Hospitals Buy Drugs at a Discount. Medicare Pays Them Full Price Plus 6%.
A hospital buys a cancer drug at a steep discount. Medicare pays the hospital full price plus 6% anyway. And the senior getting the drug pays 20% coinsurance on the full price too.
That's how Medicare pays for drugs bought through the 340B program today. The federal government just proposed to stop it. Starting in 2027, CMS wants Medicare to pay for 340B drugs based on what hospitals actually pay for them, and the hospital lobby is fighting back hard.
What 340B is
Congress created the 340B program in 1992 to help safety-net hospitals that serve low-income patients. Drugmakers that want their products covered by Medicaid must sell outpatient drugs to qualifying hospitals and clinics at steep discounts.
The idea was simple. Hospitals would use the savings to stretch scarce resources and care for more people who can't pay. The law never said what hospitals had to do with the money, and it never said how much of the savings had to reach patients.
How the Medicare spread works
When a 340B hospital gives a discounted drug to a Medicare patient in an outpatient setting, Medicare doesn't pay the discounted price. It pays the drug's average sales price plus 6%. The hospital keeps the difference between what it paid and what Medicare paid.
The senior's 20% coinsurance is also calculated on that higher number, not on what the hospital actually spent.
HHS offers an example. Take a drug with a $1,000 average sales price. Today, Medicare pays $1,060 and the patient's 20% share is $212. Under the proposal, the payment would drop to $666, and the patient's share would fall to about $133.
How big 340B got
The program has grown far beyond what anyone imagined in 1992. Drug Channels Institute estimates 340B purchases hit $100 billion in 2025, up 23% from the year before.
Measure | Then | Now |
340B drug purchases | $12 billion (2015) | $81 billion (2024) |
Hospital off-campus clinic sites | about 7,000 (2013) | more than 34,000 (2023) |
Contract pharmacies | about 1,300 (2010) | more than 31,000 (mid-2026) |
According to HHS, 340B purchases now exceed net Medicare Part B and Medicaid drug spending combined. Most of the contract pharmacies are owned by the biggest chains.
The spread also changes behavior. HHS argues it rewards hospitals for using more and costlier drugs and makes it more valuable to buy up physician practices and infusion clinics. When the earlier 340B payment cut was reversed, Medicare payments for affected drugs jumped from $7.1 billion in 2021 to $10.7 billion in 2023.
What CMS is proposing
In its proposed 2027 hospital outpatient payment rule, released in July, CMS would pay for 340B-acquired drugs at average sales price minus 33.4%, down from plus 6%. The rate is based on a survey CMS ran from January through April 2026 asking hospitals what they actually pay for these drugs.
Hospitals still keep their 340B discounts. Medicare just stops paying them as if the discount didn't exist.
CMS estimates the change would cut Medicare drug payments by about $4.55 billion in the first year and lower seniors' coinsurance by about $1.15 billion. Because the law requires the outpatient payment system to stay budget neutral, CMS would raise Medicare payments for other outpatient services by the same amount.
CMS also wants to speed up recovering $7.8 billion in extra payments it made to hospitals for other services after the 2018 cuts were reversed. It would raise the annual offset from 0.5% to 3% starting in 2027 and expects to finish by 2029.
The hospital lobby fights back
Hospital groups are furious. The American Hospital Association's Ashley Thompson called the package a "continued assault on the 340B drug pricing program." America's Essential Hospitals' Jennifer DeCubellis said the rule "takes an axe to critical funding," called the drug payment cuts unlawful, and said the survey covered less than a quarter of 340B hospitals and clinics.
340B Health CEO Maureen Testoni warned the survey could mean hospitals lose "the entire benefit of 340B pricing" on drugs given to Medicare patients.
That quote says a lot. If paying hospitals based on what they actually spend wipes out the benefit, the benefit was coming from Medicare paying full price for discounted drugs.
This has been tried before
CMS cut 340B drug payments once already, in 2018, to average sales price minus 22.5%. In 2022, the Supreme Court unanimously ruled that HHS couldn't set a different rate for 340B hospitals without first doing the acquisition cost survey the law requires.
According to HHS, the Court didn't find that hospitals were entitled to the markup, only that CMS had skipped a required step. This time, CMS did the survey first.
Charge what it costs
The principle here is simple. If you buy something at a discount, you shouldn't bill the patient as if you paid full price.
That's how we price every prescription at Forest Park Pharmacy. You pay the cost of the drug plus a flat fee, and you see the price before you pay. There's no spread, no markup hidden inside a percentage, and no coinsurance on a number nobody actually paid.
Head to forestparkpharmacy.com, check the price checker, and transfer today to save.
See ya.
