An April 15 executive order aimed at reducing drug prices could result in substantial Medicare outpatient payment cuts at hospitals participating in the 340B Drug Pricing Program.
The order directs the Centers for Medicare & Medicaid Services to issue additional regulations to effectuate these changes. The association is closely monitoring this issue and the implications for essential hospitals.
Additionally, the order proposes to change the Medicare Drug Negotiation Program and to develop a new Medicare payment model for high-cost prescription drugs, among other provisions.
340B Implications
The order directs the Secretary of Health and Human Services (HHS) to develop a plan to conduct a survey of drug acquisition costs for covered outpatient drugs at hospital outpatient departments. Next, the order directs the Secretary to adjust Medicare payments in a budget-neutral manner.
In 2018 and 2019, following a similar order from President Trump, HHS reduced Medicare outpatient drug reimbursement for 340B hospitals to rates far below that of non-340B hospitals. America’s Essential Hospitals challenged this decision as a plaintiff in AHA v. Becerra, and the Supreme Court unanimously determined the cuts had been illegal. In part, the court determined the 2018 order had been illegal, as no survey of acquisition costs had been conducted.
Medicare Drug Price Negotiation
The order also directs the HHS secretary to propose and seek comment on guidance for upcoming years of negotiation under the Medicare Drug Price Negotiation Program in 2028 and beyond, in addition to guidance on the effectuation guidelines for 2026–2028. The order directs the secretary to improve the transparency of negotiation, prioritize drugs with high cost to Medicare, and minimize impacts of negotiation on pharmaceutical innovation.
Additionally, the order tasks the secretary with developing and implementing rulemaking for a new payment model to obtain better value for high-cost drugs covered by Medicare not subject to negotiation.
The implementation of maximum fair prices set through negotiation has significant impact for 340B covered entities. The negotiation guidelines finalized in 2024 have frequently appeared in justifications for manufacturers arguing rebate models are necessary under the 340B program.
Other Components
The executive order also directs HHS to consider expanding reference pricing, including international pricing models, for Medicare Part B and D drugs to curb excessive launch prices and annual price hikes. This revisits prior efforts to tie U.S. drug prices to those paid in other developed countries. Furthermore, the order encourages reforms to pharmacy benefit manager practices to increase transparency and limit spread pricing—potentially reshaping how drug prices are negotiated and reimbursed across public and private markets.
Contact Director of Policy Rob Nelb, MPH, at rnelb@essentialhospitals.org or 202.585.0127 with questions.
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