather than its absence.

The cut takes effect and safety-net hospitals absorb it

Likely Resolves by Q2 2027

Discussed by: KFF, which estimated safety-net hospitals face a 5.2% net outpatient revenue reduction and have thinner margins than average

CMS pays 340B claims at average sales price minus 28% from January and redistributes the savings through the 7.5% non-drug increase. Hospitals heavy on 340B drug revenue lose; hospitals without 340B, especially for-profit chains, gain. Some safety-net systems cut outpatient services or shift infusion clinics.

Congress rewrites the 340B payment formula

Unlikely Resolves by End of 2027

Discussed by: Hospital lobbyists, who have historically sought a legislative fix when CMS rules go against them

Lawmakers attach language to a must-pass spending bill that sets a different 340B reimbursement rate or requires a new study before further cuts. The Trump administration has separately floated replacing 340B upfront discounts with rebates, which would require its own rulemaking.

Historical Context

2 moments from history that rhyme with this story — and how they unfolded.

2018-2022

The first 340B cut and the Supreme Court (2018-2022)

The first Trump administration cut Medicare payments for 340B drugs in 2018, arguing hospitals were profiting on drugs bought at steep discounts. Hospitals sued. In 2022 the Supreme Court ruled against CMS because the agency had not surveyed hospitals' acquisition costs before setting the lower rate.

Then

CMS restored the payments and had to make hospitals whole for prior years.

Now

The decision established that CMS can cut 340B payments, but only after documenting what hospitals actually pay. Every subsequent attempt has been built around that requirement.

Why this matters now

The 2027 rule is the first cut designed to survive the same legal challenge, because CMS ran an acquisition cost survey in early 2026 before setting the rate.

2019

Site-neutral payments for clinic visits (2019)

CMS began paying the same rate for basic clinic visits whether they happened in a hospital-owned outpatient department or a freestanding physician office. Hospital departments had been paid more for the same service. CMS later extended the approach to drug administration services.

Then

Hospital groups challenged the policy; independent physician groups supported it.

Now

The principle survived and became the template for extending site-neutral rates to more service lines.

Why this matters now

The 2027 rule applies the same logic to imaging without contrast: CT scans, MRIs, x-rays and bone density scans paid at one rate regardless of site.