Proposed Medicare Rule Could Lower Out-of-Pocket Costs for Some Drug Treatments

Medicare beneficiaries who receive certain physician-administered prescription drugs in hospitals could see significantly lower out-of-pocket costs under a new proposal from the Trump administration.

The Centers for Medicare & Medicaid Services (CMS) has proposed changing how Medicare reimburses hospitals that participate in the federal 340B Drug Pricing Program, which aims to support hospitals and clinics that serve many low-income patients. Administration officials estimate that the change would save Medicare beneficiaries about $1.1 billion in copayments next year, with the average affected Part B enrollee saving roughly $800 annually in out-of-pocket costs.

The proposal is likely to spark intense debate. While the administration says the rule would reduce excessive hospital markups and lower costs for patients and taxpayers, many hospitals, particularly rural and safety-net facilities, argue that the cuts could reduce the funding they rely on to serve vulnerable communities.

Understanding the 340B program

The 340B Drug Pricing Program allows participating hospitals to purchase many outpatient prescription drugs at steep discounts from drug manufacturers.

Under current Medicare rules, however, hospitals are generally reimbursed based on Medicare's standard payment formulas rather than the discounted purchase prices of the drugs. Because Part B patients typically pay 20% coinsurance on covered drugs, higher reimbursement amounts can lead to higher out-of-pocket costs for beneficiaries.

CMS says its proposal would better align Medicare reimbursement with hospitals' actual acquisition costs.

How hospital markups work

CMS illustrated how the proposed rule would apply to Lupron Depot, a medication commonly used to treat prostate cancer.

According to the agency, a hospital participating in the 340B program may purchase a dose of the drug for about $700. Under the current payment system, however, Medicare may reimburse the hospital about $4,000 for administering that dose, while the patient pays about $1,000 in coinsurance.

The administration argues that these pricing differences allow some hospitals to generate substantial revenue from discounted drugs, with patients bearing part of the cost through higher copayments.

Under the proposed rule, Medicare reimbursement for many 340B drugs would be reduced by about 40%, reflecting the discounted prices hospitals pay.

CMS estimates that, if finalized, the proposal would reduce out-of-pocket costs for Medicare Part B beneficiaries who receive these drugs in hospital outpatient settings. The administration also projects that the proposal could save taxpayers billions of dollars over the next decade.

Hospitals push back

Hospital organizations strongly oppose the proposal, arguing that revenue from the 340B program helps fund services that might otherwise be difficult to provide, including care for underserved populations and patients in rural communities.

Critics warn that reducing Medicare reimbursement could strain hospital finances and affect access to certain health care services.

The takeaway

For now, the proposal remains under review. CMS will accept public comments before deciding whether to finalize the rule. If approved, the new reimbursement formula would take effect at the beginning of next year.

Beneficiaries should remember that the proposal is not yet final and could change before implementation. Legal challenges could also delay its implementation.