In January 2026, Applied Policy reported that the Centers for Medicare & Medicaid Services (CMS) planned to conduct an Outpatient Prospective Payment System (OPPS) Drug Acquisition Cost Survey to inform CY 2027 OPPS/Ambulatory Surgical Center (ASC) payment policy. At the time, many stakeholders viewed the survey as laying the groundwork for a new methodology to reduce reimbursement for drugs purchased through the 340B Drug Pricing Program after court decisions invalidated CMS’s previous reimbursement cuts.
CMS’s CY 2027 OPPS/ASC Proposed Rule, released on July 2, 2026, includes two significant proposals affecting the 340B Program: (1) reducing OPPS reimbursement for 340B-acquired drugs from Average Sales Price (ASP) plus 6 percent to ASP minus 33.4 percent, and (2) increasing the annual OPPS conversion factor reduction from 0.5 percent to 3 percent to accelerate recoupment of 340B remedy payments.
Taken together, these proposals could have significant financial implications for many 340B hospitals because they would reduce reimbursement for 340B-acquired drugs while increasing near-term offsets to OPPS payments. CMS argues that the changes would better align reimbursement with hospitals’ reported acquisition costs. Hospital stakeholders contend that they would significantly reduce the resources available to support safety-net services. The proposals also arrive amid growing congressional and administrative interest in broader 340B reform, placing them within a larger discussion about the program’s future direction.
Reduced Payments Proposed for 340B-Acquired Drugs
CMS has proposed a substantial reduction in Medicare outpatient reimbursement for drugs acquired through the 340B Drug Pricing Program. Beginning January 1, 2027, most 340B-acquired drugs would be reimbursed at ASP minus 33.4 percent, replacing the current payment methodology of ASP plus 6 percent.[1] Payment for non-340B drugs would remain at ASP plus 6 percent. Vaccines, drugs with transitional pass-through payment status, and qualifying non-opioid pain management drugs, as defined under section 1833(t)(16)(G) of the Social Security Act, would be exempt.
The proposal stems from the agency’s OPPS Drug Acquisition Cost Survey, finalized in the CY 2026 OPPS/ASC Final Rule pursuant to section 1833(t)(14)(D)(ii) of the Social Security Act. CMS surveyed OPPS hospitals with qualifying claims and collected National Drug Code (NDC)-level acquisition cost data for separately payable outpatient drugs purchased between July 1, 2024, and June 30, 2025.
Based on usable responses from approximately 41 percent of eligible hospitals, CMS found that non-340B drugs were acquired at prices averaging 2.7 percent above ASP, while 340B-acquired drugs were purchased at prices averaging 33.4 percent below ASP. CMS concluded that the survey findings support reimbursing 340B-acquired drugs at a rate that more closely reflects hospitals’ reported acquisition costs.
CMS estimates the proposal would reduce Medicare spending on 340B-acquired drugs by approximately $4.85 billion in CY 2027. Under OPPS budget-neutrality requirements, those funds would be redistributed through an 8.44 percent increase in payments for non-drug outpatient services.
Increased Offset to OPPS Conversion Factor Proposed to Accelerate Recovery of 340B Remedy Payments
The Remedy for the 340B-Acquired Drug Payment Policy for CYs 2018–2022 Final Rule[2] implemented an annual 0.5 percent reduction to the OPPS conversion factor used to calculate payments for non-drug items and services. The reduction, which began in CY 2026, applies to hospitals enrolled in Medicare on or before January 1, 2018.
The rule was issued in response to the Supreme Court’s decision in American Hospital Association v. Becerra,[3] which invalidated CMS’s CY 2018 OPPS/ASC payment reduction for 340B-acquired drugs from ASP plus 6 percent to ASP minus 22.5 percent.[4] To maintain budget neutrality, CMS adopted the conversion factor reduction to recoup remedy payments made to affected hospitals and initially estimated full recovery by CY 2041.
CMS has since sought to accelerate that recovery timeline. Although the agency proposed increasing the annual adjustment from 0.5 percent to 2 percent during the CY 2026 rulemaking cycle,[5] it ultimately declined to finalize the proposal and indicated it would revisit the issue in CY 2027.[6]
CMS now proposes increasing the annual conversion factor reduction from 0.5 percent to 3 percent beginning in CY 2027. The agency estimates that this approach would allow recovery of approximately $7.8 billion in remedy payments by the end of CY 2029. While CMS argues that accelerating recovery would provide greater long-term payment stability, affected hospitals would experience larger near-term reductions in OPPS reimbursement.
