Medicare's 2027 Rate Hike Masks a Near 40% Drug Payment Cut for Hospitals

The Centers for Medicare & Medicaid Services (CMS) has proposed a net 2.4% increase for hospital outpatient prospective payment system (OPPS) rates in 2027

"In accordance with Medicare law, CMS proposes updating OPPS payment rates for hospitals that meet applicable quality reporting requirements by 2.4%."

. This increase is comprised of a 3.2% market basket update, offset by a 0.8 percentage point cut for productivity. However, the same proposed rule includes a drastic reduction in payments for drugs acquired through the 340B Drug Pricing Program, estimating a cut of nearly 40%

"CMS ran a hospital acquisition-cost survey earlier this year and used it to justify cutting Medicare Part B payment for 340B-acquired drugs from ASP plus 6% to ASP minus 33.4%. That is a cut of nearly 40%."

. This move is projected to save Medicare $4.85 billion in calendar year 2027

"Taking the survey's results into account to more accurately align Medicare payments with hospital drug acquisition costs, we are proposing for CY 2027 to pay for 340B acquired drugs at the drug's Average Sales Price (ASP) minus 33.4%."

. The proposed rule, issued July 2, 2026, impacts hospitals participating in the 340B program, which allows them to purchase outpatient drugs at a significant discount, and could indirectly affect the beneficiaries they serve.

The proposed 2.4% net increase for hospital outpatient services in 2027 aims to keep pace with inflation and rising costs. This figure, detailed by CMS, is based on an estimated 3.2% market basket update, a standard measure of inflation for healthcare services, which is then adjusted downward by 0.8% for projected productivity gains

"In accordance with Medicare law, CMS proposes updating OPPS payment rates for hospitals that meet applicable quality reporting requirements by 2.4%."

. While this might seem like a positive step, it's essential to view it in context. For years, Medicare Advantage rates have seen substantial increases, with projections for 2027 indicating a net average of 2.48% [c1, c4], a figure that has already sent stocks of major health insurers soaring [c2, c3]. The outpatient rate, while a crucial component of hospital revenue, doesn't tell the whole story of the financial pressures facing these institutions.

The real story in the July 2, 2026, proposed rule lies in the drastic reduction to payments for drugs acquired under the 340B program. CMS is proposing to pay for these discounted drugs at Average Sales Price (ASP) minus 33.4%, a sharp contrast to the current ASP plus 6%

"Taking the survey's results into account to more accurately align Medicare payments with hospital drug acquisition costs, we are proposing for CY 2027 to pay for 340B acquired drugs at the drug's Average Sales Price (ASP) minus 33.4%."

. This represents a cut of nearly 40%, estimated to reduce Medicare spending by $4.85 billion in 2027 alone

"CMS ran a hospital acquisition-cost survey earlier this year and used it to justify cutting Medicare Part B payment for 340B-acquired drugs from ASP plus 6% to ASP minus 33.4%. That is a cut of nearly 40%."

. The justification for this change stems from a recent hospital acquisition-cost survey conducted by CMS. The 340B program is vital for many hospitals, particularly those serving low-income and uninsured populations, as the savings generated help fund essential services and community health initiatives. This proposed cut could severely strain their ability to maintain these critical services.

The beneficiaries of this proposed rule are clearly the Medicare Trust Funds, which will see significant savings from the 340B drug payment reduction. The proposed rule also benefits health insurers who participate in Medicare Advantage, as evidenced by the positive market reaction to the overall Medicare payment updates [c2, c3, c4]. However, the primary payers of this policy shift are hospitals, especially those reliant on the 340B program. These institutions, often serving as safety nets for their communities, will face reduced resources. The long-term implication could be a diminished capacity to provide care to vulnerable populations, potentially leading to decreased access to services for beneficiaries in areas served by these hospitals.