Critics call for transparency in a federal hospital funding stream Image By HPN Staff Key Points The federal 340B program, originally designed to help safety-net hospitals fund uncompensated care, has grown dramatically and now faces scrutiny over transparency, profit potential, and whether hospitals are truly using savings to benefit low-income patients. Studies show 340B hospitals often charge insurers nearly three times their acquisition costs and sometimes bill uninsured patients far above what they paid, raising questions about whether the program increases rather than reduces costs for vulnerable populations. Since the ACA expanded eligibility in 2010, the program has ballooned to over 53,000 sites and $66.3 billion in annual drug purchases, with pharmacy benefit managers (PBMs) and contract pharmacies playing a growing role in capturing discounts. A federal drug pricing program intended to help hospitals fund uncompensated care is facing new criticism. Those critics contend that the program that allows certain hospitals to purchase drugs at a discount has expanded far beyond its original intent. Under the 340B drug pricing program, hospitals that serve large uninsured and low-income populations can purchase outpatient medications from drug manufacturers at a steep, government-mandated discount and charge insurers at a non-discounted, marked-up rate. The difference provides those hospitals with a source of revenue, which is intended to offset the cost of providing charity and other unpaid care. However, the program, established in 1992, has long attracted controversy, as questions surfaced over transparency and how hospitals use the revenue generated by participating in the program. Why it matters Critics say the 340B program was intended to help safety-net hospitals provide more services to low-income and uninsured patients, but that the growth of the program, lack of transparency and profit potential have resulted in the program simply becoming a cash cow for large hospitals. Critics also say that the program may actually be increasing costs for uninsured patients; a 2022 study by the Community Oncology Alliance found that in the hospitals that self-reported their pricing, cash-paying patients are charged an average of three times more than the hospital paid for 340B drugs. Moreover, a 2024 study by the New England Journal of Medicine found that 340B eligible hospitals charged insurers an average of 289% markup over acquisition costs. Hospitals say that the 340B program is necessary to help hospitals, especially in rural and underserved areas, remain financially viable while providing uncompensated care to uninsured and underinsured patients who cannot pay. The bigger picture The program expanded significantly following the 2010 passage of the Affordable Care Act and an accompanying rule that expanded the number and type of hospitals qualifying for eligibility in the program. Since that time, the number of registered 340B sites has grown to more than 53,000, double what it was in 2014. In 2023, the latest year for which data is available, covered hospitals purchased more than $66.3 billion in drugs through the program, making 340B the second-largest federal government prescription drug program after Medicare Part D. More context The growth in the program has also given rise to the advent of pharmacy benefit managers (PBMs) who act as middlemen working with health insurers, employers, and others to negotiate drug prices. Part of the ACA-related rule change in 2009 allowed all 340B participating entities to contract with an unlimited number of third-party contract pharmacies. A recent Wall Street Journal report reveals that a subset of PBMs is working with employers to direct their workers to 340B contract pharmacies, where they can take advantage of discounted drugs.
