Medicare Proposes Cutting 340B Drug Payments to Hospitals by More Than a Third

Medicare has proposed paying hospitals average sales price minus 33.4% for drugs acquired through the 340B discount program, a sharp retreat from the current reimbursement rate of average sales price plus 6%. The proposal, released Thursday as part of a rule on hospital outpatient payments, would take effect beginning next year and represents the agency's most aggressive move yet against a program that has divided health policy for years.

What the 340B Program Is

The 340B drug discount program allows eligible hospitals to purchase certain pharmaceuticals at reduced prices, with the goal of extending resources for providers that serve low-income and uninsured patients. Only nonprofit facilities — including safety-net hospitals and academic medical centers — qualify. For-profit hospitals are excluded entirely.

Medicare's case for the proposed cut rests on its own survey data. The agency said those surveys found that some patients were charged more for 340B-acquired drugs than the hospitals paid to acquire them — a finding that, in the agency's framing, justifies a significant reduction in what Medicare reimburses for those drugs.

The Numbers and Who Bears Them

The combined swing from plus 6% to minus 33.4% represents a gap of nearly 40 percentage points. Because 340B participation is restricted to nonprofits, the proposed reimbursement cut falls entirely on that sector. For-profit hospitals, ineligible for the program, would receive a 7.4% pay increase under the same adjustment, according to Medicare's proposed rule — an asymmetry that hospital trade groups have already seized on.

Groups representing nonprofit and academic hospitals condemned the proposal swiftly, contending it would disproportionately harm safety-net providers — the institutions the program was originally designed to support.

A Long-Running Policy Dispute

The 340B program has become one of health policy's more contested arenas. The proposed cut reflects a view held by some critics that the discount has evolved into a revenue mechanism for well-resourced health systems rather than a subsidy for underserved communities. Nonprofit hospital groups dispute that characterization, describing 340B revenue as essential to sustaining care for vulnerable patients.

The proposal sits inside a broader hospital outpatient payment rulemaking and will proceed through a formal public comment period before any final rule could take effect. Given the swift industry pushback, the comment docket will not be quiet.