The 340B Medicare drug rule proposed by the Trump administration on Thursday would bar hospitals from marking up discounted medicines, a change federal officials estimate would save Medicare patients about $1.1 billion next year. The Centers for Medicare & Medicaid Services (CMS) wants to rewrite the formula that decides how much 340B hospitals are paid when they administer costly outpatient drugs.
For the millions of older adults on Medicare Part B, the plan reframes a decades-old discount program as a consumer-cost question rather than a hospital-funding one. It also revives a fight the government lost at the Supreme Court just four years ago.
What the 340B Medicare drug rule would change
The 340B program lets hospitals that serve low-income patients buy outpatient prescription drugs at steep discounts. In practice, many of those hospitals then bill insurers and Medicare at rates well above what they paid, keeping the spread. CMS says that gap flows through to patients as higher co-payments.
Under the draft, CMS would cap Medicare reimbursement for participating hospitals at each drug’s average sales price minus 33.4%. That would cut roughly 40% from what 340B hospitals can currently collect through Medicare for administering these medicines. If finalized, the rule would take effect at the start of next year.
The agency estimates the average Medicare Part B patient who receives one of these drugs would save about $800 a year in co-payments, adding up to the $1.1 billion figure across all covered beneficiaries. A White House official, speaking on condition of anonymity before the announcement, said the savings could reach roughly $20 billion over a decade.
The Lupron Depot markup that drew scrutiny
Administration officials pointed to the prostate cancer drug Lupron Depot to illustrate the math. A 340B hospital can acquire a dose for about $700, according to the policy draft. It can then collect roughly $4,000 in Medicare reimbursement for administering that dose, plus another $1,000 from the patient’s co-payment.
That example — a purchase price a fraction of the reimbursement — is the kind of spread the new formula is designed to compress. For a Part B patient, a smaller reimbursement base means a smaller co-payment, since Medicare co-insurance is calculated as a percentage of the billed amount.
Government-desk readers tracking how federal agencies reshape everyday costs can follow related coverage on the AXO News Government desk.
Why hospitals are pushing back
The American Hospital Association warned the change would deepen financial strain on its members. “These proposals will undermine the ability of hospitals to maintain essential services and protect affordable access to care for those who depend on the 340B program,” said Ashley Thompson, the group’s senior vice president for public policy analysis and development, as reported by AP.
The stakes are real for the safety-net systems the program was built to support. 340B was created to help providers stretch limited federal resources across more patients; the revenue many now generate from the discount underwrites services in lower-income communities. Cutting the reimbursement, hospitals argue, risks those services. The administration counters that the money is coming out of patients’ pockets in the first place. The official said hospital groups were not shown the rule before release.
A rule the Supreme Court already blocked once
This is not the administration’s first attempt. In 2018, during Trump’s first term, CMS tried a similar cut to Medicare payments for 340B hospitals. The Supreme Court ruled in 2022 that the government could not single out 340B hospitals for a separate, lower reimbursement rate without first surveying what the hospitals actually spend on the drugs.
This time, officials say they built that step in. Trump signed an executive order in April 2025 directing a survey of hospital drug-acquisition costs, and the administration says the survey results underpin the new formula. That sequencing is the government’s answer to the legal problem that sank the earlier effort — though a proposed rule still faces a public comment period and near-certain litigation before it could bind any hospital.
The affordability politics behind the timing
The proposal lands in an election year in which the administration has repeatedly framed its actions around household affordability and rising medical costs. Whether the projected savings fully materialize is uncertain given the complexity of U.S. health-care billing, and the 340B program has long been a lobbying battleground between hospitals and drugmakers. For now, the rule is a proposal — a signal of where CMS wants to steer the discount program, not yet a settled change.