— Hospitals say changes set to take effect in 2027 will cost them more than $1 billion to implement
October 22, 2026 • 4 min read
The federal government's 340B program, which provides deeply discounted drugs to hospitals that serve low-income patients, continues to be a source of controversy for hospitals and drug companies.
Earlier this month, the American Hospital Association (AHA), four safety-net hospitals, and the Maine Hospital Association sued the Trump administrationopens in a new tab or window in federal court over recent changes to the program. Under the old 340B program, hospitals would get the discounts -- around 13% for generic drugs and 23% for brand-name drugsopens in a new tab or window -- before distributing the drugs to patients, but under the new program scheduled to take effect in January, hospitals will have to pay the regular price for the drug and then file a claim for a rebate after the drug is dispensed.
"The proposed shift from upfront 340B discounts to a rebate-based system would place significant financial pressure and administrative burdens on hospitals and clinics that rely on 340B savings to support essential patient care services," said Guy Hudson, MD, president and CEO of Northern Light Health in Maine, in a press releaseopens in a new tab or window about the lawsuit. "For rural health systems in Maine, these changes will divert resources away from direct patient care and create new financial challenges at a time when healthcare providers are already under strain."
The lawsuit seeks cancellation of the new program and a return to the status quo.
Meanwhile, drug companies argue that hospitals -- especially for-profit ones -- are taking undue advantage of the 340B program.
Hospitals that qualify for 340B discounts "generate billions in profits on medicines -- $142 billion, in fact," the Pharmaceutical Research and Manufacturers of America (PhRMA), a drug company trade association, says on its websiteopens in a new tab or window. "Nonprofit hospitals and clinics can purchase medicines for as little as a penny and then mark them up by thousands of dollars. The 340B program is a hidden tax for patients, employers and taxpayers."
The group further notes that no one is checking on how hospitals are using the savings generated by the program, even though the money is supposed to go toward providing additional services to low-income patients. "340B hospitals and clinics generate billions from exploiting the 340B program, and there are no guardrails on how they use program profits," the association points out. "Hospitals can spend on luxury perks like stadium naming rights, movie studios, and Michelin-star chefs while engaging in aggressive debt collection practices. Hospitals get rich while patients, taxpayers, and employers pay more."
According to the Health Resources and Services Administration (HRSA), which administers the program, 340B-covered entities spent $100 billionopens in a new tab or window on 340B drugs in 2025, compared with $81.4 billion in 2024 and $66.3 billion in 2023.
But the AHA said that estimates show the new program could impose more than $1 billion in annual administrative costs on already-strapped hospitals. "For nearly 35 years, the 340B program has helped hospitals stretch limited resources to provide care and services to millions of patients, including those in rural, low-income and underserved communities," the AHA said in the press release. "Hospitals use 340B savings to maintain healthcare services, expand access to medications, support behavioral health and oncology care, and provide other programs tailored to the needs of their communities. HHS' proposed rebate mechanism would divert resources that 340B hospitals currently use for patient care toward higher upfront drug costs and new administrative burdens."
This isn't the first time the Trump administration has tried to remake 340B; an effort announced last year to introduce a similar rebate program was blocked by the courts.
The current program "is effectively a rerun of the flawed approach HRSA tried to take earlier," noted Maureen Testoni, president and CEO of 340B Health, which represents more than 1,600 340B participants, in an email. "HRSA's initial attempt was blocked by federal courts that found the program likely violated federal administrative law, and it may be again. However, the fundamental problem is that rebates are bad policy that will harm safety-net hospitals and the patients who depend on them."
"Rebates will make it harder for hospitals to access the resources Congress intended them to receive and easier for drugmakers to delay, diminish, or deny those resources," she continued. "At a time when many 340B hospitals are facing growing financial pressures, especially considering predictions that congressional cuts to Medicaid will soon result in millions losing Medicaid and significantly increase the number of uninsured, policymakers should be strengthening 340B hospitals, which are responsible for 77% of Medicaid care, not creating new obstacles."
As for criticisms that the program has gotten too big, "instead of providing facts, drugmakers assert that growth in revenue spent buying 340B drugs somehow signals overuse," she said. "In fact, this is a normal result of the decades-long shift from inpatient to outpatient settings, the increase in expensive new specialty drugs that can replace surgeries, and the fact that larger hospitals are more likely to have the specialists that prescribe those specialty drugs."
The briefing period for the case will wind up in mid-November, and the judge will then decide whether oral arguments are needed. A decision is expected before Jan. 1, when the new program is due to start.