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

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

Rule Changes

The 2027 rule pays 340B hospitals 28% below average sales price for drugs, exempts rural and children's hospitals, and hands the savings back as a 7.5% raise on everything else

7 days ago: Final rule sets 340B drug pay at average sales price minus 28%

Overview

Updated 4 days 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% and exempts rural sole community hospitals, children's hospitals and cancer hospitals.

The cut has to be budget neutral, so Medicare raises payments for non-drug outpatient services by 7.5%. Safety-net hospitals still come out about 5.2% behind on outpatient revenue; for-profit hospitals gain about 6.8%. CMS also speeds up recovery of about $7.8 billion in past 340B overpayments, raising the yearly conversion-factor cut from 0.5% to 2%.

Why it matters

It shifts about $5.45 billion in drug spending from hospitals that serve poor patients toward hospitals that treat fewer of them.

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Key Indicators

$5.45B
Total drug spending reduction in 2027
CMS estimate for the 340B payment change, including about $1.1 billion in beneficiary cost sharing.
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, 2027 through 2036.
$1.1B
Beneficiary savings on 340B drug cost sharing
Offset by higher cost sharing on non-drug outpatient services.
$7.8B
Past 340B overpayments CMS is recouping
CMS raises the annual conversion-factor reduction from 0.5% to 2% starting in 2027 to recover it.
-2.31%
Physician payment rate change in 2027
Finalized in the companion Physician Fee Schedule rule; 1.83% for qualifying alternative payment model participants.

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People Involved

Ashley Thompson
Ashley Thompson
Senior vice president of public policy analysis and development, American Hospital Association
Opposing the rule publicly
TO
Ted Okon
Executive director, Community Oncology Alliance
Supporting the 340B cut

Organizations Involved

Centers for Medicare & Medicaid Services
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
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
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: 7 days ago
Tap a bar to jump to that date

  1. 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.

  2. Final rule sets 340B drug pay at average sales price minus 28%

    Latest Rulemaking

    CMS raises non-drug outpatient payments 7.5% to keep the change budget neutral and equalizes payments for imaging without contrast. Rural sole community hospitals, children's hospitals and cancer hospitals are exempt, and CMS raises the yearly conversion-factor cut from 0.5% to 2% to recoup about $7.8 billion in past overpayments.

  3. 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.

  4. CMS proposes paying average sales price minus 33.4%

    Rulemaking

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

Scenarios

1

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.

2

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.

3

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. HHS has already moved on a separate track: a revised 340B rebate pilot takes effect January 1, 2027, covering drugs in the first two rounds of Medicare price negotiation.

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.

Sources

(9)
+3
Healthcare Dive KFF ASHP Targeted Oncology AJMC KFF Health News CMS AHA News Healthcare Finance News