The proposal would alter reimbursement rates for hospitals serving low-income communities, a change that the administration says would better reflect the discounted prices those facilities pay for eligible outpatient drugs. According to The Associated Press, the rule is expected to take effect at the beginning of next year if it is finalized.
The proposal arrives as healthcare affordability remains a major issue for households and government programs. The administration says the reimbursement changes would lower costs for Medicare patients, while hospital groups argue the rule could place additional financial pressure on providers that rely on revenue generated through the 340B program.
Proposed Reimbursement Changes Focus on the 340B Drug Pricing Program
The proposed rule would apply to hospitals participating in the federal 340B program, which allows qualifying healthcare providers serving low-income patients to purchase outpatient prescription drugs at discounted prices. Under the current system, hospitals may receive Medicare reimbursements that exceed the prices they paid for those medications, allowing them to retain the difference.
According to The Associated Press, the Centers for Medicare & Medicaid Services plans to revise the reimbursement formula by capping payments to participating hospitals at the average sales price of eligible drugs minus 33.4%. The administration says the revised formula is based on data collected after President Donald Trump signed an executive order in April 2025 directing officials to survey hospital drug acquisition costs.
The administration included Lupron Depot, a prostate cancer treatment, as an example in its policy draft. According to the proposal, hospitals participating in the 340B program can purchase a dose for roughly $700 while receiving about $4,000 in Medicare reimbursement for administering the drug, along with approximately $1,000 in patient co-payments. Under the proposed rule, Medicare payments to participating hospitals would be reduced by roughly 40%.
The administration estimates that Medicare beneficiaries covered under Part B who receive these drugs would save an average of $800 annually in co-payments. Overall savings for patients are projected at $1.1 billion during the first year, while a White House official told The Associated Press that savings over a decade could reach approximately $20 billion.
Hospitals Warn of Financial Impact as Administration Revisits Earlier Policy
Hospital organizations have criticized the proposal, arguing that lower reimbursement rates could affect their ability to provide services. Ashley Thompson, senior vice president for public policy analysis and development at the American Hospital Association, said the proposed changes would undermine hospitals’ ability to maintain essential services and preserve affordable access to care for patients who depend on the 340B program.
The 340B program was originally created to help healthcare providers stretch limited federal resources while serving more patients. Over time, it has become the subject of ongoing disputes between hospitals and pharmaceutical companies over how the program should operate and whether reimbursement policies should be revised.
The proposal also revisits an issue that reached the Supreme Court several years ago. According to The Associated Press, the Trump administration pursued a similar reduction in Medicare payments during the president’s first term in 2018. In 2022, the Supreme Court ruled that the government could not establish a separate reimbursement formula specifically for hospitals participating in the 340B program.
If finalized, the new rule would take effect at the start of next year, changing how Medicare reimburses participating hospitals for discounted outpatient prescription drugs while continuing the debate over balancing patient savings with hospital finances.
