Potential 340B Transformation
In its latest annual report, IQVIA showed that the 340B drug pricing program has continued to grow at double digit rates. In 2025, 340B drug sales grew by 20.3% year-over-year reaching $179.5B. If you adjust this data for missing 340B sales, IQVIA projects that the 340B program is “approximately $200B, which is approaching the size of Medicare Part D.” The report notes that “from January 2018 through December 2025, 340B purchases grew 232.8%, versus 71.3% for non-340B purchases”, and that 80% of the growth in 340B purchases is due to increased utilization. Meanwhile patients, who continue to pay 20% of ASP+6% for their 340B drug copayments and often pay more than the acquisition cost for the 340B drug, receive no benefit from the sizable discounts provided to intermediaries who in turn profiteer from the difference between their 340B acquisition price and the ASP+6% allowable Medicare price.
Well, it seems that after over two decades of 340B patient abuse and intermediary profiteering, CMS has finally decided to act and has released a proposed rule that would revise the Medicare Hospital Outpatient Prospective Payment System (OPPS). In the July 7th proposed rule, CMS has recommended reducing its payment for 340B Part B drugs from ASP+6% to ASP minus 33.4% effective January 1, 2027. The change would decrease Medicare beneficiaries’ copayments for Part B drugs by an estimated $1.15B and “save taxpayers an additional $4.55B in drug expenditures for CY 2027.”
The change in payment rate is based upon a CMS survey of hospital self-reported 340B acquisition costs from July 1, 2024, though June 30, 2025. Hospitals were identified as 340B participants using “HRSA's 340B OPAIS enrollment information and claims submitted with 340B modifiers.” The proposed rule also mandates that starting on January 1, 2027, all providers must report new modifiers specifically designating the drug claim as either acquired (340B) or not acquired (non340B) under the 340B Program. Because statutes require Medicare payment cuts to be budget-neutral, CMS has recommended that the reduction in drug payments be offset by an 8.44% increase in payment rates for non-drug items and services furnished by hospitals and paid under the OPPS for CY 2027.
As CMS Administrator Dr Mehmet Oz has noted, “Medicare beneficiaries deserve a program that pays for the right care, in the right setting, at the right time…. This proposed rule focuses squarely on patient affordability by strengthening our utilization management tools, aligning drug payments with actual acquisition costs, and removing site-of-care disparities that have unnecessarily driven up costs for millions of seniors. We are committed to ensuring that Medicare resources are directed toward clinically appropriate, affordable high-value care for every patient we serve.”
This proposed rule change has the potential to be transformative for the 340B payment program and its participants. However, there are numerous outstanding issues and questions, including:
Proposed rule: It is important for readers to understand that the Jul 7th CMS notice is a proposed rule, and that the comment period ends on August 31, 2027. One should likely expect to see a final rule at the end of October. Given the fact that most covered entities have become dependent upon 340B revenues to meet their financial objectives, you should not be surprised to see that one of the healthcare industry’s most powerful lobbying groups, the AHA, has already come out and called CMS’ proposed reduction in the 340B payment rate “shocking” and “destructive.” A key question to follow is whether CMS has the commitment to withstand the pressure from the AHA and others and align 340B payments to acquisition cost, reduce beneficiary excessive copayments by an estimated $1.15B and save taxpayers an additional $4.55B in drug expenditures?
Scope and potential expansion of the ASP minus 33.4% 340B payment rate: The CMS OPPS payment changes proposed for 340B drugs are limited to Part B drugs. A key question is whether CMS intends to expand the proposed 340B payment rate reductions to Part D, and will commercial payers have the political power to adopt the ASP minus 33.4% payment rates and enforce the new requirements for consistently reporting 340B and non340B drug modifiers?
Exponential growth of the 340B Payment Program: Driven largely by 340B intermediary profiteering, the 340B Payment Program has, according to IQVIA, seen a 20.3% YoY growth in 2025, and from 2018 to 2025 has “more than tripled in size and grown at three times the rate of the rest of the U.S. drug market.” A key question is whether by reducing the financial incentive for the covered entities, will the proposed rule finally slow the exponential growth of the 340B drug payment program? In addition, by mandating the use of both 340B and non340B drug modifiers, will the Biopharma industry finally be able to adopt rebate payment models and systems that will prevent duplicate 340B-Medicaid discounts and IRA and MFN rebates?