Stakeholder Reactions and Key Concerns
Hospital stakeholders have strongly opposed both proposals.
In a statement issued following the release of the proposed rule, the American Hospital Association (AHA) described the proposed 33.4 percent reduction as a “shocking” cut and expressed concern that the policy would reduce resources available to hospitals already facing rising costs, workforce shortages, and increasing levels of uncompensated care. The AHA also criticized CMS’s proposal to accelerate recoupment of remedy payments, arguing that hospitals would effectively bear the consequences of a payment policy that the Supreme Court previously determined was unlawful.
Similarly, 340B Health argued that the proposal could jeopardize services supported by 340B savings, including cancer treatment programs, behavioral health services, specialty clinics, and other services that often operate at a loss. The organization contends that reducing reimbursement for 340B-acquired drugs would decrease resources intended to support providers serving large numbers of Medicaid beneficiaries and uninsured patients.
The agency’s proposals may also renew questions about the legal limits of CMS’s authority to establish differential reimbursement rates for 340B-acquired drugs. However, unlike the payment reductions invalidated by the Supreme Court in American Hospital Association v. Becerra, CMS now relies on acquisition-cost survey data collected pursuant to statutory authority. As a result, any future challenge would likely focus on the agency’s survey methodology, interpretation of the data, or the implementation of the payment adjustment rather than the absence of survey data itself.
Although it remains unclear whether stakeholders will ultimately pursue litigation, the proposal’s financial significance makes legal scrutiny likely if the policy is finalized.
Potential Market and Operational Impacts
If finalized, the proposed reimbursement reduction could have effects extending beyond Medicare drug payment policy. By substantially narrowing the gap between hospitals’ acquisition costs and Medicare reimbursement, the policy would reduce a key source of 340B-related savings associated with Medicare outpatient drugs.
For hospitals with significant oncology, infusion, specialty pharmacy, and other high-cost outpatient drug programs, the change could alter service-line economics and prompt renewed evaluation of drug utilization, purchasing decisions, outpatient pharmacy operations, and site-of-care strategies. Providers may place greater emphasis on net acquisition costs when evaluating therapeutically comparable treatment options.
The change also could affect manufacturer contracting and market access dynamics. If providers experience lower reimbursement and reduced margins on certain therapies, the relative value of manufacturer rebates, discounts, and other financial arrangements could change. At the same time, CMS proposes to exempt pass-through drugs and certain other products from the 340B reimbursement reduction, which could increase the relative financial value of those therapies compared with 340B-acquired drugs reimbursed at ASP minus 33.4 percent. Together, these changes may influence manufacturer pricing, contracting, and product launch strategies.
The reimbursement reduction and accelerated recoupment proposal affect different components of hospital revenue. While the ASP minus 33.4 percent policy directly targets reimbursement for 340B-acquired drugs, the proposed increase in the OPPS conversion factor reduction would affect a much broader range of outpatient services. As a result, many hospitals may view the policies as cumulative reductions to outpatient reimbursement rather than isolated payment changes. Hospitals with significant Medicare outpatient drug volume may feel the greatest direct impact from the reimbursement reduction, while hospitals with substantial OPPS service volume could face additional pressure from the accelerated recovery of remedy payments. In practice, some providers may experience a double hit from both lower drug reimbursement and larger offsets applied to non-drug outpatient services.
The financial effects are also unlikely to be uniform across provider types. According to analysis by KFF using CMS estimates, safety-net hospitals would experience the largest aggregate reductions in OPPS revenue, with Medicare outpatient revenue declining by an estimated 5.8 percent. Major teaching hospitals, large urban hospitals, government hospitals, and nonprofit hospitals also would experience net reductions in OPPS revenue. By contrast, for-profit hospitals, which are not eligible to participate in the 340B Program, would see an estimated 7.4 percent increase in OPPS revenue, benefiting from higher payments for non-drug outpatient services without being subject to reduced 340B drug reimbursement rates. KFF also found that rural sole community hospitals, which CMS proposes to exempt from the drug payment reduction, would experience net increases in OPPS revenue.
