ASP minus 33.4 percent. CMS has proposed to reduce Medicare payments to hospitals for separately payable 340B drugs beginning January 1, 2027 from average sales price (ASP)+6% to ASP-33.4%. CMS cited to the survey of hospital drug costs that it conducted between January 1 and April 7, 2026 to support the reduction. Notably, in Am. Hosp. Ass’n v. Becerra, 596 U.S. 724, 739 (2022), the Supreme Court determined that a prior reduction to Medicare reimbursement for 340B drugs (to ASP-22.5%) was unlawful because it was not supported by a survey.
Indian Health Service hospitals, Rural Emergency Hospitals, and Critical Access Hospitals are not reimbursed by Medicare under OPPS and therefore not subject to the payment adjustment. CMS seeks comments on its proposal to exempt Children’s Hospitals, PPS-Exempt Cancer Hospitals, and rural Sole Community Hospitals from the payment reduction.
Survey Results. CMS reports that approximately 43.6% of hospitals submitted a survey response, but only about 29.8% reported acquisition costs. Among those that responded, only 23.1% of 340B hospitals and 34.9% of non-340B hospitals reported acquisition costs. CMS did not change the reimbursement rate for non-340B drugs based on the survey results.
The Medicare statute requires that, in order for CMS to base a reimbursement cut on a survey, the survey must have a “large sample of hospitals that is sufficient to generate a statistically significant estimate of the average hospital acquisition cost for each specified covered outpatient drug.” 42 U.S.C. § 1395l(t)(14)(ii). In the proposed rule, CMS concludes that the survey meets these requirements.
CMS discusses and seeks comments on an alternative approach that would rely on HRSA 340B ceiling price claims utilization data rather than survey data. Under that alternative, CMS estimates that the average payment rate would be approximately ASP-28%, rather than ASP-33.4%.
Budget Neutrality. The Medicare statute requires CMS to implement most Medicare payment cuts in a budget neutral manner. In order to offset the estimated reduction in payments for 340B drugs of approximately $4.85 billion in CY 2027, CMS proposes to increase payments for other Outpatient Prospective Payment System (OPPS) items and services by an estimated 8.44%. Payment reductions to “non-exempted” hospital outpatient departments (i.e., off-site clinics that are paid at 40% of the OPPS rate) would not be offset under the budget neutrality provisions.
3% OPPS Conversion Factor. CMS is currently applying a 0.5% reduction to Medicare payment for non-drug outpatient items and services to offset the $7.8 billion settlement that it paid to 340B hospitals in response to the decision in Am. Hosp. Ass’n v. Becerra. CMS proposes to increase the reduction to 3% and seeks comments on this proposal, including input on whether a 2% reduction would be preferable.
Modifier Requirement. CMS also proposes new modifier requirements to support administration of the revised payment policy. Beginning January 1, 2027, CMS proposes to require hospitals subject to the payment reduction to report modifier JG on claims for drugs acquired “under the 340B Program”, which includes drugs discounted by Apexus. CMS proposes that hospitals that are not subject to the reduction would use modifier TB on claims for drugs acquired under the 340B Program. CMS also proposes a new modifier (currently referred to as “XX”) that all hospitals would be required to report on claims for drugs acquired outside of the 340B Program. CMS specifically solicits comments on its proposal to require all separately paid OPPS drug claims to be reported with either modifier JG, TB, or XX.
Looking ahead. If the proposed payment reduction is finalized, hospitals may decide to take legal action. Among the legal challenges potentially available, hospitals may challenge the adequacy of the survey or assert that CMS did not provide a reasonable explanation for the payment reduction. We encourage stakeholders to submit comments on these proposals ahead of the August 31, 2026 deadline.
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Powers will continue to monitor developments. Please contact Powers’ drug pricing team, or your lead Powers attorney, if you have any questions.