What does a budget-neutral cut to 340B drug payments do to cancer care?

What happens to one dose

Take one dose of a cancer drug, and suppose the man­u­fac­turer nets $1,000 for it on average across its buyers. That average, called the drug’s average sales price, leaves out the 340B and certain federal sales that the law excludes.^1,3 The man­u­fac­turer reports it to Medicare each quarter. The $1,000 is an example, fol­lowed through the essay. When a hos­pital gives the dose in its out­pa­tient depart­ment, Medicare’s usual payment is the average sales price plus 6%, or $1,060.

Some hos­pi­tals buy the dose for far less than $1,000. Hospitals that serve many low-income patients can join the 340B program, named for its section of the Public Health Service Act. The program obliges man­u­fac­turers to sell them out­pa­tient drugs at a dis­count.² In 2026 Medicare pays such a hos­pital the same $1,060. From January 1, 2027, it will pay the average sales price minus 28%, or $720.¹

The payment falls by $340, which is 32.1% of what Medicare paid before. The fall exceeds 28% because the old payment sat 6% above the price and the new one sits 28% below it, and 34 points out of 106 is 32.1%.

For each drug the program sets a ceiling price, the most a man­u­fac­turer may charge a 340B hos­pital. Across drugs the ceiling runs 28% below the average sales price, so 28% is the smallest dis­count a hos­pital gets.¹ Many hos­pi­tals nego­tiate under the ceiling, and those CMS sur­veyed this year reported paying 33.4% below the average sales price.¹ CMS pro­posed a rate of 33.4% in July and final­ized 28%. It called the ceiling data objec­tive and con­ser­va­tive, and it cited commenters’ warn­ings that the deeper cut would limit patients’ access to the drugs.¹ At the pro­posed 33.4%, Medicare would also have paid $666 for the example dose. A hos­pital that bought it at the average ceiling, $720, would then have been paid less than it spent.

What the hospital keeps

A hos­pital watches the gap between what Medicare pays for a dose and what the dose cost. Call that gap the spread. Suppose the hos­pital bought the $1,000 dose for $666, the average price hos­pi­tals reported in CMS’s survey. It keeps $394 in 2026 and $54 in 2027. The payment falls by 32%, but the spread falls by 86%, because the cost does not move and the whole $340 comes out of the part the hos­pital kept. A hos­pital that pays the full ceiling price, $720, keeps nothing on the drug in 2027.

The spread is not the margin on the visit. Medicare also pays to admin­ister the drug, and the hos­pital pays for phar­macy prepa­ra­tion, nursing time, storage, waste and the care it gives without charge. A cancer service there­fore has two ques­tions to answer. Does the payment cover the medicine? Does all the revenue from the visit cover what the visit uses?

Where the money goes

Medicare pays hos­pi­tals for out­pa­tient care from one schedule of rates set in advance, the out­pa­tient prospec­tive payment system, or OPPS, which this essay calls the out­pa­tient system.⁴ The law requires CMS to keep total spending in the out­pa­tient system unchanged when it changes rel­a­tive pay­ments.² That require­ment is called budget neu­trality. The cut takes $4.65 billion out of drug pay­ments in 2027, counting the share that patients pay them­selves. So the same $4.65 billion goes back out as a 7.5% raise on non-drug ser­vices at every hos­pital the system pays.¹ CMS’s head­line figure of $5.45 billion counts more, and the Check accounts for the dif­fer­ence. For-profit hos­pi­tals cannot take part in 340B, so they collect the raise and pay none of the cut.⁵

What the cut spares

The cut reaches only drugs that Medicare pays for one by one. Medicare folds cheaper drugs, like most sup­plies, into the rate for the visit that uses them. Most drugs that cost more than $135 a day in 2027 get their own payment.^1,4 Only those drugs take the cut, and radioac­tive drugs, called radio­phar­ma­ceu­ti­cals, are among them. Vaccines, non-opioid pain drugs and drugs with pass-through status, a tem­po­rary status that many newly approved drugs hold, keep the old rate.¹

Three kinds of hos­pital keep the old drug rate: rural sole com­mu­nity hos­pi­tals, children’s hos­pi­tals, and the 11 cancer hos­pi­tals exempt from Medicare’s inpa­tient payment system.^1,6 They still collect the raise, which is why CMS esti­mates a 5.3% gain for rural sole com­mu­nity hos­pi­tals.² A cancer depart­ment inside a general hos­pital is not one of them. Medicare does not pay crit­ical access hos­pi­tals through the out­pa­tient system, so neither the cut nor the raise reaches them.²

One ratio decides who loses

Every hos­pital in the out­pa­tient system gets the raise and only some take the cut, so a hospital’s result depends on how much of each kind of payment it has. Hold drug prices, volumes and billing fixed, and only two numbers in its books matter. One is its Medicare out­pa­tient payment for the affected drugs, which falls by 32.1%. The other is its Medicare out­pa­tient payment for the ser­vices that receive the raise, which rises by 7.5%. Call them the two streams.

