Introduction

The Trump administration has introduced a plan to reorganize Medicare’s payment system for outpatient care. Officials believe this could lower costs for millions of senior citizens, but hospitals are concerned that funding for providers who serve low-income and vulnerable patients may be at risk.

Proposed Rule by CMS

The Centers for Medicare and Medicaid Services (CMS) released a proposed rule on Thursday.

This rule aims to cut Medicare payments for hospitals involved in the federal 340B drug discount program. It also seeks to broaden site-neutral payment policies for certain outpatient services. The CMS asserts that these changes are intended to make healthcare more affordable and eliminate payment disparities that increase costs for beneficiaries.

CMS Administrator Dr. Mehmet Oz stated, 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.

Importance of the Changes

Health care expenses continue to be a significant concern for older Americans. Many Medicare beneficiaries are coping with rising premiums, deductibles, and prescription drug prices. Despite Oz’s focus on patient affordability, hospitals worry that proposed cuts might weaken essential safety-net providers catering to underserved communities.

Jennifer DeCubellis, president and CEO of America’s Essential Hospitals, commented, The proposed OPPS rule from CMS takes an axe to critical funding that supports essential hospitals without concern for how it will affect the patients they serve.

Details of the New Rule

If finalized, the rule would become effective in 2027, potentially affecting out-of-pocket costs for certain drugs and outpatient procedures for Medicare beneficiaries. Specifically, it proposes a 2.4 percent increase in outpatient care pay, slightly lower than the previous year’s 2.6 percent rate update.

Kevin Thompson, CEO of 9i Capital Group, explained, In the short run, many Medicare beneficiaries could actually pay less out of pocket because reimbursement would be closer to what hospitals paid for the drug. The concern is longer term. If hospitals lose that revenue, they will likely look to make it up somewhere else. He added, Whether nonprofit or for-profit, hospitals should not be profiting off the spread between steep government discounts and higher Medicare reimbursement.

340B Drug Payment Reductions

CMS proposes reducing Medicare reimbursement for drugs purchased under the 340B program, which helps hospitals serving low-income and uninsured patients buy outpatient drugs at discounted prices. Starting in 2027, Medicare would pay significantly less for 340B-acquired drugs, potentially lowering both Medicare spending and beneficiary cost-sharing for these medications.

Thompson noted, The goal is to lower Medicare drug costs, not eliminate the 340B program. He added, The long-term question is who ultimately absorbs the reduced reimbursement. If hospitals don’t absorb it, those costs could eventually show up elsewhere in the health care system through higher prices or fewer services.

Expansion of Site-Neutral Payments

CMS also proposes to extend site-neutral payment policies to certain imaging services performed in hospital outpatient departments. Medicare often pays hospitals more than doctors’ offices for identical services. The proposal would reimburse some imaging procedures at physician-office rates when performed in hospital-owned outpatient locations.

Under current policy, patients face higher cost-sharing when services are billed through hospital outpatient departments despite identical care. Site-neutral payments aim to address these discrepancies.

Alex Beene from the University of Tennessee at Martin explained, The 20 percent coinsurance would be calculated from a payment closer to what 340B hospitals actually paid, rather than a much larger reimbursement amount. He noted, The savings would apply only to certain physician-administered Part B drugs at participating hospitals.

Impact on Medicare Beneficiaries

Patients stand to benefit from potential reductions in out-of-pocket costs. CMS claims that reducing payments for 340B drugs will lower beneficiary cost-sharing. Site-neutral payment reforms could reduce costs when care is provided in hospital-owned outpatient settings.

If the rule is approved, Medicare beneficiaries could experience:

• Lower cost-sharing for certain outpatient prescription drugs.
• Reduced costs for some imaging services performed in outpatient settings.
• Consistent pricing between hospital outpatient departments and physician offices.

However, the actual impact would depend on the services a patient uses and whether the proposed rule is finalized without major changes.

Next Steps

The proposal aligns with CMS’s draft 2027 Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center payment rule. It requires a public comment process before a final version is issued. If approved, changes would commence next year.

Beene posed The long-term question is whether Medicare can eliminate expensive markups without weakening the safety-net hospitals that use 340B revenue to support care for beneficiaries.