Hospitals are facing more hurdles in using the 340B drug pricing program as shifts in insurance coverage make it harder to maintain access to discounted drugs.
Health systems are increasingly running into regulatory and legislative barriers to the program that allows safety-net providers to buy deeply discounted drugs from manufacturers. A Corewell Health hospital in Royal Oak, Michigan, sued the federal government this month over an alleged registration issue that reduced 340B payments.
Providers are in danger of losing 340B eligibility as they treat more uninsured and underinsured patients amid a decline in Affordable Care Act and Medicaid coverage.
“There are a lot of moving parts in 340B playing out across all three branches of government,” said John Barkett, managing director at consultancy BRG.
Here is what to know about how providers are managing threats to 340B payments.
What are 340B eligibility issues?
A growing number of hospitals are on the verge of getting kicked out of the 340B program as they treat fewer Medicaid patients.
Staying in the program often centers on a complex formula the Centers for Medicare and Medicaid Services uses to quantify levels of low-income care — the disproportionate share hospital adjustment percentage.
Medicaid spending cuts, work requirements and stricter eligibility reviews under President Donald Trump’s signature tax law are expected to reduce Medicaid inpatient volumes and hospitals’ DSH adjustment percentage.
For large health systems, losing access to 340B could cost them tens of millions of dollars a year.
“If hospitals are at risk of losing 340B eligibility, they are going to fight like hell to maintain it,” said Heath Ingram, an attorney at law firm Goodwin.
What is Corewell’s lawsuit?
In April, Corewell Health William Beaumont University Hospital switched from a disproportionate share hospital to a rural referral center.
The hospital was concerned it would not be able to treat enough Medicaid and low-income patients to qualify for 340B as a DSH hospital, a designation given to hospitals that provide more uncompensated care than other hospitals.
CMS gives rural referral center designations to hospitals that treat a high number of complex inpatient transfer cases. Those facilities have a lower threshold to clear for 340B eligibility but do not receive 340B payments for orphan drugs, which are used to treat rare conditions.
When the Corewell hospital wanted to switch back, the Health Resources and Services Administration wrongfully rejected the application due to a paperwork issue, the lawsuit alleges. That allegedly cost the hospital millions of dollars in lost 340B discounts on orphan drugs over a six-month span, according to the complaint.
A Health and Human Services Department spokesperson said the agency cannot comment on pending litigation.
“This is a circumstance that a lot of hospitals find themselves in,” said Emily Cook, an attorney at law firm McDermott Will & Schulte. “Hospitals have already seen some decrease in Medicaid volume, and they are expecting to see much more.”
How many hospitals may lose 340B eligibility?
Trump’s tax law may disqualify more than 300 hospitals from the 340B program in the coming years, according to a 2025 estimate from Turquoise Health, a data transparency company. That amounted to about 12% of the roughly 2,500 hospitals enrolled as of last year.
“Looming changes in Medicaid eligibility, which could result in millions of Americans losing Medicaid coverage, are likely to cause many 340B hospitals to no longer qualify for the program,” Bharath Krishnamurthy, director of pharmaceutical policy at the American Hospital Association, said in a statement. “The loss of 340B discounts will have direct consequences for patients.”
How are hospitals trying to preserve 340B eligibility?
Some hospitals are considering adding inpatient psychiatry and obstetric services to help them treat enough low-income patients to meet 340B eligibility thresholds, Cook said.
Many providers have cut those services over the last several years because they typically produce low margins and predominantly rely on Medicaid reimbursement, which tends to pay less than other types of coverage. If hospitals can maintain 340B by increasing access to those types of services, that will likely more than offset any potential operational losses, Cook said.
The Affordable Care Act of 2010 expanded 340B eligibility to all critical access hospitals, which receive cost-based Medicare reimbursement and do not need to meet a DSH adjustment percentage threshold. Some remote rural facilities on the 340B eligibility bubble are converting to critical access hospitals, said Brock Slabach, chief operations officer for the National Rural Hospital Association.
“There needs to be some way to not base eligibility purely on inpatient utilization,” he said.