The hos­pital loses 32.1 cents on each drug dollar and gains 7.5 cents on each service dollar. It there­fore needs 32.1 ÷ 7.5, or 4.28, service dollars to make up for one drug dollar. One drug dollar among 5.28 is 19%, so the two effects cancel when affected drugs make up 19% of the two streams together. Below that share the hos­pital gains, and above it the hospital loses.

Consider three example hos­pi­tals, each with $100 million a year in the two streams. Hospital A has $10 million in affected drugs and $90 million in ser­vices, so it loses $3.21 million on the drugs, gains $6.75 million on the ser­vices and ends $3.5 million ahead. Hospital B, with $20 million in affected drugs, loses $0.4 million. Hospital C, with $30 million, loses $4.4 million. The same national rule pro­duces oppo­site results because the hos­pi­tals sell dif­ferent mixes of care.

The two streams are narrow on purpose. They count only what tra­di­tional Medicare pays through the out­pa­tient system, for the affected drugs and for the ser­vices that get the raise. A hos­pital that divides by total revenue instead will report a share far below 19% and may con­clude that it gains when it loses.

Many hos­pi­tals also owe a repay­ment, which lowers their break-even share. From 2018 to 2022, Medicare cut payment for 340B drugs and raised every­thing else to match, until the Supreme Court struck the cut down. CMS then repaid the 340B hos­pi­tals, which left the earlier raise with no cut to pay for it. So CMS began taking back that $7.8 billion from the hos­pi­tals that had received it, by trim­ming each year’s rate for non-drug ser­vices.⁵ The trim applies to hos­pi­tals enrolled in Medicare before 2018, and in 2027 it grows from 0.5% to 2%.¹

Such a hos­pital does not see the full 7.5%. CMS takes the trim out of the yearly update that Medicare gives the service rate for rising costs, as half a point in 2026 and two points in 2027.^1,4 A repaying hos­pital is there­fore paid about 99.5% of the full service rate in 2026 and about 98% in 2027. The 7.5% raise turns that 98% into about 105.4%. From 99.5 to 105.4 is a rise of 5.9%, and that is the raise this hos­pital should count. A smaller raise makes up for fewer drug dollars, so the break-even share falls from 19% to about 15.5%. Hospital A’s gain becomes $2.1 million, and Hospitals B and C lose $1.7 million and $5.5 million.

CMS’s own esti­mates of the 340B policy, by type of hos­pital, fit the ratio, and the rule expects the cut to out­weigh the raise for most 340B hos­pi­tals.¹ The hos­pi­tals with the largest shares of low-income patients, which KFF calls safety-net hos­pi­tals, lose 5.2% of their pay­ments from the out­pa­tient system. Urban hos­pi­tals of 500 beds or more lose 4.8%, and major teaching hos­pi­tals lose 3.9%.² For-profit hos­pi­tals gain 6.8%, which is what the 7.5% raise would give on roughly nine tenths of their payments.

Why cut at all

The strongest argu­ment for the rule is about incen­tives. Medicare’s payment is a percentage of the drug’s price, and so is the 340B dis­count, so the hospital’s margin grows with the price of the drug and the number of doses. The Congressional Budget Office judged that 340B encour­ages behavior that raises federal spending, such as opening off-site clinics, though it could not measure how much.^7,8,9 That judg­ment is not proof that a given treat­ment was unneeded or that a given hospital’s margin was too large.

A patient’s own share of an out­pa­tient payment, called coin­sur­ance, is usually 20%,⁴ so on the example dose it falls from $212 to $144. CMS expects a person who receives a qual­i­fying drug to save $900 on average in 2027.¹⁰ The raise for other ser­vices increases what patients pay for those,² and the patient who saves and the patient who pays more need not be the same person.

