Newsletter · · Ashutosh Agarwal

CMS Proposes a 37 Percent 340B Cut While the MFN Debate Deepens - Drug Pricing & IRA Round 2 - Week of July 13, 2026

Drug-pricing and IRA policy newsletter for the week of July 7-13, 2026. CMS proposed a roughly 37 percent cut to 340B hospital drug reimbursement, and a former pricing insider walked through how Most Favored Nation rebate models would actually work and why 340B is the landmine underneath them.

Drug Pricing & IRA Round 2

Week of July 13, 2026: CMS Proposes a 37 Percent 340B Cut While the MFN Debate Deepens

TL;DR

  • The one hard, dated development this week: CMS's proposed 2027 hospital outpatient rule would slash what Medicare pays 340B hospitals for drugs from average sales price (ASP) plus 6% down to ASP minus 33.4%, a 37% cut to their drug reimbursement. First-year hit: $4.55 billion off Medicare drug payments. It is a proposed rule, open for comment through the end of August, and a Supreme Court–grade legal fight is already being teed up. (Becker's Healthcare Podcast; 340B Unscripted)

  • Most Favored Nation (MFN) pricing is the bigger structural story for your pharma book. Since Trump's April 2026 threat of 100% tariffs on imported drugs, 17 major drugmakers have signed MFN deals covering roughly 86% of the branded market to dodge the tariff. (Equity Mates Investing Podcast)

  • The most useful policy education of the week came from a former drug-pricing insider walking through exactly how MFN would actually work, the "Guard, Globe and Generous" rebate models, a possible 25% rebate on physician-administered drugs and 50% on pharmacy drugs, and why 340B is the quiet landmine under all of it. (RealPharma)

  • The R&D-chilling argument got a fresh, quotable airing: a pharma R&D voice at ASCO arguing MFN and the IRA together are quietly killing small-molecule (pill) innovation, with China on track to pass the US in FDA trial registrations by 2028. Worth reading with the funder's name attached (Sanofi). (Vital Health Podcast)

What's new

1. CMS proposes a ~37% cut to 340B drug reimbursement, the week's most concrete, numeric event

This is the development a hedge fund book can actually act on, because it has hard numbers and a hard deadline.

Quick plain-English backdrop: 340B is a federal program that lets certain hospitals (especially rural and safety-net ones) buy drugs at steep discounts while still getting reimbursed by Medicare at close to full price. The gap between the cheap purchase and the fuller reimbursement is real money that props up a lot of hospital budgets. CMS just proposed to shrink that gap dramatically.

On the July 8 Becker's Healthcare Podcast, editor-in-chief Laura Dyrda laid out the numbers from CMS's proposed 2027 Hospital Outpatient (OPPS) and surgery-center rule. CMS wants 340B-acquired drugs reimbursed at "average sales price minus 33.4%, which is down from the current average sales price plus 6%." Her tally of the damage: the change "would cut the original Medicare drug payments by around $4.55 billion in beneficiary drug payments by $1.15 billion in the first year." Because the law requires the overall pot to stay flat ("budget neutrality"), CMS would raise payments for non-drug outpatient services by the same amount, in effect moving money away from 340B hospitals and toward providers broadly. Separately, CMS wants to speed up clawing back $7.8 billion in prior overpayments (2018–2022) by lifting an annual offset from 0.5% to 3%. (Becker's Healthcare Podcast)

Why it moves numbers: This is a direct hit to hospital drug economics and, by extension, to the gross-to-net picture for every drug that flows through the 340B channel. Dyrda's read from hospital executives: "hope isn't a strategy", they're bracing for it, leaning on philanthropy, partnerships, and in some cases acquisitions to survive.

