Medicare Part B Margins Decreasing Under New Bill

Background: The One Big Beautiful Bill Act

The One Big Beautiful Bill Act (OBBBA) is a comprehensive legislative proposal that includes significant tax changes, increased defense spending, and major reductions in federal spending for various programs. Though not solely a healthcare-focused bill, one of its key financial impacts involves automatic spending cuts triggered under the Statutory Pay-As-You-Go (PAYGO) Act.

Among the sectors affected, Medicare Part B services face substantial reimbursement reductions, which could decrease operational margins for providers relying on these payments.

Overview of Medicare Part B and Provider Margins

Medicare Part B covers:

• Physician services

• Outpatient hospital services

• Durable medical equipment

• Physician-administered drugs, including specialty infusions

Many specialty providers, such as infusion clinics, oncology practices, and rheumatology offices, operate under the “buy-and-bill” model. Providers purchase high-cost drugs and bill Medicare for reimbursement, which includes a margin intended to cover:

• Drug acquisition costs

• Storage and handling expenses

• Administrative overhead

• Staff salaries

Margins under Medicare Part B can already be narrow due to frequent policy updates and shifts in drug pricing dynamics.

4% Sequestration Cuts Under OBBBA

The OBBBA’s projected impact on the federal deficit triggers PAYGO sequestration, mandating a 4% cut to Medicare payments starting in 2026.

Specific effects on Medicare Part B:

• Reductions apply across most Part B services, including:

  • Drug reimbursement

  • Administration fees

  • Physician services

• Example impact:

  • A Part B drug currently reimbursed at $5,000 would decrease to $4,800 under the 4% cut.

  • Clinics absorbing high drug costs could see profit margins further compressed.

Implications for Specialty Drug Margins

Specialty drugs under Part B, especially those used in oncology, rheumatology, and ophthalmology, are among the highest-cost items in Medicare spending.

Key considerations include:

• High acquisition costs:

  • Drugs like monoclonal antibodies and biologics can cost thousands per dose.

• Thin profit margins:

  • Providers rely on modest add-on percentages over the drug’s Average Sales Price (ASP).

• Fixed overhead:

  • Operating costs such as storage, specialized staffing, and infrastructure remain constant.

A 4% reduction in Part B reimbursements could erode already slim margins, making some treatments financially unsustainable for smaller practices.

Physician Fee Schedule Updates Slowed

Separate from the 4% sequestration, the OBBBA proposes tying annual updates to the Medicare Physician Fee Schedule (PFS) to only one-tenth of the Medicare Economic Index (MEI).

• Historically, PFS adjustments have helped offset rising costs in labor, rent, and equipment.

• Under OBBBA:

  • Payment increases would be minimal.

  • Operational costs could outpace reimbursement growth.

Over several years, this creates compounded financial pressure for Part B providers.

Potential Medicaid Spillover

OBBBA also includes over $600 billion in proposed Medicaid funding reductions over the next decade. While separate from Medicare Part B:

• Providers serving dual-eligible patients may see:

  • Fewer patients with Medicaid coverage.

  • Increased uncompensated care.

• Reduced Medicaid payments can indirectly strain practice finances already impacted by Part B cuts.

Audit and Compliance Pressures

Another provision in the OBBBA allocates funding for AI-driven oversight of Medicare payments. Part B services, due to high costs, are likely to face:

• Increased audits.

• More documentation requests.

• Possible recoupments for billing errors.

Providers may need to invest additional time and resources to ensure audit readiness, further increasing operational costs and lowering effective margins.

Market Dynamics and Provider Decisions

In response to decreasing margins:

• Some clinics may:

  • Limit high-cost drug usage.

  • Reduce participation in Medicare Part B services.

• Others may:

  • Consolidate with larger health systems.

  • Seek alternative revenue streams.

Providers with higher proportions of Medicare Part B revenue are likely to feel the greatest financial impact.

Conclusion

The One Big Beautiful Bill Act introduces significant changes with the potential to lower Medicare Part B reimbursement margins. For providers who depend on Part B payments—particularly for costly specialty drugs—the combination of a 4% sequestration cut, slower reimbursement growth, and heightened audit scrutiny could result in meaningful financial strain. Careful financial analysis, strategic cost management, and staying informed on policy developments will be critical for maintaining practice viability in the evolving healthcare landscape.