Medicaid Cuts, Federal Policy Shifts Threaten 340B Eligibility for Safety-Net Hospitals

By Gina Shaw / March 26, 2026

As drug manufacturers continue to chip away at the federal 340B Drug Pricing Program through contract pharmacy restrictions and rebate model proposals, another threat is emerging from a different direction: eroding Disproportionate Share Hospital (DSH) percentages that determine whether hospitals qualify for the program. 

At HOPA 2026, in New Orleans, 340B expert Anthony Trovato, PharmD, outlined how the end of the COVID-19 public health emergency and Medicaid cuts under the One Big Beautiful Bill Act (OBBBA) are putting eligibility for the drug discount program at risk.

The DSH percentage used to determine a hospital’s 340B eligibility is calculated by adding two figures: the inpatient Medicare Supplemental Security Income (SSI) fraction (Medicare SSI days divided by total Medicare days) and the inpatient Medicaid fraction (Medicaid, non-Medicare days divided by total patient days).

“With the public health emergency ending after COVID, states were then allowed to remove people from Medicaid, and that caused a decrease in DSH percentages,” explained Dr. Trovato, a 340B program pharmacist at University of Utah Health, in Salt Lake City. “With the passage of the One Big Beautiful Bill Act, there are additional Medicaid eligibility changes.” 

The scale of those changes is substantial. According to projections from the U.S. Congress Joint Economic Committee – Minority, the OBBBA is expected to strip Medicaid coverage from millions of Americans through 2034. The projected coverage losses in selected states include approximately 329,000 in Illinois (7% of current Medicaid enrollment), 229,900 in Texas (6%), 191,000 to 300,000 in Arizona (10% to 15%), 170,000 in Ohio (8%), 133,500 in Kentucky (12%), 126,500 in Indiana (7%), 125,000 in Louisiana (7.5%), 118,000 to 196,000 in Missouri (8% to 12%), and 89,000 in New Mexico (10.5%). 

For safety-net hospitals in those states, fewer Medicaid patients mean lower DSH percentages, and lower DSH percentages mean threatened 340B eligibility. “As people lose Medicaid eligibility, we still provide care to them, but we don’t get reimbursed. As uncompensated care goes up, 340B savings become even more essential to cover that care,” Dr. Trovato said.

“At the same time, 340B savings are becoming even more essential because of the reimbursement cuts,” he added, pointing to simultaneous pressures such as reduced Medicare reimbursement under site neutrality rules, reduced reimbursement for drugs included in the IRA Medicare Drug Price Negotiation Program, and the Outpatient Prospective Payment System Drug Acquisition Cost Survey. The latter, he noted, may push Part B drug reimbursement toward the –22.5% threshold last seen from 2018 to 2022.

Dr. Trovato urged pharmacy leaders to get ahead of the eligibility risk. “Monthly tracking of where your eligibility is trending becomes essential so that you can plan what’s going to happen at your institution,” he said.

He also advised thinking strategically about how institutional growth decisions interact with DSH calculations. “Knowing which specific inpatient units are [deemed] high Medicaid and which are low Medicaid becomes really important, because as you expand within your hospital, you need to know how that’s going to affect your eligibility,” he said. “For example, at the University of Utah, we’ve been expanding cancer care beds. That’s very low Medicaid for us, and we know that could negatively impact our DSH percentage.”

Proactive Mitigation Strategies

Dr. Trovato described proactive structural changes his institution has pursued. “We had an inpatient psychiatric unit that we had registered separately with Medicare to get a higher reimbursement rate,” he explained. “They had a really high Medicaid percentage, but because we had them registered separately as an inpatient psychiatric unit, those inpatient days were not counted towards our DSH percentage. So, we deregistered them and just included them with our general acute care beds. That has helped maintain 340B eligibility for us.”
He also suggested that institutions teetering on the DSH threshold could evaluate whether they might qualify under a different covered entity type—for example, shifting to rural referral center status, which requires only an 8% DSH threshold compared to the standard 11.75%. 

That shift, however, is a double-edged sword: Rural referral centers are prohibited from purchasing orphan drugs at 340B pricing, Dr. Trovato noted. “For hematology oncology, that’s a huge impact for us we would estimate losing like 50% to 70% of our 340B benefit if that happened,” he said. Other options to consider include enrolling eligible patients in Medicaid and reviewing back-billing practices for Medicaid births and admissions.

With the 340B landscape shifting rapidly on multiple fronts simultaneously, Dr. Trovato urged 340B program pharmacists to be as vigilant about eligibility as they are about compliance. 
“Always doing analyses and having contingency plans becomes really important in a time where you see 340B meaning changing constantly.”