The 340B Unscripted midyear review (July 12) put a sharper point on the math. Co-host Rob worked through it live: because you start at 106% of ASP and drop to minus 33.4%, the true cut is "a 37.17% reduction from your previous reimbursement of 106% of ASP", "well over a third… close to 40%." He flagged the perverse logic in the payback acceleration: the rationale reads as "there's a chance that hospitals are going to go under, so you need to make them go out of business sooner by even taking more money faster before they go out of business."* (340B Unscripted)

Two things a book should track from that same episode:

  • This is a proposed rule, open for comment through the end of August. Nothing is final.
  • A legal fight is likely, and history favors the hospitals. As 340B Report's Ted Slavsky noted, when the Trump administration tried a smaller version of this cut (ASP minus 22.5%), hospitals "convinced the U.S. Supreme Court in a 9-0 decision to block the cuts and restore the reimbursement." He was blunt that the survey behind this rule was thin, only 28.6% of 340B hospitals responded (vs. 53% of non-340B hospitals), which becomes ammunition in the coming lawsuit. Slavsky's framing of the setup: providers "feel like not only are they getting attacked by the drug industry but their current administration has no sympathy, and it's a dangerous combination." (340B Unscripted)

2. MFN: 17 drugmakers, 86% of the branded market, and a tariff gun to the head

The Equity Mates Investing Podcast (July 8), a generalist investing show, gave the cleanest market-level summary of where Most Favored Nation pricing stands. Plain English: MFN is the idea that the US should pay no more for a drug than the lowest price any comparable rich country pays.

Their recap: "April 2026, Trump imposed 100% tariffs on all imported pharmaceuticals. They can avoid the tariff by signing the most favoured nation deal… and they need to commit to US manufacturing onshore." The scoreboard: "so far, 17 major pharmaceutical companies have signed the most favoured nation deals covering about 86% of the branded drug market." They singled out Novo Nordisk as having been "impacted when that was announced," and Australian plasma/biologics maker CSL as "under pressure" because of its heavy US sales exposure, though CSL has pledged more US manufacturing. Their bottom line as investors: near-term tariff and FDA-approval risk is real, but the longer arc of drug discovery is "pretty Trump proof." (Equity Mates Investing Podcast)

This is pundit/generalist commentary, not insider color, treat the framing as directional, not as sourced deal detail.

3. How MFN would actually work, and why 340B is the hidden risk inside it

For the mechanics, the standout was RealPharma's July 10 conversation with drug-pricing policy specialist Deborah Williams, a genuine insider who spends her time in the technical weeds of pricing rules ("I am totally obsessed with best price").

She walked through the three model designs floating around Washington, nicknamed Guard, Globe, and Generous. In her words: "Guard and Globe… don't set prices so much as they say, okay, if you are pricing in the U.S. more than you are pricing in this market basket of countries, you're going to pay a rebate back to the government." The "Generous" version she described carries "a 25% discount on the medical benefit drugs, and… a 50% discount on the pharmacy drugs", she called 50% "a pretty interesting figure from a healthcare spending model" and thinks 20%+ savings is achievable. (RealPharma)

Her most useful insight for a book: 340B is becoming the biggest practical risk to MFN. The problem is plumbing. Because 340B and "best price" rules cascade, a smaller company "may not be participating in 340B or Part B [and doesn't] want to come into Generous… because it's not just Generous. You're talking about really… wrecking their market." And on domestic MFN specifically: "it ties to best price in Part B, and… it'll affect the average sales price, which will drop the average sales price lower than what people are paying." In other words, any US MFN design risks dragging down the reference prices (ASP, best price) that ripple across Medicare, Medicaid, and 340B all at once. Her verdict: "legislating on any of these components will make things worse for pharma and will basically destroy their objectives." (RealPharma)

She also handicapped the durability of the whole thing. The signed CEO deals may give a false sense of safety: "some CEOs may think… that by signing the agreement with the president, they've reduced risk", but she argues the underlying rebate models are "technically very sound," and if Democrats take a chamber they could pick them up. On the legal path: a mandatory MFN that compels manufacturers likely isn't constitutional, but one run through the IRS (echoing Nixon-era wage-and-price controls) "[has] a lot more likelihood of survival." (RealPharma)

4. The R&D-chill argument, from ASCO, read it with the funder disclosed

On the Vital Health Podcast (July 9, recorded at ASCO, the big oncology meeting), a pharma R&D voice, Michael Penn, made the case that the IRA and MFN together are quietly starving small-molecule (i.e., pill) innovation.

