On July 2, 2026, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule intending to substantially reduce Medicare Part B payment rates for drugs acquired through the federal 340B Drug Pricing Program. Specifically, CMS proposes that beginning January 1, 2027, 340B Program drugs be reimbursed by Medicare Part B at the Average Sales Price (ASP) minus 33.4%. This reduced reimbursement figure amounts to a 39.4% reduction in total reimbursement Medicare currently pays for such drugs. If finalized, the proposed rule will be one of the most consequential federal 340B reimbursement policy changes in recent years and could significantly affect Medicare revenue for hospitals participating in the 340B Program.
Background and Effect
The 340B Drug Pricing Program allows eligible safety-net hospitals and other covered entities to purchase outpatient drugs at discounted prices. Historically, Medicare has reimbursed providers for 340B drugs at a rate equal to ASP plus 6%. However, from 2018 to 2022, CMS implemented a reduction in 340B drug reimbursement, paying for 340B drugs at a reduced rate of ASP minus 22.5%. Following litigation, which culminated in a decision by the U.S. Supreme Court that CMS’s reduction exceeded its statutory authority, CMS’s 340B reduction policy was rescinded. CMS then implemented a lump sum payment remedy to make impacted hospitals whole while also imposing prospective budget-neutrality adjustments on non-drug OPPS payments which remain in effect today. Nearly all 340B program-participating hospitals experienced substantial financial losses as a result of CMS’s conduct in addition to the ever-increasing reductions hospitals see from insurers.
Despite this checkered history, and high-profile litigation, CMS is not only doubling down on its prior 340B cuts but actively working to increase them. In practice, CMS’s proposed rule will seize non-profit hospitals’ 340B program discounts to the benefit of the federal government and then distribute those savings in the form of increased non-drug payments. CMS estimates that the proposed reduction in 340B drug reimbursement will produce approximately $4.85 billion in reduced OPPS drug spending while also requiring an 8.44% increase in non-drug OPPS payment rates. Importantly, these increased non-drug payments will be made indiscriminately across Medicare, allowing for profit and private equity backed providers that are currently ineligible to participate in the 340B program to realize benefits from such seized savings.
Interaction with Existing 340B Remedy Offset
The proposed rule also addresses the ongoing budget-neutrality adjustment associated with CMS’s remedy for its unlawful 2018–2022 340B payment cuts. Under current policy, certain hospitals remain subject to annual reductions intended to offset prior increases in non-drug OPPS payments. For calendar year 2027, CMS proposes to increase that annual reduction from 0.5% to 3% for hospitals subject to the remedy offset. CMS states that the current offset mechanism was adopted to recoup approximately $7.8 billion in increased non-drug payments that resulted from implementation of the prior 340B payment policy and subsequent remedy. This increased adjustment will again directly impact hospital’s bottom lines. CMS estimates that the remedy offset alone will reduce payments to affected providers by approximately $2.3 billion in calendar year 2027. In effect, CMS’s proposed rule amounts to a substantial reduction in reimbursement for non-profit hospitals who heavily rely on the 340B drug program to remain financially viable.
Next Steps
CMS’s proposed rule is scheduled for full publication in the Federal Register on July 7, 2026. Comments from stakeholders are due by August 31, 2026. Hospitals, health systems, 340B covered entities and other industry participants should consider evaluating the proposed rule’s financial impact and submitting comments addressing the survey methodology, budget-neutrality adjustments and operational consequences of the proposed reimbursement reduction. Should you or your organization need any additional information on this important issue, please contact your Dinsmore attorney.