Key Takeaways
- HHS says a Medicare change taking effect in 2027 will save seniors an estimated $1.1 billion on outpatient drugs, or $900 on average for those affected.
- The savings goes to people on Original Medicare who get drugs at a hospital outpatient department, when the hospital bought those drugs at a discount through the federal 340B program.
- The savings comes through the 20% Part B coinsurance, so a $900 cut means about $4,500 less in Medicare-approved cost, and retirees who pay that 20% themselves keep all of it.
- A retiree whose Medigap policy pays the 20%, or whose Medicare Advantage plan sets its own charges, may see little of it, and open enrollment runs through Dec. 7.
If you get an expensive drug at a hospital’s outpatient department, you may be about to pay less for it. Whether you actually see that money comes down to one question: Who pays your 20%?
The Department of Health and Human Services posted on X on Nov. 9 that Medicare is ending overpayments for outpatient drugs. It estimates seniors will save $1.1 billion in 2027, which it says works out to “an average of $900 in lower copays for affected seniors.” That’s real money for anyone on a fixed income.
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Medicare was overpaying for discounted drugs
The $900 comes from a rule the Centers for Medicare & Medicaid Services finalized on Nov. 4. The rule sets what Medicare pays hospital outpatient departments starting in 2027. It goes after drugs that hospitals buy through the federal 340B program, which lets certain hospitals buy outpatient drugs from manufacturers at a discount. Until now, Medicare paid hospitals for those drugs as if they hadn’t gotten the discount. In some cases, the patient’s 20% share came to more than the hospital had paid for the whole drug.
Which, yikes.
Starting next year, Medicare will pay much less for 340B drugs, based on a CMS survey earlier this year of what hospitals actually paid. CMS says the savings goes to people on Original Medicare who get a qualifying drug in a hospital outpatient department, and the White House pointed to infusions to treat cancer. HHS’s post didn’t name the drugs or the hospitals, so you can’t tell from it whether your own treatment is one of them.
If you pay your own 20%, you keep all of it
Under Original Medicare, once you’ve paid the Part B deductible ($283 in 2026), you usually pay 20% of the Medicare-approved amount for each covered service or item. So when Medicare pays the hospital less for a drug, the approved amount falls, and your 20% falls with it. Work HHS’s average backward, and $900 is 20% of $4,500. That means the average affected senior’s drugs will cost about $4,500 less in Medicare-approved amounts next year.
Let’s say you’re on Original Medicare with no supplement and get a qualifying drug at a hospital outpatient department. Since Part B has no yearly limit on what you pay out of pocket, every dollar of that 20% was coming out of your pocket. So every dollar the rule takes off it comes back to you. You’re the retiree HHS’s $900 is really about.
Medigap and Advantage plans may keep the savings
Plenty of retirees don’t pay that 20% themselves. A Medigap policy can pay your 20% coinsurance, and so can Medicaid or a retiree plan from an old employer. If yours covers it, a lower approved amount mostly shrinks what your insurer pays, so most of the $900 goes to the insurer. My read: any effect on your Medigap premium would be small and slow to show up.
Medicare Advantage works differently. Your plan sets its own charges for drugs given at a hospital, and every plan has a yearly out-of-pocket limit. Once you’ve paid up to it, the plan pays 100% of your covered services for the rest of the year. Someone on expensive infusions can hit that limit early in the year, and from then on a cheaper drug only saves the plan money.
Look at your coverage before Dec. 7
Medicare’s open enrollment runs through Dec. 7, so anyone weighing a different plan for 2027 has a few weeks left. I wouldn’t change coverage over the $900 alone, since it’s an average across people who get these particular drugs and you may not be one of them. If you’re comparing Advantage plans and get drugs at a hospital, look at what each plan charges for drugs given in a hospital outpatient department, and at its yearly limit. Under an Advantage plan, those are what you’ll pay, whatever Medicare pays the hospital.
The $900 is real money for the right retiree
If you’re on Original Medicare with nothing else and get treated at a hospital that buys through 340B, this is about as good as Medicare news gets for you. If someone else already pays your 20%, expect the savings to go to them. Of course, $900 is an average estimate, so some people will save far more and some far less. And since the last round of 340B payment cuts, which began in 2018, was later ruled unlawful, I wouldn’t be shocked if hospitals take this one to court before it ever reaches your bill.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