Beyond the immediate financial effects, the rule may further intensify longstanding concerns about the purpose of the 340B Program. Supporters argue that the difference between acquisition cost and reimbursement helps fund uncompensated care, behavioral health services, specialty clinics, and other safety-net activities. Critics, including many pharmaceutical manufacturers, have long maintained that Medicare reimbursement should more closely reflect acquisition costs and that the financial benefits generated by reimbursement differentials are not always clearly tied to patient benefit. From that perspective, the proposal is consistent with CMS’s broader objective of aligning Medicare reimbursement more closely with hospitals’ reported acquisition costs.
A shift toward acquisition-cost-based reimbursement may also redirect attention to other aspects of the program, including contract pharmacy arrangements, patient-affordability programs, manufacturer restrictions, rebate-model proposals, and the extent to which 340B savings are used to support patient care and safety-net services. As a result, future conversations may focus not only on reimbursement policy but also on transparency, accountability, patient benefit, and how the value generated by the 340B Program should be measured and demonstrated.
Broader Legislative Activity Could Shape the Future of the 340B Program
The CY 2027 OPPS/ASC Proposed Rule arrives amid growing congressional interest in broader 340B reform. In June and July 2026, lawmakers released two bipartisan proposals that could reshape several key aspects of the program, including patient eligibility, transparency, accountability, contract pharmacy arrangements, and rebate-based purchasing models. Although the proposals take different approaches, both would establish a statutory definition of an eligible 340B patient, expand reporting requirements, and increase oversight of covered entities, contract pharmacies, and other program participants.
The House’s SECURE 340B Act would preserve the current upfront-discount model during a four-year transition period while establishing a national claims clearinghouse, expanding reporting requirements, and imposing patient-affordability obligations. By contrast, the Senate Health, Education, Labor, and Pensions Committee’s 340B Drug Pricing Integrity and Affordability for Patients Act, released as a discussion draft, would permit manufacturers to adopt rebate-based purchasing models, impose new limitations on contract pharmacy arrangements, and establish additional operational requirements.
The differing approaches to rebate models are particularly notable given recent administrative activity. Although HRSA’s original 340B Rebate Model Pilot Program was halted following litigation and ultimately withdrawn, on July 31, 2026, the agency announced a revised 340B Rebate Model Pilot Program that would allow participating manufacturers to effectuate 340B pricing through a rebate mechanism for certain drugs selected under the Medicare Drug Price Negotiation Program for initial price applicability years 2026 and 2027. The announcement reflects continued federal interest in whether rebate-based approaches can address concerns related to program integrity and oversight while maintaining access to 340B pricing for covered entities.
Although neither bill has been enacted, both reflect growing bipartisan interest in providing greater statutory clarity regarding patient eligibility, transparency, accountability, and program oversight. They also highlight ongoing disagreements over contract pharmacy arrangements, data-sharing requirements, and the role of rebate-based purchasing models in the program.
The proposed Medicare payment changes could further accelerate these discussions. If reimbursement for 340B-acquired drugs more closely mirrors acquisition cost, stakeholders may increasingly focus on other sources of program value, including contract pharmacy arrangements, patient-affordability requirements, manufacturer restrictions, rebate-model proposals, and the extent to which 340B savings are used to support safety-net services. As Congress considers reform, CMS’s reimbursement changes may further elevate questions about the program’s structure, oversight, and future role in supporting safety-net providers.
Looking Ahead
The CY 2027 OPPS/ASC Proposed Rule reflects the increasingly complex policy environment surrounding the 340B Program. Beyond the immediate payment implications, the proposal raises broader questions about the relationship between acquisition cost and reimbursement, the role of 340B savings in supporting safety-net providers, and how the program’s benefits should be measured and demonstrated.
As stakeholders prepare comments and policymakers continue to debate the program’s future, the outcome of this rulemaking may influence discussions far beyond Medicare payment policy. Together with ongoing legislative activity and continued interest in rebate-based purchasing models, the proposed changes suggest that the 340B Program is entering a period of significant policy and operational transition.
[1] The proposed reduction would apply to most 340B hospitals but would not apply to children’s hospitals, PPS-exempt cancer hospitals, or rural sole community hospitals.
[2] 88 FR 77150
[3] 142 S. Ct. 1896 (2022)
[4] 82 FR 59369 through 59370
[5] 90 FR 33634
[6] 90 FR 53714
