The One Big Beautiful Bill Act (OBBBA), which took effect on July 4, 2025, brings significant changes to Medicaid that will profoundly affect hospital operations, particularly in relation to 340B program eligibility. Below are key insights and strategic considerations for hospital legal and compliance teams:

Medicaid cuts will threaten 340B eligibility for many hospitals

The OBBBA is expected to cut federal Medicaid funding by about $1 trillion over a decade, leading to an estimated 7.8 million beneficiaries losing coverage. These reductions will likely decrease Medicaid inpatient days, a crucial factor in the Disproportionate Share Hospital (DSH) percentage calculation. As a result, many hospitals may find themselves approaching or falling below the 340B eligibility threshold.

DSH percentage calculation is complex and increasingly risk-prone

The DSH percentage, which determines 340B eligibility for most hospitals, is calculated using Medicare Supplemental Security Income (SSI) days and Medicaid non-Medicare days. Recent legal problems, like the Advocate Christ Medical Center case, and problems with operations, like SSI application backlogs, have made the calculation more unclear. Moreover, SSI ratios have steadily declined from 2020 to 2023, complicating eligibility forecasting.

Hospitals must closely monitor their DSH trends and recognize that CMS-published SSI ratios are challenging to audit and may not reflect current changes.

Timing and accuracy of Medicare Cost Reports (MCR) are critical—false reporting carries high risk

The accuracy of MCRs is paramount. Overstating DSH percentages to maintain 340B eligibility can result in false claims liability, which poses a significantly greater risk than simply losing 340B Program participation. Decisions regarding MCRs should be made at the organizational level, with legal review and thorough documentation, rather than being left to pharmacy teams alone.

Hospitals near eligibility thresholds must strategize proactively

Hospitals that are near the 8% or 11.75% DSH thresholds should not delay addressing potential risks until cost report filing. Proactive planning, including trend analysis, scenario modeling, and exploring other classifications (e.g., Sole Community Hospital or Rural Referral Center), can help maintain eligibility. Timely action is essential to avoid gaps in 340B participation during reclassification.

Medicaid work requirements and administrative burdens will increase compliance complexity

OBBBA introduces new Medicaid work requirements, such as 80 hours of work per month, more frequent eligibility checks, and restrictions on state funding mechanisms. These changes will likely reduce the number of Medicaid patients and increase administrative burdens for hospitals. Legal teams should be prepared to support operational strategies that assist patients in meeting new requirements and maintaining coverage, thereby safeguarding DSH percentages.