340B Modifiers: It’s also important to note, as I did in my recent May 26th post, that CMS has historically asked covered entities on a voluntary basis to report 340B drug use through the 340B claims modifier, and that covered entities have historically dramatically underreported such modifiers and 340B drug use. A recent analysis has shown that only 4-5% of eligible 340B Part D claims carry the 340B modifier. As the reporting of these codes becomes mandatory, a key question is whether covered entities will adopt their use completely and if CMS will monitor their compliance and seek to pursue covered entities for Medicare fraud should they continue to under report 340B drug use?
Budget Neutrality: The historical under reporting of 340B drug use by covered entities coupled with over 50% of hospitals electing to not participate in the 340B acquisition cost survey, and the reliance on hospital self-reporting of 340B acquisition costs leads one to be concerned that CMS may have underestimated the total impact of implementing an ASP minus 33.4% 340B payment system. While CMS has estimated $4.55B savings in 340B drug expenditures for CY 2027, this represents only a 7.6% reduction in the estimated $60B in annual Part B 340B sales. CMS has attempted to maintain the required budget neutrality by implementing an 8.44% increased payment rate for non-drug items and services furnished by hospitals and paid under the OPPS for CY 2027. A key question that must be addressed is whether the 8.44% increase in non-drug item and services payments is adequate to offset the lost hospital revenues associated with the implementation of the 340B ASP minus 33.4% drug payment rate?
Site of Care Disparities: The impact of 340B on the shift of U.S. oncology services from the community setting to the hospital setting is well documented. The share of chemotherapy administered in the community setting has dropped by over 30% since 2011. This shift has been driven by the opportunity for hospital-based providers to enjoy the profits associated with buying 340B drug products at enormous discounts while charging ASP+6%. A key question moving forward is by reducing hospital 340B profit margins will the move to an ASP minus 33.4% reimbursement rate reverse this shift to hospital-based oncology care and return that care to a significantly lower cost community-based oncology practice?
Access to Selective 340B drugs: Like other prospective payment systems, the OPPS relies on the concept of averaging to establish a payment rate for services and products. The payment may be more or less than the estimated cost of providing a specific service or a bundle of specific services for a particular beneficiary. Historically, this has not been an issue for 340B drugs where the profit margins associated with an ASP+6% system have significantly exceeded the acquisition cost of any 340B drug product. Drug acquisition costs for 340B are CMS mandated and range from a mandatory 23.1% discount to penny pricing depending on the rate and degree of price increases and discounts utilized by the manufacturer. As CMS notes in the proposed rule, the ASP minus 33.4% payment rate for 340B drugs is based on a survey of self-reported hospital acquisition costs that indicated that the “average acquisition costs are 37.2% lower than the general OPPS payment rate (ASP plus six percent).” Given the new ASP minus 33.4% payment rate, some 340B drugs will still be associated with significant covered entity profits while other 340B products will become financial losers for the covered entities. Hence, there is a significant concern that patients whose disease states require medicines where 340B payments are below their acquisition costs may experience covered entity driven delays in access to the medicines they need.
Alignment with the original intent of the 340B Payment Program: The original, 1992, intent of the 340B program created by Congress in 1992 was to help safety-net providers "stretch scarce federal resources as far as possible". It is important to note that CMS proposes that “rural SCHs, PPS-exempt cancer hospitals and children's hospitals would be exempted from the 340B Payment Policy for CY 2027 and subsequent years.” Nonetheless, by utilizing 340B generated cost savings to increase non-drug outpatient service payment for all Medicare patients by 8.4%, a key question will be whether the changes meet the original legislative intent of the 340B program. Of critical importance is a related question, will CMS in the final rule further refine and direct these OPPS payment increases to “safety-net providers” or services specifically provided to indigent patients?
For answers to these and many other 340B reform questions, as well as assistance in how best to incorporate these proposed changes into product forecasting, please contact me.