The 340B Drug Discount Program Needs Fixing, Experts Suggest

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The current program creates “perverse incentives,” they say

by
Joyce Frieden, Washington Editor, MedPage Today
April 28, 2025 • 5 min read

The 340B drug discount program would work better if the money followed the patient rather than going directly to hospitals, Anthony DiGiorgio, DO, MHA, said Monday at an event on 340B sponsored by the American Enterprise Institute.

“This [program] is a little bit unique in that it takes from one private entity [the drug manufacturer] and the benefit accrues to another private entity [the hospital or clinic] and doesn’t go to the beneficiary,” said DiGiorgio, who is assistant professor of neurological surgery at the University of California San Francisco. “I think one way to better design the program is to have that benefit follow the patient a little bit better.”

How It Works

Under the 340B program, hospitals and other entities that serve a certain minimum share of low-income inpatients — at least 11.75% of their inpatient population — can save an average of 25%-50% on what they might otherwise pay for covered outpatient drugs; they can then dispense those discounted drugs to outpatients and keep the difference between what they pay for the drugs and the amount that the patient’s insurance reimburses them. DiGiorgio, who spoke for himself and not for his employer, noted that 340B eligibility often encompasses not just one hospital in a health system, but any other hospitals and clinics within the health system as well.

This has led to perverse incentives, said DiGiorgio. “Once a hospital qualifies for 340B, the hospital system … tends to open new clinics in wealthy, highly insured areas” because they make more money using the 340B discount for privately insured patients whose insurers reimburse for drugs at higher rates than Medicaid or other public programs. “They sign up with contract pharmacies [with more favorable terms] that are often far distant to the site — there are clinics or hospitals in Michigan with contract pharmacies in Hawaii … So there’s really a lot of exploitation in the program.”

The program could benefit from being opened up to other healthcare entities beyond hospitals, he added. As it stands now, “if I own a independent oncology practice as a physician, I don’t get to purchase drugs at the 340B discount, but if my practice is acquired by the large hospital system that has 340B, all of a sudden now I get to purchase those drugs at the 340B discount,” he said. “Or if the large hospital wants to put me out of business and they open a clinic across the street from me, they have that financial arbitrage and that extra revenue stream to then put me out of business. Making it so that the independent clinics can utilize the benefit as well, I think, would stem some of the consolidation factors that we see with the 340B program.”

Jeffrey Last, senior policy advisor at the Senate Committee on Health, Education, Labor, & Pensions (HELP), said that immediate reform of the program was necessary. “There’s a total lack of transparency, especially on the contract pharmacy [side]” as well as with the third-party administrators (TPAs) that charge fees to administer the 340B benefit, he said. “Until we can see some measurable benefit coming from that, we need to ask what value are they bringing to the program?”

In North Carolina, the 340B program “was a critical lifeline into rural communities,” especially with many rural hospitals closing, said Kody Kinsley, former secretary of the North Carolina Department of Health and Human Services. However, he added, the program does not always seem to be used in the communities for which it is intended.

A number of Ryan White HIV clinics and community health centers in the state are in 340B, “and we’ve surveyed them, and on average, about 22% of their receivables are coming from 340B programs,” he said. “So it’s hard to imagine them being able to fill the gap without that program. At the same time, that’s not where we’re seeing the growth of the program. We’re seeing it more in hospitals.”

HELP Committee Report

Last week, the HELP Committee released a report on the 340B program; it found that two hospitals — Bon Secours Mercy Health in Cincinnati and the Cleveland Clinic, generate hundreds of millions of dollars in 340B revenue, but do not pass 340B discounts directly to their patients. They also differ on how patients receive discounts on their 340B drugs. “Additionally, these hospitals report using 340B revenue on ‘capital improvement projects’ and ‘community benefit programs,’ but do not account for what specific expenses 340B revenue goes towards,” the committee said in a press release.

The report recommended several ways to improve the 340B program, including:

• Requiring covered entities to provide detailed annual reporting on how 340B revenue is used to ensure direct savings for patients, providing a more transparent link between program savings and patient benefit
• Investigating the types of financial benefits contract pharmacies and TPAs receive for administering the 340B Program to ensure that increasing fees do not disadvantage covered entities and patients
• Requiring transparency and data reporting for entities supporting participants in the 340B Program (i.e., contract pharmacies and TPAs)
• Providing clear guidelines to ensure that manufacturer discounts actually benefit 340B-eligible patients, including examining legislative changes to the definition of “eligible patient”

Response From Participants

The organization 340B Health, which represents healthcare providers in the 340B program, expressed some concerns about the report. “The report highlights drugs from which the providers obtained 340B discounts but does not disclose that some of these drugs are subject to higher-than-normal 340B discounts due to a penalty levied when manufacturers increase their drugs above the rate of inflation or offer significant discounts to other purchasers of their drugs,” the group said in a statement. “If the manufacturer activities are significant over time, the 340B discount can reach as high as 100% instead of the statutory minimum for brand drugs of 23.1%. Thus, the 340B savings reported for such drugs is due to the manufacturers’ decisions on how high to price these drugs, not to use by providers.”

In addition, “the report draws a distinction between using 340B savings to reduce costs to individual patients for care they receive and using savings for capital improvements and community benefits,” the statement said. “It is important to keep in mind that 340B helps maintain access to care for low-income patients. Without capital improvements and community benefits, providers cannot make the upgrades, add newly developed specialized services that save lives, and address key health care needs of the community, such as the need to add mental health services, resulting in decreased access to care over time.”