The 340B Drug Pricing Program is under mounting pressure from multiple directions, and covered entities that depend on contract pharmacy revenue, particularly from CVS Specialty and other contract pharmacy arrangements, should prepare for a significant and accelerating decline in that revenue stream.
Shifts in insurance coverage, Medicaid contraction, and federal policy changes are converging to reduce hospitals’ access to 340B discounts. Taken together, these developments signal that 340B contract pharmacy revenue is poised to diminish rapidly.
Eligibility Losses Could Shrink the 340B Revenue Base
A growing number of hospitals are at risk of losing 340B eligibility because the program’s eligibility framework relies heavily on a hospital’s disproportionate share hospital (DSH) adjustment percentage, which is calculated based on Medicaid and low-income patient volumes. Since Medicaid spending cuts, work requirements, and stricter eligibility reviews under recent federal tax legislation are expected to reduce Medicaid inpatient volumes, it subsequently reduces hospitals’ DSH percentages and eligibility. According to a 2025 analysis from Turquoise Health, these changes could put more than 300 hospitals at risk of falling below the DSH percentage threshold required for 340B eligibility in the coming years. The American Hospital Association has warned that looming changes in Medicaid eligibility could result in millions of Americans losing coverage, directly causing many 340B hospitals to no longer qualify for the program.
CVS Specialty and Contract Pharmacy Revenue Faces Additional Pressure
Beyond eligibility losses, revenue generated through 340B contract pharmacy relationships faces additional downward pressure. Revenue from CVS Specialty and other contract pharmacy arrangements may face further pressure beginning in 2027, driven by growing manufacturer restrictions and the Health Resources and Services Administration’s (HRSA) new 340B Rebate Model Pilot Program, which will require covered entities to submit specified claims data before receiving applicable 340B rebates.
HRSA recently disclosed that 10 manufacturers were approved to shift 340B discounts from upfront savings to back-end rebates beginning in January 2027. The approvals cover 21 drugs, up from 14 last year. For covered entities, the shift from upfront discounts to rebates may create working-capital and cash-flow strain, add a substantial data-reporting and administrative burden, and compound the decline in contract pharmacy revenue.
What Covered Entities Should Do Now
Given the rapidly changing 340B landscape, covered entities should take proactive steps to evaluate the potential financial and operational impact of these developments, including the following:
Evaluate contract pharmacy revenue trends.
Covered entities should quantify current and projected revenue from CVS Specialty and other contract pharmacy arrangements, factoring in the anticipated impact of manufacturer restrictions, the HRSA 340B Rebate Model Pilot Program, and proposed contract changes.
Assess potential past losses.
Hospitals that have participated in 340B contract pharmacy arrangements with CVS should conduct due diligence to estimate past losses potentially attributable to CVS’s reimbursement practices. As previously reported by our firm, multiple federal lawsuits allege that CVS systematically diverted 340B savings from covered entities by reprocessing 340B-eligible claims at substantially reduced reimbursement rates without informing payors or patients. The complaints allege that investigations showed that CVS/Caremark retained the majority of the 340B savings, leaving covered entities with less than half. Given these developments and the prospect of shrinking 340B revenue, the calculus for whether to challenge CVS’s reimbursement practices has shifted, making it increasingly important for covered entities to evaluate the relationship moving forward and potentially pursue past losses.
Carefully review new contract terms.
Before signing any new Pharmacy Services Agreement (PSA), covered entities should evaluate how the proposed terms affect reimbursement rates, audit rights, dispute-resolution procedures, and potential claims for past losses.
How Frier Levitt Can Help
Frier Levitt represents covered entities in disputes involving 340B contract pharmacy arrangements and reimbursement practices, including pending litigation against CVS. Our attorneys can help covered entities evaluate current and proposed contract pharmacy agreements, quantify potential past losses, assess available legal claims, and develop strategies to preserve and maximize 340B program revenue in an increasingly challenging environment. Contact Frier Levitt to discuss how these developments may affect your organization’s 340B contract pharmacy arrangements and revenue.
