Should patients care about 340B?
By Judith Garber, MPP and Vikas Saini, MD
The 340B drug discount program is a hugely important policy issue for hospitals and drug companies, but the most of the rest of us have never heard of it or barely understand it. Why is pharma and the hospital industry getting so worked up about 340B, and how does any of this matter? Here’s what you need to know about a growing policy battle…
What is 340B?
The 340B Drug Pricing Program, part of the 1992 Public Health Service Act, provides outpatient drugs at a big discount (20-50% of drug costs) to safety net providers. Certain hospitals, federally qualified health centers (FQHCs), and clinics—known as “covered entities”—are eligible for discounts based on who they serve. For example, children’s hospitals, critical access hospitals, and hospitals with a “disproportionate share” of low-income patients are among the types of hospitals eligible. The profits hospitals make from purchasing drugs at a discount and charging insurers full price can help them stay afloat.
What’s the controversy?
340B has become a big policy issue because there is much more money on the line now than in previous years. In 2010, the Health Resources and Services Administration allowed hospitals to expand the number of pharmacies covered under the program. With that, the proportion of participating pharmacies grew from about 1% of retail pharmacies in 2009 to 41% in 2022.
The contract pharmacy expansion, plus the ever-rising cost of drugs, has increased the value of 340B discounts from $6 billion in 2015 to $46.5 billion in 2022. As the value of 340B discounts has grown, pharma has started pushing back, in some cases refusing to offer discounts to contract pharmacies in violation of the law. In turn, hospitals and other covered entities are fighting to preserve their discounts; for example, in 2018 when Medicare cut pharmaceutical reimbursement rates to better reflect the discounted prices that 340B hospitals enjoyed, hospitals went to court and had the cuts overturned.
How do hospitals use 340B discounts?
Hospitals are also coming under fire for the way they use (or don’t use) the money received from 340B discounts. Hospitals say that the savings from 340B allow them to do things like “provide free care for uninsured patients, offer free vaccines, provide services in mental health clinics, and implement medication management and community health programs.” Hospitals certainly can do these things with their 340B savings…but there’s no regulation that requires them to do so, and little transparency about what they are doing with the money.
The evidence around what hospitals actually do with their 340B discounts is mixed. A 2023 literature review found that some hospitals “expand health care services for low-income populations” while “others acquire physician practices and open sites in higher-income neighborhoods.” The latter was illustrated in a 2022 New York Times investigation of Bon Secours Mercy health system; allegedly, the health system was investing the 340B profits garnered at one safety net hospital into its other hospitals that serve whiter, wealthier communities.
While hospitals have to achieve a certain level of Medicaid patient share to qualify for 340B discounts, once they qualify, financial support from 340B doesn’t increase their rates of uncompensated care more than non-participating hospitals. A 2024 study similarly found that private nonprofit hospitals did not increase their provision of generally unprofitable services like psychiatric treatment or obstetric care after joining the 340B program (although public hospitals did). These findings run counter to hospitals’ statements that 340B discounts allow them to offer more free care or essential services.
Dueling legislation on 340B
340B is popular because it doesn’t directly involve government spending—it’s a transfer from certain sectors of the health care industry (pharma & insurance companies) to others (hospitals). For policymakers, that’s a win-win.
Yet there have been growing calls for policymakers to “reform” 340B in various ways, resulting in a legislative battle. The 340B PATIENTS Act, introduced by representative Doris Matsui (D-CA) and supported by hospitals, would protect 340B discounts for contract pharmacies and fine pharma companies if they refuse to offer the discounts. However, it doesn’t require additional accounting of how hospitals spend the profits from the program, which is a missed opportunity.
On the other hand, the 340B ACCESS Act, introduced by representative Larry Buschon (R-IN) and supported by pharmaceutical companies and community health centers, would give aid to those who need it most by requiring hospitals to pass along the drug discounts to low-income and uninsured patients. Other parts of the legislation, such as requiring participating hospitals to refrain from extraordinary debt collection actions and report exactly what they are doing with their 340B margins, would be major steps forward. However, the bill would also reduce the size of the program by adding more eligibility requirements for covered entities, putting more money in pharma’s pockets.
At a recent House subcommittee hearing, representatives appeared reluctant to overhaul the program broadly, but expressed support for transparency initiatives to reduce gaming a la Bon Secours Mercy.
Why should the rest of us, particularly patients, care?
On its face, it might seem like 340B is just a fight among big players in the medical-industrial complex over who gets a bigger slice of the pie. Since pharma rakes in high profits year after year, why not expand the program to subsidize even more patient populations?
One important problem is that 340B preserves the status quo of high drug prices. Hospitals have a stake in keeping drug prices high, because the larger the difference between the high price and the discount, the bigger their windfall. But insurance companies (including Medicare) still have to pay the high sticker price, which over time, makes all of our insurance premiums go up. Moreover, when prices stay high, patients get stuck with high co-pays for these drugs, which can be thousands of dollars. Even though 340B seems like a win-win, someone still has to pay for these drugs, and that someone is all of us.
So how do we fix it? Unfortunately 340B was crafted as a stopgap or bandaid for problems elsewhere in the delivery system, and no amount of tinkering will substantively address the underlying drivers–the precarious margins at some safety net hospitals and absurdly high drug prices.
Better to tackle both fronts directly, where more and more policy experts and advocates have identified steps in the right direction. For example, to address low margins at safety nets, MedPAC (Congress’ advisory group on Medicare issues) has recommended boosting Medicare payments to hospitals that serve a large proportion of low-income Medicare beneficiaries. Researchers have also recommended tweaks to Disproportionate Share Hospital funding to better target hospitals that serve minoritized communities and hospitals that provide essential but unprofitable lines of services.
Getting drug prices under control will require a major comprehensive regulatory effort (too long to describe in this blog!), but here are a few ideas that advocates have suggested: 1) Expanding Medicare’s powers of drug price negotiation (the first round of which is projected to save $6 billion a year), 2) Using “march-in rights,” to make cheaper versions of drugs that federal government funding helped create, and 3) Cracking down on anti-competitive patenting practices like “product hopping” and “patent thickets.”
While we work to solve these larger problems, increasing transparency and accountability within the 340B program is a worthwhile endeavor. Forty-six billion dollars is a lot money–it’s enough to feed every person with food insecurity or shelter every unhoused person in America. Imagine what this could do for our nation’s health if it were spent more wisely. We deserve to know where the $46 billion is going—and which hospitals are gaming the funds like Bon Secours—while keeping in mind that tweaks to 340B alone are far from enough to solve the big problems in our healthcare system.