340B Program Targeted: Proposal, Reimbursement Cut, Medicaid Impact

The period of conflict continues to unfold on the 340B drug discount program.

Senator Cassidy discussion draft

Yet another draft proposal with 340B changes has been released. Sen. Bill Cassidy (R-La.), current chair of the Senate Health, Education, Labor & Pensions Committee, released his discussion draft, the 340B Drug Pricing Integrity and Affordability for Patients Act, for stakeholder comments.

The proposal hits on long-running issues of contention — contract pharmacies, rebate models, definitions, child sites, and more.

Rebates, patients

Rebates versus upfront discounts continue to be an issue. The draft includes three options for pharmaceutical manufacturers:

1. Retroactive rebates
2. Discounts after claims submission to a federal repository
3. Upfront discounts

Covered entities may elect whether to receive upfront discounts or rebates if agreeing to make all outpatient drugs available to patients at a cost of not more than the ceiling price plus a nominal dispensing fee.

Who is a patient, you wonder? Long an issue of contention, the proposal would create a statutory definition of a “patient” as one who received outpatient services within the past two years, has a relationship with the covered entity as evidenced through auditable medical records, and has received a prescription for a covered drug because of the outpatient services.

Contract pharmacies, child sites

Under the draft, contract pharmacy arrangements are limited to five locations for disproportionate share hospitals (DSH) and free-standing cancer or rural referral centers (RRCs). All covered entities using contract pharmacies, except mail-in and hemophilia treatment centers, must use contract pharmacies located in the covered entity’s service area.

For child sites of DSH, critical access, children’s, RRCs, and free-standing cancer hospitals, 11 requirements must be met for a child site to qualify, including: 

• Must be listed on the most recent Medicare cost report 
• Is wholly owned by the covered entity 
• Meets CMS provider-based requirements 
• Provides other outpatient services beyond administering, furnishing, or providing drugs 
• Is in a federally designated health professions shortage area 
• Meets minimum charity care levels and Medicaid/CHIP levels

Patient affordability sliding scale

A new patient affordability sliding scale would apply to patient’s out-of-pocket costs on the covered drugs. The scale is based on federal poverty levels (FPL): 

• Below federal poverty would pay $0 
• Between FPL and 200% FPL, the fee would be no more 20% of out-of-pocket cost or $35, whichever is less 
• At or above 200% FPL would pay 30% of out-of-pocket or $50, whichever is less

What to do next 

• Note this is only a proposal and not officially introduced. This means there is still time to submit comments to Sen. Cassidy. Those are due by August 28, 2026. 
• Consider policies of most impact and model financial, cash flow, and operational considerations. 
• Reassess your compliance program related to 340B. 
• Consider discussing the impacts of this proposal and related 340B issues with your members of Congress.

Proposed hospital reimbursement cut under outpatient rule

The Centers for Medicare and Medicare Services (CMS) is once again moving forward with cuts to 340B drug reimbursements via its proposed 2027 hospital OPPS (hospital outpatient prospective payment system).

The issue first arose in 2018 when CMS finalized a policy reducing 340B reimbursement from ASP plus 6% to ASP minus 22.5%. Hospitals and associations sued. The case went to the U.S. Supreme Court, which ruled CMS had not undertaken a required drug acquisition cost survey. In early 2026, CMS conducted that survey.

With the cost survey in hand, CMS again moved forward with a cut — this time going from ASP +6 to ASP minus 33.4%. If finalized, this reduction would take effect on January 1, 2027.

The proposed policy exempts SCHs, children’s hospitals, and PPS-exempt cancer hospitals and does not apply to critical access, rural emergency, or Maryland hospitals, which are not paid under the PPS system.

What to do next 

• Determine exposure to the proposed reimbursement reduction and model financial impacts 
• Consider submitting comments on the proposed rule by August 31, 2026 
• Talk with members of Congress about how cuts impact important programs and services

Medicaid and 340B DSH conundrum

Medicaid policies — post-COVID Medicaid unwinding and OBBBA Medicaid eligibility and enrollment changes — are expected to impact enrollment and utilization. Because Medicaid-eligible inpatient days are a key component of the Medicare DSH calculation, a decline in Medicaid utilization may reduce a hospital’s DSH percentage and, consequently, its ability to qualify for the 340B Drug Pricing Program as a DSH hospital.

DSH hospitals must generally maintain a DSH adjustment percentage above 11.75%, while RRCs and SCHs are subject to a lower 8.0% threshold for 340B eligibility. As Medicaid enrollment declines due to redeterminations, increased eligibility verification requirements, work requirements, and other OBBBA-related changes, DSH hospitals will need to proactively monitor and model this impact for 340B eligibility.

What to do next 

• Validate Medicaid eligibility capture processes 
• Improve patient financial counseling and Medicaid enrollment assistance 
• Audit Medicaid day reporting on the Medicare cost report 
• Monitor DSH projections throughout the year 
• Hospitals with DSH percentages that fall below the 11.75% threshold can also evaluate whether they may qualify as an RRC or SCH for purposes of 340B

How CLA can help with 340B changes

Changes continue with the 340B program. Monitoring compliance, modeling impacts, and adjusting operations in advance of these potential changes are important.

CLA’s 340B and reimbursement teams can assist you with DSH impacts, financial modeling, compliance and submitting regulatory comments — all important for program viability. Reach out today.