New Medicare Rule Could Lower Your Costs - Hospitals Warn It Comes With a Catch

A proposed Centers for Medicare & Medicaid Services (CMS) rule might help seniors save money in retirement. The rule for 2027 proposes cutting Medicare reimbursement payments for hospitals in the 340B drug discount program and altering the reimbursement calculation for certain imaging services. The move might mean lower out-of-pocket costs on some drugs administered in hospital outpatient settings and more consistent service pricing for Medicare enrollees.

If you or a loved one are on Medicare, here's what you should know about the proposed rule, the changes it might implement, and where it currently stands.

How the rule might impact drug pricing

If implemented, the rule would update payment rates for drugs in the 340B Drug Pricing Program, and according to CMS, the updated pricing would more accurately reflect the prices hospitals pay for the medication. According to a CMS survey, hospitals purchase 340B drugs at an average price that's significantly less than the average sales price. In turn, Medicare reimbursement costs for the same drugs often exceed the price that hospitals paid for them.

Updating the drug payment rates might help Medicare enrollees save money on their medications.

How the rule might impact hospital and outpatient service pricing

The rule also proposes a change in how coinsurance is calculated for certain imaging procedures. In many cases, patients pay higher cost-sharing expenses when imaging services are billed through hospital outpatient departments than they would pay if those services were billed through a physician office.

The rule proposes site-neutral payments, calculating coinsurance at a rate that's closer to what the hospital actually paid to cover the service. The change may result in more consistent pricing for imaging services whether beneficiaries receive those services through a hospital or a physician's office.

How much Medicare participants might save

Overall, the rule may help reduce out-of-pocket costs for Medicare beneficiaries. The site-neutral payment policy might help Medicare beneficiaries save money when they receive care in a hospital-owned outpatient setting.

CMS estimates that the change in drug pricing might have a significant financial impact, potentially saving individuals with Medicare a collective $1.15 billion in drug costs. The changes might save taxpayers approximately $4.55 billion in drug expenditures, amounting to a total reduction in drug spending of about $5.7 billion in 2027.

"Medicare beneficiaries deserve a program that pays for the right care, in the right setting, at the right time," said CMS Administrator Dr. Mehmet Oz. "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.

The potential problem with cutting 340B reimbursement

While the changes suggest short-term savings for beneficiaries, the hospital industry is pushing back regarding concern over the long-term impacts on hospitals. Provider groups are critical of how cutting drug discounts for hospitals could potentially strain safety-net hospitals that rely on that revenue.

"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," said Jennifer DeCubellis, President and CEO of advocacy group America's Essential Hospitals.

The potential impact of reduced hospital revenues

While the bill might reduce costs for the Medicare program and for beneficiaries, it might also reduce hospital revenues. Since the 340B program was created to help hospitals stretch their financial resources and serve more patients, cuts to the program's revenue might reduce the number of patients hospitals are able to serve.

There's also a question about where the reduced reimbursement is absorbed. If hospitals don't absorb those costs, they might be passed on to another area of the healthcare system where they negatively impact patients. Additionally, if hospitals must operate with reduced revenue, they might have to cut jobs in their local communities.

What's next for the CMS rule

The proposed CMS rule is part of the 2027 Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center payment rule draft. Next, the rule must undergo a public comment period before it is finalized. If the rule is implemented, changes should go into effect in 2027.

Bottom line

The CMS rule is an effort to make health care more affordable, and it might reshape how Medicare reimburses hospitals for outpatient care. While the rule might help reduce out-of-pocket costs for Medicare beneficiaries, its long-term impact on the overall hospital and healthcare systems is yet to be seen. The rule would take effect in 2027 at the earliest, and your actual savings would depend on which services you use.

This rule could bring about important changes to the Medicare program, so be sure to watch for updates on this pending legislation. If you're concerned about how you'll cover health care costs in retirement, consider consulting with a financial planner to check up on your retirement readiness.