Medicare cuts 340B payments expands site-neutral rates

Medicare will cut billions in payments from a federal drug discount program and expand site-neutral payment policies starting in 2027, according to a final rule released by the Centers for Medicare and Medicaid Services on Wednesday. The changes will lower reimbursement rates for the 340B program and equalize payments for more medical services, regardless of where they are performed.

The 340B payments will be reduced by billions of dollars. Under the final rule, Medicare will reimburse 340B participants at the drug’s average sales price, minus 28%. This change is less severe than a rate proposed earlier this year but will still slash billions in funding. Regulators estimate the policy will reduce drug spending by about $5.5 billion in 2027 alone. Medicare typically pays for outpatient drugs at a rate equal to the drug’s average sales price plus 6%, but when hospitals acquire drugs through 340B, they can receive Medicare reimbursements that exceed the cost to buy the drugs.

Hospital groups have strongly criticized the rule. The American Hospital Association argued the payment increase for outpatient services—set at 2.3%—is not enough to address financial challenges. Ashley Thompson, a senior vice president at the AHA, called the continued cuts to the 340B program a “continued assault” that will put further stress on hospitals.

Despite the opposition, CMS Administrator Dr. Mehmet Oz defended the changes. “By right-sizing payments and rooting out waste, today’s reforms will drive affordability in Medicare for current beneficiaries while ensuring it will still be there to serve their children and grandchildren,” Oz said in a statement.

The rule also broadens site-neutral payments, meaning Medicare will pay the same amount for certain medical procedures whether they are done in hospital-owned outpatient departments or freestanding physician offices. This includes imaging services without contrast, such as CT scans, MRIs, x-rays, and bone density scans. The CMS estimates this policy will save taxpayers and beneficiaries over $9 billion over a decade. Under current policy, hospital outpatient departments receive higher reimbursement for providing the same services compared to physician offices and ambulatory surgery centers.

These changes are part of a broader effort by the Trump administration to address what it calls excessive spending in the 340B program. The decades-old discount program was designed to help hospitals serving vulnerable patients afford drugs, but critics argue its spending has grown out of control. The administration has also proposed shifting to rebates instead of upfront discounts.

Additionally, Medicare will remove 637 services from the inpatient-only list for the second year in a row. The list, which includes endocrine, digestive, auditory, and respiratory procedures, is set to be phased out over three years as medical advances make it possible to perform these services in more convenient and cheaper outpatient settings.