Some sup­porters say the rule stops short. The ceiling is the highest price a man­u­fac­turer may charge, and the sur­veyed hos­pi­tals paid less, on average 33.4% below the average sales price against the ceiling’s 28%. A payment set at the ceiling there­fore still leaves the average hos­pital a spread.¹¹ The Community Oncology Alliance, which speaks for independent oncology prac­tices, wel­comed the rule as a cor­rec­tion of exces­sive pay­ments for 340B drugs.¹² The American Hospital Association calls it an assault on 340B.⁶

A cancer program holds both streams

Cancer drugs made up 41% of all 340B pur­chases in 2021, the largest share of any class.¹³ A cancer program in a 340B hos­pital there­fore holds both streams. Its infu­sion center gives the drugs that take the cut. Its radi­a­tion depart­ment gives treat­ments that receive the raise. The excep­tion is radioac­tive drugs, including those given as treat­ment, which take the cut when bought through 340B and paid for separately.

A cancer program also runs ser­vices that no claim pays for, such as nav­i­ga­tion, social work, tox­i­city man­age­ment and the coor­di­na­tion that carries a patient between treat­ments. Whether a hos­pital paid for them out of drug margins is a fact in its own books. If it did, that money is now smaller, so each service needs its own line showing what it costs and how much of that cost no payment covers. A board can fund a named short­fall, but it cannot weigh a margin that paid for ser­vices without saying so.

A payment change is not a performance change

I am a radi­a­tion oncol­o­gist, and this rule flat­ters my own spe­cialty. In a 340B hos­pital it will make hos­pital-based radi­a­tion look better and infu­sion look worse in the same cancer program, in the same month, for the same patients. An infu­sion service can look less pro­duc­tive while it treats as many patients with the same nurses, and radi­a­tion can look more prof­itable without one better outcome.

That matters because margins steer deci­sions. A com­pen­sa­tion plan that rewards a margin increase will reward a price change that no clin­i­cian made. A capital com­mittee that reads a margin decline as under­per­for­mance may take chairs, staff or hours from a service the com­mu­nity still needs. I describe these paths as plau­sible, not as observed.

I would ask a cancer program to read two finan­cial views side by side. The first uses the 2027 prices and shows the money avail­able to operate. The second holds 2026 prices fixed, so that a change in volume, cost or mix shows up alone. Outcomes and access mea­sures belong beside both. For a patient who needs chemo­therapy and radi­a­tion, the unit of judg­ment is the whole course of treat­ment. A gain in one department’s ledger does not pay for a loss in another’s while their budgets, staff and access targets stay separate.

The hospital may not yet know which doses take the cut

Both views rest on knowing which doses were bought through 340B, and a hospital’s enroll­ment in the program does not say. Many 340B hos­pi­tals keep one phys­ical stock of a drug and give every dose from it. Software then sorts the doses by whether each patient was eli­gible for the 340B price, and the hos­pital buys each replace­ment on the matching account.^14,15 So the claim can go out before that sorting is final.¹

From January 1, the claim must say how the drug was bought. Every sep­a­rately paid drug line carries a two-letter code. JG marks a 340B drug that takes the cut, TB one reported for infor­ma­tion only, and the new ND a drug bought outside 340B.¹ A dose matched to the wrong pur­chase, or matched too early, there­fore mis­states both the payment and the hospital’s exposure.

The remedy is a rec­on­cil­i­a­tion that starts with the drugs that carry the most money, matches each dose to its pur­chase record and sends every doubtful line to a queue. Three counts show its state: the unmatched dollars, the lines later reclas­si­fied, and the days from dose to final clas­si­fi­ca­tion. An unre­solved line waits in the queue and is never counted as bought outside 340B by default.

Under a federal pilot set to start on January 1, man­u­fac­turers would give the 340B dis­count on 18 drugs as a rebate after the sale. The price a hos­pital finally pays would then arrive even later than the claim. Hospitals sued on October 9 to stop it.¹⁶

What I would put in front of a board

1. The expo­sure: affected drug pay­ments, the pay­ments that get the raise, the share of the two, and each step from that share to the budget. For infu­sion, add the whole visit’s revenue against its whole cost.
2. Its reli­a­bility: how many drug dollars the rec­on­cil­i­a­tion matched, how many remain unre­solved, and how much rests on claims rather than pur­chase records.
3. The ser­vices at stake: what the affected margin paid for, what each costs, and the other ways to fund it.
4. The evi­dence after January: real­ized payment and cost, delays to treat­ment, patients referred else­where, against a base­line set before the rule.

