Trump Administration Proposes Rule to Cut Medicare Drug Costs

The Trump administration on Thursday proposed a new rule aimed at preventing hospitals from charging markups on discounted drugs purchased through the 340B program, a move that officials say could save Medicare patients $1.1 billion in out-of-pocket costs next year, according to AP News.

The proposed rule, announced by the Centers for Medicare & Medicaid Services (CMS), would fundamentally change how the federal government reimburses hospitals that participate in the 340B drug discount program, capping payments at the average sales price minus 33.4% — roughly a 40% cut from current levels.

How the 340B Program Works

Created by Congress in 1992, the 340B program allows hospitals that serve large numbers of low-income and uninsured patients to purchase outpatient prescription drugs at discounts typically ranging from 20% to 50% below the average sales price. Under current Medicare Part B rules, hospitals are reimbursed at the drug’s average sales price plus 6%, meaning those that acquire drugs through 340B can bill Medicare at rates far exceeding their actual costs.

The AP report provides a stark example: for the prostate cancer drug Lupron Depot, a 340B hospital can acquire a dose for roughly $700 but receives approximately $4,000 in Medicare reimbursement plus $1,000 from patient co-payments.

Patient Savings and Impact

CMS estimates that the average older adult with Medicare Part B coverage who receives one of these drugs would save approximately $800 per year in co-payments. A White House official told the AP that 10-year savings could total roughly $20 billion. In total, CMS projects the rule would reduce drug spending by $5.7 billion in 2027 alone, including $1.15 billion in direct beneficiary savings.

“This proposed rule focuses squarely on patient affordability by strengthening our utilization management tools, aligning drug payments with actual acquisition costs, and removing site-of-care disparities that have unnecessarily driven up costs for millions of seniors,” CMS Administrator Dr. Mehmet Oz said in a press release.

Hospital Opposition

The proposal has drawn sharp criticism from hospital groups. Ashley Thompson, senior vice president for public policy at the American Hospital Association, argued that “[t]hese 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.”

Jennifer DeCubellis, president and CEO of America’s Essential Hospitals, told Healthcare Dive that the proposed rule “takes an axe to critical funding that supports essential hospitals without concern for how it will affect the patients they serve.”

Legal and Political Context

This is the second time the Trump administration has attempted to rein in 340B payments. A similar policy during Trump’s first term was struck down by the Supreme Court in 2022 in American Hospital Association v. Becerra because the government had not conducted a survey of hospital drug acquisition costs.

This time, the administration conducted that survey after President Trump signed an executive order in April 2025. The survey found “significant disparities” between what hospitals pay for drugs through 340B and what they pay outside the program, potentially strengthening the government’s legal standing. However, analysts at TD Cowen noted the policy “will probably still be challenged.”

Broader Policy Package

The 340B payment change is part of a larger CMS rule that also proposes expanding site-neutral payments for imaging services — estimated to save $260 million in the first year — adding prior authorization requirements for Botox injections, and seeking public input on hospital price transparency. The rule is part of the 2027 Hospital Outpatient Prospective Payment System, which also includes a 2.4% increase in outpatient pay.

Because the 340B policy must be budget-neutral, regulators are proposing to increase outpatient payments for non-drug services by an equivalent amount, which would benefit non-340B providers including for-profit hospitals.

What’s Next

The proposed rule is now open for a 60-day public comment period following its publication in the Federal Register. If finalized, it would take effect at the start of 2027. The rule comes during an election year as the Trump administration seeks to demonstrate action on healthcare affordability, though legal challenges from hospital groups are widely expected.

Senator Bill Cassidy (R-LA), chairman of the Senate HELP Committee, released separate 340B reform legislation on June 25, signaling ongoing congressional interest in reshaping the program beyond the administration’s regulatory efforts.