New Medicare Regulation Aims to Cut Drug Prices for Hospitals

The U.S. administration is unveiling a new regulation aimed at curbing hospitals from inflating the prices of discounted drugs for Medicare beneficiaries. This initiative predicts consumer savings of $1.1 billion in the coming year, as reported by the Associated Press.

This policy targets hospitals partaking in the 340B drug pricing program, which grants them access to outpatient prescription medications at reduced rates. Currently, hospitals charge insurers more than their purchase costs, potentially escalating patient expenses. The Centers for Medicare & Medicaid Services (CMS) intends to revise the reimbursement model to lessen these patient costs.

This proposal is part of a broader strategy to combat escalating healthcare expenses, a pressing issue for American households and government budgets alike. However, the actual long-term savings remain uncertain due to the intricate nature of the U.S. healthcare system.

There are concerns that the rule could decrease hospital revenues, potentially impacting the services and job opportunities they provide within communities. Initially designed to help healthcare providers optimize scarce federal resources, the 340B program has become a contentious topic, with hospitals and pharmaceutical companies lobbying for advantageous policy shifts.

CMS estimates suggest Medicare Part B beneficiaries could save around $800 annually on co-payments for these medications, with overall savings projected at $1.1 billion. Over ten years, savings could total approximately $20 billion. A White House official indicated that hospital associations weren't briefed before the proposal's publication.

An example illuminating the current reimbursement framework involves Lupron Depot, a prostate cancer medication. In the 340B program, a dose costs hospitals about $700, yet they might earn up to $5,000 through Medicare reimbursements and patient co-payments. The new rule proposes reducing Medicare compensation to hospitals by 40%.

If approved, the regulation will take effect at the start of the next year. A previous attempt by the administration to implement a similar rule was nullified by the Supreme Court in 2022, which ruled against separate reimbursement guidelines for 340B hospitals. Post an executive order in April 2025 reviewing hospital drug purchasing costs, the new regulation aims to cap Medicare reimbursement at the average sales price minus 33.4% for eligible hospitals, aligning with the discounts these facilities receive on drug acquisitions.