Medicare Proposes Major Cuts to 340B Drug Payments for Hospitals

Medicare plans to reduce payments to hospitals for drugs bought through the 340B drug discount program by more than one-third starting in 2027, according to a proposal released July 2, 2026. The Centers for Medicare & Medicaid Services (CMS) based the decision on agency surveys indicating some patients paid more for these medications than the hospitals did, as reported by STAT.

Under the proposed rule for hospital outpatient payments, Medicare would pay hospitals for 340B drugs at their average sales price minus 33.4%. This marks a significant drop from the current payment structure, where hospitals receive that price plus 6%, according to STAT.

Why is Medicare cutting 340B drug payments?

CMS is targeting the 340B program because it believes the current payment model allows some facilities to profit excessively from discounted drugs. Agency surveys found instances where the cost to the patient exceeded the cost the hospital paid for the drug, STAT reported.

The 340B program is a federal initiative that allows certain health providers to purchase outpatient drugs at significantly reduced prices. While intended to help safety-net providers stretch scarce federal resources to reach more patients, critics argue the program has become a profit center for wealthy health systems, according to STAT.

How will the payment change affect different hospitals?

The proposal creates a divide between nonprofit and for-profit healthcare facilities. Only nonprofit facilities are eligible for the 340B program, meaning they are the only ones facing these specific cuts, according to STAT.

Conversely, the Medicare proposed rule includes a 7.4% pay increase for for-profit hospitals under the 340B adjustment, STAT reported.

Groups representing academic and nonprofit hospitals condemned the move quickly. These organizations claim the cuts will disproportionately harm safety-net providers that rely on 340B funding to maintain essential services for low-income populations, according to STAT.

What is the financial impact of the proposed rule?

The shift represents a swing of nearly 40 percentage points in how Medicare calculates reimbursement for these specific drugs. Hospitals would move from a premium (Price + 6%) to a steep discount (Price – 33.4%), according to STAT.

This adjustment is part of a broader, ongoing debate over the sustainability and intent of the 340B program. Safety-net providers view the discounts as a lifeline, while regulators and some policymakers view the current reimbursement levels as inflated, STAT reported.