His logic in plain terms: pills already have brutal odds, "you're only seeing maybe 9% to 10% of all products actually coming to market", and the IRA's earlier negotiation clock for small molecules (vs. biologics) pushes money away from them. That matters because biologics can't cross the blood-brain barrier, so whole fields, oncology and mental health, get "disadvantaged." On MFN, his memorable framing: pharma "operates increasingly like Hollywood where one blockbuster funds most of the activity of a studio for the whole year… if you're only attacking the pricing on the blockbusters… you're really killing R&D broadly across the whole sector." (Vital Health Podcast)

His most striking data point is a competitiveness warning: back in 1980, "60% of the medicines were invented in Europe" and the US was an also-ran; today the US does ~60% and Europe under 20%. But he says the same reversal is now aiming at the US from the other direction, "as of last year, 2025, Chinese-led companies registering trials with FDA exceeded European companies. And at current trends, by 2028, China may exceed the U.S." (Vital Health Podcast)

Read this with eyes open: the underlying study ("The Inflation Reduction Act's impact on late-stage R&D") was funded in part by Sanofi, and Penn speaks from the industry side. It's a well-argued version of the bear-on-policy / bull-on-pharma-pricing-power case, but it is an interested party making it, not a neutral referee.

The debate

Both sides deserve a fair hearing, because this is genuinely where the sector's multiple gets set.

"It's a manageable, already-modeled headwind." The bull case, implicit in the Equity Mates discussion, is that MFN is largely a negotiating posture. Seventeen companies signed deals and bought their way out of the tariff; other governments have no real intention of paying more (Williams: "I don't expect the other countries… to pay more"); the US still supplies roughly two-thirds of global pharma revenue, so the rest of the world is a rounding error to the model; and drug discovery's long-run trajectory is, in Equity Mates' phrase, "pretty Trump proof." Under this view, the numbers are knowable, the discounts are finite (Williams' 20–50% figures are real but bounded), and the sell-off has over-discounted a headwind the Street can already model. (Equity Mates Investing Podcast; RealPharma)

"It's structural US margin compression that also strangles the pipeline." The bear case, made most forcefully by Penn and reinforced by Williams' plumbing point, is that the danger isn't any single rebate percentage, it's that the reference prices themselves get dragged down across every channel at once (Medicare, Medicaid, 340B, commercial best-price). Layer Round 2 negotiation on top of MFN on top of the 340B cut, and you don't get one clean haircut, you get compounding pressure on the exact US blockbuster economics that fund the next decade of R&D. Penn's "Hollywood studio" line is the whole thesis in one image, and his China-by-2028 data point is the tail risk: if capital and trials keep migrating, the US loses the innovation edge it took 40 years to build. Williams' warning that signed CEO deals "reduced risk" less than executives think, and that Democrats could adopt the rebate models, means the political overhang doesn't clear even on a change of control. (Vital Health Podcast; RealPharma)

The swing factor between them is legal durability. If courts block the aggressive stuff (as they did 9-0 on the last 340B cut), the bull case wins by default. If the administration threads the needle, Williams' "do it through the IRS" path, the bear case has legs. Watch the courtroom, not the podium.

Stocks in play

Straight talk: this was not a company-specific week. No podcast tied a named franchise (Eliquis, Keytruda, Stelara, Imbruvica, Xarelto, Jardiance, Trulicity, Farxiga, Tagrisso, Venclexta, and the rest) to a Round 2 revenue-at-risk number. So rather than manufacture per-ticker figures that no source supports, here is what the week's podcasts actually said about specific names, plus the honest "next number to watch."

Novo Nordisk (NVO), Touched directly.

  • Bull: GLP-1 demand is the strongest secular story in the group; MFN "signing" removes the acute 100% tariff threat.
  • Bear: Equity Mates flagged NVO as visibly "impacted when [the tariff/MFN policy] was announced," and GLP-1s are the single most obvious target for both MFN reference-pricing and future Medicare negotiation given their spend. (Equity Mates Investing Podcast)
  • Next to watch: whether Ozempic/Wegovy land on a future selected-drug list, and the net-price impact of any MFN rebate on GLP-1s (Williams noted GLP-1s have already seen "some level of negotiation").

Eli Lilly (LLY), Touched via the 340B channel.