Check

The nearest test of my concern is the last cut. From 2018 to 2022, Medicare paid 340B drugs at the average sales price minus 22.5%. That cut was smaller, a fall of 27% against 32.1%, and it was later repaid, so it tests this one loosely. Two studies of tra­di­tional Medicare claims show what hos­pi­tals did in those years. In the first, drug claims at the older off-campus depart­ments of 340B hos­pi­tals rose from 3.4% to 4.9% of out­pa­tient ser­vices between 2016 and 2022. At eli­gible hos­pi­tals outside the program the share stayed near 2%.¹⁷ In the second, hos­pi­tals that joined 340B in 2019, while the cut was in force, added drug admin­is­tra­tion at new off-campus sites.¹⁸ The first study is descrip­tive, and the second com­pares 122 newly joined hos­pi­tals with 779 others. Neither mea­sures a response to the cut. Still, drug delivery kept growing while the cut was in force. That is weak evi­dence against my fear of with­drawn capacity and none for it. If the pattern repeats, the risk moves from fewer chairs to more doses, and a con­stant-price view shows that too.

Two other facts weigh against me. I have no evi­dence that leaders misread payment changes, and finance teams model new rates every year. The incen­tive argu­ment also cuts against me. If drug margins drove care that patients did not need, then part of the fall in infu­sion margins is a cor­rec­tion. The two can be told apart. A cor­rec­tion shows up as fewer doses of drugs that guide­lines do not support. A mis­reading shows up as fewer chairs, nurses or hours while waits and refer­rals elsewhere grow.

The largest thing this essay sets aside is the plain loss. Hospital C ends $5.5 million behind, and a hos­pital in that posi­tion may cut a service because it cannot pay for it, whether or not anyone mis­reads a margin. A con­stant-price view does not restore that money. I call the mis­reading the larger risk because it is the one a hos­pital can avoid.

The 19% line leaves things out. It holds the average sales price fixed, though that price moves every quarter. It ignores the yearly reweighting of each service, the adjust­ment for local wages and the extra pay­ments for unusu­ally costly cases.⁴ It ignores the same rule’s new cuts to imaging at older off-campus sites.¹ It counts only tra­di­tional Medicare, not com­mer­cial con­tracts or the Medicare Advantage plans that private com­pa­nies run.¹⁹ It also leaves out $0.8 billion. CMS’s head­line reduc­tion of $5.45 billion includes the cut at off-campus depart­ments paid under dif­ferent rules, and only the $4.65 billion inside the out­pa­tient system comes back through the raise.¹

A budget will also show a rise larger than 7.5%. Medicare sets each service’s payment by mul­ti­plying a weight, which ranks the service’s typical cost, by one dollar amount called the con­ver­sion factor.⁴ The rule raises that amount by 9.4%, from $91.415 to $99.970.¹ The 9.4% also carries the yearly update of 2.3%, less small tech­nical adjust­ments.¹ That update would have come without the 340B rule, so it belongs in the budget and out of any judg­ment of the rule.

The law is unset­tled. The 2022 deci­sion held that Medicare may not set dif­ferent drug pay­ments for groups of hos­pi­tals without first sur­veying what they paid.²⁰ CMS has now sur­veyed them and set the rate from ceiling prices val­i­dated by the survey. The American Hospital Association told CMS that its pro­posals had serious legal defects,²¹ and I found no ruling on the final rule.

A test is open to any hos­pital. Reprice the 2026 out­pa­tient claims at 2027 rates with every volume fixed, and compare the infu­sion and radi­a­tion margins before and after. If the gap between them moves by less than the normal year-to-year swing, the rule is too small to mislead anyone, and this essay over­states its importance.

I am con­fi­dent of the direc­tion. Hospitals whose affected drug pay­ments are large against their other Medicare out­pa­tient pay­ments will lose, and cancer pro­grams will carry much of that loss. I am much less sure of any one hospital’s dollars, which need its own rec­on­ciled data. Evidence that the 2027 change moves volume rather than capital, as the last cut appears to have done, would change what I fear, but not what I advise.

