The Trump administration on Thursday (July 2) proposed a rule aimed at preventing hospitals from charging large markups on discounted prescription drugs provided to Medicare patients, a move it says could save beneficiaries an estimated $1.1 billion next year.
The proposal, issued by the Centers for Medicare & Medicaid Services (CMS), targets hospitals participating in the federal 340B Drug Pricing Program, which allows eligible hospitals serving low-income patients to purchase outpatient prescription drugs at significantly discounted prices.
What is the proposed rule?
The rule targets hospitals participating in the 340B Drug Pricing Program, a federal program that allows hospitals serving low-income and vulnerable patients to purchase outpatient prescription drugs at heavily discounted prices.
Currently, these hospitals can buy drugs at steep discounts but are often reimbursed by Medicare at much higher rates, allowing them to keep the difference. Patients’ co-payments are also based on these higher reimbursement amounts, increasing their out-of-pocket costs.
Under the proposed rule, CMS would reduce Medicare reimbursements for these hospitals to reflect the lower prices they pay for the drugs.
How would reimbursements change?
The proposal would cap Medicare reimbursement for 340B hospitals at:
Average Sales Price (ASP) minus 33.4%.
According to the White House, this would reduce Medicare payments to participating hospitals by roughly 40% compared with current reimbursement levels.
The administration said the formula is based on a survey ordered by President through an executive order signed in April 2025, which examined how much hospitals actually pay to acquire prescription drugs.
How much could patients save?
The estimates:
Medicare Part B beneficiaries receiving these drugs would save an average of about $800 a year in co-payments.
Total savings for Medicare patients would reach $1.1 billion next year.
Savings could total around $20 billion over 10 years if the rule remains in effect.
The proposal is part of the administration’s broader effort to reduce healthcare costs and demonstrate progress on affordability.
Why is the administration making the change?
The argues that the current reimbursement system allows some hospitals to generate significant profits by purchasing discounted drugs while receiving much higher Medicare payments.
Officials say aligning reimbursements more closely with hospitals’ acquisition costs will lower expenses for Medicare beneficiaries without affecting access to medicines.
Example cited by the administration
The proposed rule highlights the prostate cancer drug Lupron Depot as an example.
According to CMS:
A hospital participating in the 340B program can purchase one dose for about $700.
Medicare currently reimburses the hospital around $4,000 for administering the drug.
The patient may also pay roughly $1,000 in co-payments based on that reimbursement.
The administration says the proposed formula would significantly reduce these reimbursement levels, lowering patient costs.
What is the 340B program?
Created in 1992, the 340B Drug Pricing Program requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to eligible hospitals and healthcare providers.
The program was intended to help hospitals serving low-income and uninsured patients stretch limited federal healthcare resources and expand access to care.
Over time, however, it has become one of the most contested areas of US healthcare policy.
Why are hospitals opposing the proposal?
Hospital groups argue that revenue generated through the 340B program helps fund essential services, particularly in rural and underserved communities.
The American Hospital Association warned that reducing Medicare reimbursements would place additional financial pressure on hospitals.
Ashley Thompson, the association’s senior vice president for public policy analysis and development, said the proposal would undermine hospitals’ ability to maintain critical services and preserve affordable access to care for vulnerable patients.
Hospitals contend that reduced reimbursement could ultimately affect healthcare services available in the communities they serve.
(With AP inputs)