  • Bull: GLP-1 leadership; strong US manufacturing story that fits the "onshore to dodge tariffs" ask.
  • Bear: On 340B specifically, "Lilly's already started to cut pricing off" to covered entities that don't submit claims data, a sign of how aggressively manufacturers are using the 340B claims fight to reclaim margin, and a live regulatory/legal exposure. (340B Unscripted)
  • Next to watch: any HRSA response to manufacturer claims-data cutoffs; GLP-1 negotiation exposure.

Merck (MRK), Touched via Keytruda's next act.

  • Bull: the Moderna partnership on individualized cancer vaccine mRNA-4157, combined with Keytruda, showed a "49% reduction in death or reoccurrence" in melanoma; approvals expected 2027–2029, a genuine post-Keytruda-cliff growth vector. (Equity Mates Investing Podcast)
  • Bear: none surfaced in this week's podcasts; the standing worry (Keytruda small-molecule/subcutaneous formulation and negotiation timing) got no fresh airing.
  • Next to watch: mRNA-4157/Keytruda Phase 3 readouts and the 2027–2029 approval window.

Novartis (mentioned) and the broader manufacturer bloc, Novartis was named as the 13th manufacturer to implement an in-house pharmacy claim submission policy in the 340B fight, showing the manufacturer coalition acting in near-lockstep on 340B claw-back tactics. (340B Unscripted)

JNJ, PFE, BMY, AZN, ABBV, No company-specific podcast commentary this week. The shared read-through for all of them is the same MFN reference-price and small-molecule-R&D-chill argument that Penn and Williams laid out at the sector level. If you need franchise-level revenue-at-risk on Stelara, Eliquis, Pomalyst, Farxiga, Tagrisso, Imbruvica or Venclexta, that will have to come from filings and Street models, the podcasts didn't provide it, and I won't invent it.

CSL (CSLLY), outside the core tracked list but flagged by Equity Mates as "under pressure" from US-exposure/MFN, with a pledge to shift manufacturing stateside. Worth a glance if you run the plasma/biologics complex. (Equity Mates Investing Podcast)

Read-throughs

PBMs / managed care (CVS, CI, UNH). The 340B reimbursement cut and the MFN "best price" cascade both flow through the same gross-to-net plumbing these companies live in. Williams' point that domestic MFN would drag ASP below what payers actually pay is the kind of reference-price dislocation that reshapes rebate economics, the exact terrain PBMs monetize. The manufacturer-vs-covered-entity 340B claims war (Lilly and Novartis cutting off pricing) is also a fight over who captures the 340B spread, and PBM-owned specialty and contract pharmacies sit right in the middle. (RealPharma; 340B Unscripted)

Biosimilar / generic makers (incl. TEVA). Penn's argument cuts against the biosimilar bulls: he flagged that "biosimilars often face very difficult challenges when it comes to trying to penetrate", uptake is not the layup the policy narrative assumes. Meanwhile his small-molecule point is a reminder that when a pill goes generic, "the price immediately drops to basically zero", the cliff economics that generics both feed on and get squeezed by. (Vital Health Podcast)

Small-molecule vs. biologic R&D mix. If Penn is even directionally right, expect the mix shift toward biologics to accelerate, with oncology solid tumors and CNS/mental health as the therapeutic areas most starved of pill innovation. That's a multi-year read on where pipeline dollars (and licensing deals) migrate. (Vital Health Podcast)

Ex-US launch / pricing strategy. The through-line from both insiders: MFN makes launch sequencing a live strategic lever. Penn is already "thinking about how do we navigate this post-MFN environment" and where products come to market first; Williams stressed the planning paralysis from not knowing "what is it today… but what could it be a month from now or a year from now." Watch for companies delaying or reordering ex-US launches to protect the US reference price. (Vital Health Podcast; RealPharma)

What Changed

The live, dated items as of this week: (1) the CMS 2027 OPPS proposed 340B cut to ASP−33.4%, open for comment through the end of August; (2) 17 signed MFN deals covering roughly 86% of the branded market; (3) HRSA's rebate-model guidance sitting at the White House (OMB) for final review after being struck down on procedural grounds on December 29; and (4) the House "Secure 340B Act" and Senator Cassidy's discussion draft both pending but unlikely to pass before year-end given the midterm calendar.