Sources

1. CMS, CY 2027 OPPS final rule with comment period (CMS-1850-FC), 91 Fed. Reg. 70284–70762, November 6, 2026: the 28% rate and its reasons, the exclusion of 340B prices from the average sales price, the $135 threshold, the 11 cancer hospitals, the $4.65 billion and $5.45 billion, the 7.5% raise, the conversion factor of $99.970, the trim from 0.5% to 2%, radiopharmaceuticals, and modifiers JG, TB and ND. Federal Register ↑
2. Hulver, Levinson, Cubanski & Freed, KFF, November 6, 2026. Medicare cuts to 340B drug payments will hit safety-net hospitals while benefiting for-profit hospitals: budget neutrality, critical access hospitals, cost sharing and CMS’s estimates by hospital type. kff.org ↑
3. Social Security Act § 1847A(c)(2), 42 U.S.C. 1395w-3a(c)(2), and § 1927(c)(1)(C)(i), 42 U.S.C. 1396r-8(c)(1)(C)(i): the sales the average sales price leaves out. law.cornell.edu ↑
4. Medicare Payment Advisory Commission, October 2026. Payment basics: outpatient hospital services payment system. How a rate is set from a weight and the conversion factor, which drugs are paid separately, the wage and outlier adjustments, and the 20% copayment. PDF ↑
5. Healthcare Financial Management Association, November 2026. 2027 Medicare OPPS final rule cuts 340B payments, expands site-neutral rates: the $7.8 billion repayment, its history, and for-profit hospitals outside 340B. hfma.org ↑
6. American Hospital Association, November 4, 2026. CMS finalizes increases to Medicare hospital outpatient department payment rates, changes to site-neutral and 340B for 2027: the exemptions and the association’s response. aha.org ↑
7. Congressional Budget Office, September 9, 2025. Growth in the 340B Drug Pricing Program. cbo.gov ↑
8. Applied Policy, September 2025. Congressional Budget Office publishes report on 340B program growth, 2010–2021, quoting CBO on behaviors that tend to increase federal spending. appliedpolicy.com ↑
9. Healthcare Financial Management Association, September 19, 2025. Proposed 340B rebate model generates an array of concerns among providers, reporting the factors CBO could not quantify. hfma.org ↑
10. CMS, November 4, 2026. Fact sheet, CY 2027 OPPS and ASC final rule: the $900 average saving. cms.gov ↑
11. Hammond, Paragon Health Institute, November 2026. CMS finalizes 2027 outpatient and physician payment rules: the ceiling as the minimum discount. Policy advocacy that supported the deeper cut. paragoninstitute.org ↑
12. Targeted Oncology, November 6, 2026. The Community Oncology Alliance’s reaction to the 2027 final rules. targetedonc.com ↑
13. Sen, Congressional Budget Office, testimony to the Senate HELP Committee, October 23, 2025. Growth in the 340B Drug Pricing Program and its implications for the federal budget: cancer drugs 41% of 340B purchases in 2021. PDF ↑
14. American Hospital Association, August 7, 2026, revised October 2026. Fact sheet on the 340B rebate model, including the replenishment model hospitals use for inventory. aha.org ↑
15. Crowe LLP. 340B Program self-monitoring: purchasing and inventory management. Inventories “physically comingled but kept virtually separate using a replenishment model,” with software for eligibility and accumulation. crowe.com ↑
16. American Hospital Association et al., complaint for declaratory and injunctive relief, U.S. District Court for the District of Maine, October 9, 2026: the 340B rebate pilot for 18 drugs from January 1, 2027. aha.org ↑
17. Odouard, Thome & Buntin, Medical Care Research and Review 83(6):563–572, June 2026. Changes in service delivery following site-neutral payment reforms by hospital 340B status: descriptive, 2,550 hospitals, traditional Medicare claims 2016–2022. PMC ↑
18. Thome, Odouard & Buntin, JAMA Health Forum 7(10):e263977, 2026. Hospital 340B participation, site-dependent payment, and vertical integration: difference in differences, 122 new 340B hospitals against 779 others, traditional Medicare claims 2016–2019. PMC ↑
19. Medicare.gov. Your coverage options: a Medicare Advantage plan is “a Medicare-approved plan from a private company.” medicare.gov ↑
20. American Hospital Association v. Becerra, 596 U.S. 724 (2022), decided June 15, 2022, unanimous. Supreme Court ↑
21. American Hospital Association, August 26, 2026. Comments urging CMS not to finalize the 340B cut or the faster repayment, citing legal defects. aha.org ↑