A federal judge has blocked the Trump administration's cuts to a Medicare drug discount program.

Judge Rudolph Contreras ruled that the administration illegally reduced Medicare payments to hospitals through the 340B Drug Pricing Program by 30 percent — or about $1.6 billion a year — through a rule took effect in January.

The 340B program requires drug manufacturers to give participating hospitals discounts on some outpatient drugs.

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Medicare then reimburses these hospitals at a higher rate than what they paid for drugs, allowing the facilities to take the savings and reinvest into services to help their patients.

But the administration reduced that reimbursement rate through the rule change. The hospitals argued the changes threatened "critical services" it provides to the communities, including for underserved populations.

The judge determined the rule went against Congress's intent when it approved the program.

"The court’s carefully reasoned decision will allow hospitals and health systems in the 340B Drug Pricing Program to serve their vulnerable patients and communities without being hampered by deep cuts to the program," the American Hospital Association, Association of American Medical Colleges and America's Essential Hospitals, which brought the lawsuit, said in a statement.

Caitlin Oakley, a spokesperson with the Department of Health and Human Services, said the agency is disappointed with the court's ruling and are evaluating its next steps.

"As the court correctly recognized, its judgment has the potential to wreak havoc on the system," she said in a statement.

"Importantly, it could have the effect of reducing payments for other important services and increasing beneficiary cost-sharing. We look forward to briefing the court on this important matter."

The Trump administration, when issuing the rule, argued that the changes would have reduced the out-of-pocket costs Medicare patients pay for outpatient drugs.

The administration has also argued that the 340B program has grown rapidly since it was created and raises questions about how the money is being spent.

"The current nature of 340B is such that it is quite possible for the program's benefits to be diverted to unintended purposes, unrelated to supporting care for low-income patients," Department of Health and Human Services Secretary Alex Azar said in a speech to a hospital trade group this summer.

Congress has looked at bills that would cut down the number of hospitals participating in the program while requiring more transparency about how much the hospitals spend on charity care.