Medicaid cuts may strip 12% of 340B hospitals of eligibility, analysis finds
Provisions of the law also may unintentionally spur greatly increased utilization of 340B.
Twelve percent of 340B hospitals could lose eligibility for the program due to Medicaid spending cuts in the recently enacted budget reconciliation law, according to a recent projection.
The projection by Dan Snow, a researcher and data scientist for Turquoise Health, concluded the coming reduction in federal Medicaid spending could result in loss of eligibility for 340B by 314 hospitals out of about 2,500 enrolled facilities.
“The scale [of loss] was surprising,” said Snow.
The types of hospitals projected to be most affected included:
- Rural disproportionate share hospitals (DSH) with 201 to 500 beds
- Urban DSH hospitals (201 to 500 beds)
- Urban DSH hospitals (101-200 beds)
- Rural DSH hospitals (0 to 50 beds)
- Rural DSH hospital (>500 beds)
- Rural referral centers (RRCs) (201- to 500 beds)
The loss of eligibility would stem from the One Big Beautiful Bill Act’s (OBBBA’s) effect on hospitals’ disproportionate share adjustment percent, which is a key metric used to determine 340B eligibility. It is derived from the disproportionate share patient percent (DPP), which quantifies the proportion of low-income Medicare and Medicaid patients a hospital serves.
The OBBBA was expected to cut hospitals’ Medicaid revenue through more than $1 trillion in 10-year Medicaid reductions. The reductions come through holding federal Medicaid spending increases to 7% over that time, instead of the previously projected 19% increase.
The OBBBA’s Medicaid spending cuts will lower the number of Medicaid patient days in the DPP formula, Snow said. That would result in decreases in DPP (and therefore the DSH percent), which would drop some hospitals below the thresholds required by 340B.
Snow based his projection on state-level estimates by KFF of the OBBB’s impact on Medicaid spending. The projection used 2023 data from cost reports and the 340B program.
Snow cautioned that the projection is a “worst-case scenario” and could vary widely based on state actions to implement provisions of the law, such as new requirements for able-bodied enrollees to work, volunteer or obtain education part time.
Potential responses
The size of the eligibility loss stemmed from the large number of DSH hospitals and RRCs that are barely above the thresholds required for 340B eligibility, he said.
He expected the eligibility effects to play out over many years, since many provisions of the law do not go into effect for several years.
“This piece and the numbers assume that hospitals do nothing to respond, which is pretty unlikely,” Snow said.
Hospital responses could include seeking reclassification from DSH hospitals to Rural Referral Centers or other type of 340-eligible type of covered entity. Other classifications have lower DSH percent eligibility levels.
“A huge number of [340B hospitals] are stacked up right above the threshold and I don’t know why or how they are doing that but assuming they can continue to do that, they can probably manage to push their thresholds higher, even despite the Medicaid cuts,” Snow said.
Hospitals have already begun to calculate whether they are likely to lose 340B eligibility due to coming Medicaid cuts, said Emily Donaldson, a principal at Avalere.
340B increase?
Other unintended effects of the OBBBA could include driving non-DSH hospitals in 340B to greatly increase their utilization of the program to fill budget holes from Medicaid patients losing eligibility, Donaldson said.
“On one hand, you could see a decrease in 340B from those DSH hospitals becoming ineligible,” Donaldson said. “But on the other hand, you could drive growth if those other types of covered entities are driven even further to using 340B.”
That increased 340B utilization could come from large expansions in covered entities use of contract pharmacies and child sites.
The rapid growth of 340B has fueled calls from critics and some policymakers to reform the program.
In the first half of 2025, 340B covered entities purchases of covered outpatient drugs increased 20% to $85.4 billion, according to a social media post by Shiraz Hasan, a general manager for market research firm IQVIA. “It’s just grown across the board; it’s the rate of increase that has people watching the rural and FQHC [federally qualified health center] side,” Donaldson said.
