Study Finds CMS’s Proposed 340B Correction Would Increase Hospital Payments

New findings from an analysis suggest that revising how Medicare reimburses hospitals for drugs acquired through the 340B Drug Pricing Program would increase overall Part B payments for most hospitals, with particularly large gains for rural, small, and sole community hospitals.^1,2

The analysis was conducted by Avalere Health and commissioned by the Community Oncology Alliance. The findings come as the Centers for Medicare & Medicaid Services (CMS) weighs a revision to how it pays hospitals for drugs purchased through the 340B program. Under the calendar year 2027 Outpatient Prospective Payment System (OPPS) proposed rule, CMS is evaluating a move away from paying average sales price (ASP) plus 6% for 340B-acquired drugs, toward a rate of ASP minus 33.4%.

“Calling this proposal a hospital cut gets the policy exactly backwards. It is a long-overdue correction of Medicare payments that substantially exceed what hospitals actually pay for 340B drugs,” Ted Okon, executive director of the Community Oncology Alliance, stated in a news release.¹ “The proposal would save seniors $1.15 billion in drug costs while increasing overall Medicare payments for the overwhelming majority of hospitals—particularly smaller, rural, and sole community hospitals.”

Because federal budget rules require the change to be implemented without a net increase in Medicare spending, any savings realized on drug payments would be redirected elsewhere in the outpatient payment system, specifically toward non-drug service reimbursement across all hospitals, not just those in the 340B program.

Policy Background

As part of the 340B program, enrolled hospitals are allowed to buy outpatient drugs at steep discounts, at or below a federally set ceiling price, and some negotiate additional discounts beyond that ceiling. CMS previously tried to account for this by cutting Part B reimbursement to ASP minus 22.5% between 2018 and 2022.

However, in 2022, the Supreme Court found that the agency lacked authority to vary payments across hospital groups without first surveying actual acquisition costs. Since then, the CMS’s recent acquisition-cost survey put the true average cost of 340B drugs at ASP minus 33.4%, a figure now built into the proposed rule.

Key Findings: Rural and Small Hospitals Stand to Gain Most

Analysis of a full year of Medicare fee-for-service claims demonstrated that moving to the survey-based reimbursement rate would have reduced Medicare drug spending by about $5.1 billion in 2025—money that could instead flow into higher payments for non-drug outpatient services. Patients would also benefit: CMS projects the correction would cut beneficiary drug cost-sharing by $1.15 billion in 2027, on top of an estimated $4.55 billion reduction in total Medicare drug spending.

When that redistribution was modeled across the hospital landscape, roughly 78% of all OPPS hospitals would see a net payment increase, including 69% of rural hospitals, 87% of urban hospitals, and 82% of rural referral centers. Rural facilities gained an average of 3.4%, while urban facilities gained closer to 7%. Even among hospitals actively participating in 340B, just over half (54%) would see a net increase, with the average effect across all 340B hospitals landing at roughly a 0.5% gain.

Hospital size mattered more than 340B status alone. Smaller hospitals, those with fewer than 100 beds, stood to gain the most, averaging about a 7% payment increase; midsize hospitals with 100 to 500 beds averaged close to a 5% gain; but hospitals with more than 500 beds faced an average decline of roughly 1.4%. Sole community hospitals posted the single largest average gain, near 8%, while rural referral centers averaged about a 5% increase.

Data Source

The analysis draws on complete calendar year 2025 Medicare Part B fee-for-service claims data accessed through the CMS Virtual Research Data Center, with 340B-acquired drug payments identified and recalculated under the proposed acquisition-cost-based rate. Hospital 340B participation status was confirmed against the Health Resources and Services Administration's Office of Pharmacy Affairs Information System.

Implications for the Oncology Landscape

The proposal addresses the reimbursement advantage that has applied specifically to hospitals under 340B. Narrowing the current overpayment gap could change the relative economics of administering the same drugs in different sites of care, potentially reducing the financial disparity between hospital outpatient and independent community practice settings.

If finalized, the correction may ultimately reduce the financial incentive for practice consolidation, a trend observed across community cancer care in recent years. The rule remains open for public comment, and its final provisions may still change before implementation.

REFERENCES

1. Correcting 340B Hospital Overpayments Would Increase Payments for Most Hospitals. News release. Community Oncology Alliance. August 12, 2026. Accessed August 20, 2026. https://tinyurl.com/2edyh3wj

2. 340B Payment Proposal Would Increase Payment to Most Hospitals. Avalere Health. August 11, 2026. Accessed August 20, 2026. https://tinyurl.com/2t9fkzjy