The Trump administration has introduced a proposed rule aimed at reducing drug costs for Medicare patients by prohibiting hospitals from applying markups to medications acquired through a discount program. The administration estimates this change could save Medicare beneficiaries $1.1 billion in the first year.
The proposed regulation targets hospitals participating in the 340B program, which allows them to purchase outpatient prescription drugs at discounted rates. Under the current system, some hospitals bill insurers at rates higher than their acquisition costs, leading to increased expenses for patients. The Centers for Medicare & Medicaid Services plans to alter the reimbursement formula for these hospitals to lower patient costs.
This initiative comes as the administration seeks to demonstrate action on healthcare affordability during an election year, with rising medical expenses posing financial challenges for households and the government. While the administration has implemented measures intended to lower medical treatment costs, the ultimate savings may be affected by the complex nature of the U.S. healthcare system.
There is a potential for hospital systems to experience a reduction in revenue, which could impact the services they offer and employment within their communities. The 340B program was originally established to help healthcare providers extend federal resources to better serve more patients. However, it has been the subject of sustained lobbying efforts by both hospitals and pharmaceutical companies.
According to administration estimates, the average Medicare Part B recipient who receives one of these administered drugs could see an annual co-payment savings of $800. This translates to a total estimated saving of $1.1 billion for all individuals with this coverage. Over a decade, potential savings could reach approximately $20 billion, according to a White House official.
The administration provided an example illustrating the current system for the prostate cancer drug Lupron Depot. Hospitals in the 340B program can purchase a dose for around $700 but may receive about $4,000 in Medicare reimbursement, plus an additional $1,000 co-payment from the patient. The proposed rule would decrease by roughly 40% the amount Medicare pays these hospitals for such drugs.
If finalized, the rule is slated to take effect at the beginning of the following year. This is not the first attempt by the administration to implement such a policy; a similar rule was proposed in 2018 but was later invalidated by a Supreme Court ruling in 2022, which stated the government could not establish a separate reimbursement plan for 340B hospitals.
The current proposal follows an executive order signed in April 2025, which mandated a survey on hospital drug acquisition costs. The findings from that survey informed the proposed rule, which would cap Medicare reimbursement for participating hospitals at the average sales price minus 33.4%, reflecting the discounted prices at which these hospitals acquire the drugs.