CMS proposal for 340B repayment sparks concerns over hospital funding cuts

Hospital advocates recently raised concerns on the price tag of provisions in a proposed Medicare payment rule related to the 340B discount drug program.

The Medicare outpatient prospective payment system (OPPS) proposed rule included several policies related to 340B, including:

• Accelerating hospital repayment — through increased rate cuts — of previous 340B-related payment
• Implementing a hospital survey of outpatient drug costs
• Penalizing hospitals that do not respond to the survey

The OPPS clawback stemmed from the first Trump administration’s cut in Medicare payments for 340B drugs. Those reduced payments were then distributed to all OPPS hospitals, due to Medicare’s budget neutrality requirements.

The Supreme Court struck down the 340B cut after five years (2018 to 2022) and ordered CMS to pay back hospitals the amount of their individual reductions in a one-time, $9 billion lump sum payment. That lump sum payment was released in early 2024. In late 2023, CMS announced plans to claw back the additional $7.8 billion payment OPPS payments it made related to the budget neutrality requirement.

Originally, the clawback, which applies to both 340B and non-340B hospitals, was planned to occur through an annual 0.5% reduction in OPPS rates over 16 years. The current proposed rule would accelerate that clawback to a 2% reduction over six years.

Cost of the clawback

Among recent hospital responses to the proposed rule, America’s Essential Hospitals (AEH) noted CMS’s estimate that the accelerated clawback would cost hospitals more than $1 billion in 2026 and climb to $1.6 billion in 2030. AEH said its own analysis projected its low-income member hospitals, which are fewer than 6% of OPPS hospitals, face $136 million in cuts, or 12.4% of those planned for 2026.

“Essential hospitals, already operating on negative margins that far exceed other acute care hospitals, cannot afford a net payment cut in CY 2026 and continue to meet the needs of their communities,” said AEH.

The American Hospital Association said, on average, the accelerated clawback will be a 300% annual increase in recoupment per hospital and “could be millions of dollars each year for some hospitals.”

Additionally, AHA said the overall clawback is illegal and “that the acceleration of an illegal rule only compounds its illegality.”

The Alliance of Safety-Net Hospitals (ASH) said the 2% reduction over the next six years could add to a 4% Medicare sequestration that could begin in 2026 due to the debt impact of the One Big Beautiful Bill Act (OBBBA). Congress would have to vote to avert that sequester.

“With the proposed 340B repayment policy, that would mean all outpatient hospital services would be cut as much as 8% next year and no industry – health care or otherwise – can weather such a large decrease without also decreasing patient services and making workforce changes,” said ASH.  

AHA said hospitals have already created budgets for 2026 that only accounted for the previously planned 0.5% OPPS rate reduction.

Clawback timing

CMS also gave no reason for accelerating the clawbacks in 2026, said AHA.

“The proposed sudden, accelerated clawback comes at a precarious moment for hospitals,” said AHA. It cited Strata Decision Technology data that showed hospitals’ operating margins narrowed during the first quarter of 2025 dropped below 1% for the first time in 15 months. Additionally, costs have accelerated, such as a 9.1% increase in total non-labor expense from March 2024 to March 2025.

The accelerated cuts also will come as hospitals weather provisions of the recently enacted OBBBA, which will cut federal healthcare spending by $1 trillion over 10 years. AHA wrote that 59% of the OBBBA’s maximum annual spending reductions were expected to impact providers in FY29.

CMS said it considered an even faster clawback period of three years. But AHA said it never explained why it settled on six years, and it needs to do so.

Drug survey

CMS also proposed a drug acquisition cost survey of all hospitals paid under the OPPS. The first Trump administration attempted the same survey in 2020, but most hospitals did not respond to it since they were struggling under the initial waves of the COVID-19 pandemic. The low response rate to that survey led the Supreme Court to reject the subsequent 340B cut, which was based on the results of the survey.

“It inflicts unnecessary costs on hospitals and their employees, all with the apparent (and ill-advised) goal of cutting Medicare payments to certain groups of hospitals beginning in CY2027,” AHA wrote about the newly proposed survey.

CMS’s estimated 73.5 hours and $4,000 cost to complete the survey “grossly underestimates both the cost and time required to complete any survey,” said AHA.

“Ultimately, however, the main reason to abandon this proposed cost acquisition survey is that its eventual goal should never be pursued,” AHA said about the expectation it would be used to justify another 340B payment cut.

AHA also noted that the survey’s results would be quickly outdated since drug costs can accelerate suddenly with the advent of new high-cost drugs.

ASH worried that the survey will be used to implement 340B cuts as soon as 2027 and said it “is difficult to see how such a quick turnaround can produce reliable results.” 

Response penalties

CMS suggested it may make responding to the survey a mandatory requirement of all hospitals paid under OPPS.

AHA insisted CMS lacks the authority to compel participation in a drug acquisition cost survey.

The Catholic Health Association (CHA) raised concerns about options CMS offers for effectively penalizing non-responders. It warned against CMS assuming a percentage add-on for non-responding hospitals or assuming that they have such insignificant drug costs that they would never be paid separately for drugs.

“Such a drastic penalty is neither authorized by statute nor warranted based on non-response to a survey,” said CHA. “For such an enforcement action to be taken, CMS would have to be given explicit authority by statute.” 

MA effect

The Federation of American Hospitals, whose for-profit hospitals are ineligible for 340B but are subject to the clawback, also warned the accelerated clawback would impact hospitals the most in markets with large shares of Medicare enrollees covered by Medicare Advantage (MA) plans.

FAH said MA plans’ capitated payment will not incorporate the quadrupling of the payment cut in 2026 “but at least some or perhaps most MA organizations will attempt to incorporate these significantly greater cuts in their outpatient payments to contracted hospitals.”

“The resulting discrepancy in rates paid to MA organizations and rates paid by MA organizations would create an unwarranted and inappropriate windfall for MA organizations and would actively harm providers while providing no benefit to Medicare beneficiaries or the Part B trust fund,” said FAH.