New SMART Health Care Act Mandates Drug Discounts for Medicare Patients and Cuts Hospital Outpatient Payments by 2026

The Stopping Medicare Abuses to Restore Trust in Health Care Act, or the SMART Health Care Act, is a major package of changes that aims to reshape how Medicare pays for everything from specialty drugs to simple outpatient procedures. It touches on Medicare Advantage, hospital payments, and access to care in rural areas, all starting in 2026.

The Great Hospital Payment Equalizer

Section 3 proposes the biggest shake-up for hospitals: enforcing site-neutral payments starting January 1, 2026. Right now, hospitals often get paid more for the exact same service—say, an infusion or a minor procedure—if it’s done in their outpatient department than if it’s done at a doctor’s office. This bill largely ends that practice. For most on-campus hospital outpatient services, Medicare will now pay the lower rate used for physician offices. If you’ve ever wondered why your bill was so high just because you walked into a hospital-owned clinic instead of a private practice, this is why, and this bill tries to level that playing field.

This change is a major cost-control effort for Medicare, but it hits hospitals’ bottom lines hard. The bill makes exceptions for certain providers, recognizing the unique challenges they face. If you live in a rural area, your local Critical Access Hospital, Sole Community Hospital, or other rural hospital is exempt from this payment cut. This is a crucial carve-out designed to protect smaller, essential facilities from financial distress, ensuring they keep their doors open.

Mandatory Drug Discounts for Patients

Section 5 tackles drug costs using the 340B Drug Pricing Program. This program allows certain hospitals and clinics (known as covered entities) that serve a high number of low-income patients to buy outpatient drugs at deep discounts. The problem? Sometimes those entities don't pass the full savings on to the patient.

Under this bill, that changes. Any covered entity getting 340B drugs must ensure that Medicare patients receiving those drugs get them for a price that is no more than what the provider paid for the drug, minus any rebates or discounts the provider received. Essentially, they can’t mark up the drug price beyond their net cost. This is a huge win for Medicare patients, potentially lowering their out-of-pocket costs at the pharmacy counter, especially for specialty drugs. To ensure compliance, the government must set up a system to track these transactions and publicly report how much providers paid versus how much they charged.

Easing the Rules for Rural Care

Section 4 loosens the restrictions on physician-owned hospitals in rural areas. Current law (often called the Stark Law) places strict limits on doctors referring patients to hospitals they own to prevent conflicts of interest. The bill removes one of the key restrictions for physician-owned hospitals located in rural areas, provided that they primarily serve the local rural population. This is meant to improve access to care in communities where there might otherwise be few hospital options, allowing doctors to invest in and staff local facilities without running into federal prohibitions.

Data and Quality Adjustments

Finally, the bill tweaks two other important areas. Section 2 updates how Medicare Advantage (MA) plans calculate their risk adjustment payments—the money they get based on how sick their members are. Starting in 2026, MA plans must use two full years of diagnostic data instead of the current methodology. The idea is to make the payment calculations more stable and accurate by relying on a longer health history for patients.

Section 6 also adjusts the range for quality incentive payments to Skilled Nursing Facilities (SNFs). Starting in Fiscal Year 2025, the Secretary of Health and Human Services will have the flexibility to adjust the quality incentive payment by 2 to 5 percentage points, instead of the previous 2 percentage points. This wider range means the financial rewards—or penalties—for SNFs based on quality metrics could become more significant.