An opinion article by HHS chief economist Casey B. Mulligan argues that the 340B drug discount program has grown into a large institutional subsidy with expensive unintended consequences. A new CMS proposal would pay hospitals for 340B drugs at average sales price minus 33.4% in 2027, replacing the usual ASP plus 6% formula for these drugs. CMS estimates Medicare drug payments would fall by $4.55 billion in the first year and beneficiary copayments by $1.15 billion.
The 340B program, created in 1992, requires drugmakers to give steep discounts to safety-net hospitals, which then keep the spread between discounted purchase costs and full reimbursement. Mulligan says that spread grows with drug price, rewarding hospitals for using costlier drugs and acquiring physician practices and infusion clinics. Eligible purchases rose from $12 billion in 2015 to $81 billion in 2024, while off-campus hospital clinic sites grew from about 7,000 in 2013 to more than 34,000 in 2023.
The proposed rate follows a 2022 Supreme Court ruling that HHS could not vary payment rates without first conducting the acquisition-cost survey required by statute. After the lower rate ended, payments for affected drugs rose from $7.1 billion in 2021 to $10.7 billion in 2023. CMS surveyed hospitals from January through April 2026 and says the new rate would more accurately align Medicare payments with hospital drug acquisition costs. This article is based on a single opinion source; no independent sources were available to compare.