Trump’s Medicare agency to speed up clawback of $7.8 billion in hospital drug payments

STAT News – Thursday, July 17, 2025
By Bob Herman

The Trump administration plans to claw back $7.8 billion in Medicare payments to hospitals a decade sooner than originally proposed, potentially sparking another legal challenge from the hospital industry.

President Trump’s Medicare agency also intends to send surveys to hospitals asking what their drug costs are, which could set the stage for the Trump administration to attempt to cut hospital drug payments again.

Both proposals relate to the federal 340B drug program, in which hospitals are able to purchase pharmaceuticals at steep discounts with the intent of making medicines more affordable for low-income patients. Medicare pays hospitals for those drugs at much higher rates, and critics say hospitals have abused the $66 billion program as a result.

The first Trump administration attempted to reform the program by cutting Medicare’s payments to hospitals for drugs by almost 30% between 2018 and 2022. The savings were used to raise reimbursement for all other non-drug outpatient services. But the Supreme Court ruled in 2022 that the cuts were illegal and ordered Medicare to make hospitals whole.

To comply with the ruling, Medicare came up with a solution in 2023: It would pay all eligible hospitals $9 billion in lump-sum payments to account for the drug cuts from prior years. But it would also recoup $7.8 billion that resulted from the corresponding higher payments for all non-drug services.

Medicare initially said it would take back that money gradually — over 16 years, starting in 2026 — so hospitals wouldn’t have to wire prohibitively large amounts back to the government.

But Trump’s Medicare agency said Tuesday that it now plans to claw back the money sooner: by 2031 instead of by 2041.

“The longer it takes for us to fully recover the $7.8 billion, the less likely that the relative burden on hospitals from the adjustments will match the relevant benefits those hospitals previously received,” Medicare officials wrote in the proposed regulation. Hospitals and other industry groups can weigh in on the proposal, and it could still change.

Hospitals cheered the billions in funds they got back, but hated the remedy to recoup money to keep Medicare’s payment system “budget-neutral.” Hospital lobbyists threatened lawsuits when Medicare was pitching the idea. Because the clawback doesn’t start until 2026, they had no standing to sue. But the threats of legal action are returning.

The American Hospital Association and Federation of American Hospitals, the two largest hospital lobbying groups, did not make anyone available for an interview. In a statement, Ashley Thompson, a senior vice president at AHA, called the expedited recoupment of drug funds “illegal and unwise,” saying that it “should not be finalized.”

“It is important to remember that this clawback punishes 340B hospitals for the agency’s own mistake in implementing a policy that a unanimous Supreme Court held to be unlawful,” Thompson said in her statement.

The Supreme Court, however, explained how the plan to rein in 340B could be legal: If Medicare wants to cut payments for hospital outpatient drugs, it has to conduct a survey of hospitals’ drug acquisition costs. The Trump administration attempted to do this in 2019, but hospitals railed against the surveys, calling them burdensome.

Trump previewed the return of these drug costs surveys in April, when he issued an executive order that directed his health agencies to conduct a survey to “determine the hospital acquisition cost for covered outpatient drugs at hospital outpatient departments.” Medicare is now proposing to send out the surveys later this year and early in 2026, and to use the results to inform regulations in 2027.

“We expect all hospitals will submit their acquisition costs in a timely manner,” Medicare officials wrote. “We understand that hospitals have significant drug acquisition costs, and so … we anticipate hospitals would want to respond to this survey to demonstrate to [the Centers for Medicare & Medicaid Services] these costs.”

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