Congress created the 340B drug discount program in 1992 to help hospitals and healthcare providers purchase medicines at a discount to ensure access for vulnerable populations. Thirty-two years later, there is little evidence to show that the savings it generates are passed along to disadvantaged patients. The new Trump administration will focus on cost-cutting measures to bring ballooning healthcare expenses under control and Make America Healthy Again. Auditing and reforming the 340B program should be a priority.
In 2010, legislators dramatically expanded the list of eligible providers under 340B, triggering a wave of provider consolidations. Major hospital chains seized an opportunity to extend the discount status allowed for one of their facilities to cover all of the hospitals and freestanding satellite facilities in their system. Today, under the management of the Health Resources Services Administration (HRSA), the program includes more than 50,000 sites, up from 8,100 in 2000.
Minnesota’s Department of Health just reported that large hospitals participating in the program netted at least $630 million in revenue last year – and here again, there is no available data showing that medicines are more affordable for vulnerable patients or that their health has meaningfully improved through the program. As The New York Times detailed in a 2022 expose, hospitals routinely pocket 340B discounts and even divert them away from facilities in lower-income areas to those in more affluent communities, as the now notorious case of Bon Secours Mercy Health’s neglect of Richmond Community Hospital demonstrated. In 2023, hospitals across the country diverted $56 billion in rebates. Even the Rev. Al Sharpton has called out this shocking abuse and urged stricter oversight of 340B facilities and modernization of the program.
This is part of a larger problem. The slate of discount programs within Medicare and Medicaid is enough to make your head spin. There are rebates for Medicaid, the Manufacturer Discount Program in Medicare, and the Maximum Fair Price set by the Inflation Reduction Act. These discounts generally are not supposed to allow duplication, but they have become so entangled that this provision is difficult to enforce. The Centers for Medicare and Medicaid Services (CMS) is struggling to determine how to ensure that manufacturers pay the lesser of the Maximum Fair Price and the 340B price under the new law.
The fact that several manufacturers are simultaneously making changes to how they effectuate the 340B discount is no accident. They are required to offer the lesser price on negotiated drugs, with minimal guidance from CMS, and also may not duplicate 340B discounts with Medicaid rebates. Manufacturers have proposed requiring providers to purchase the drugs at the market rate initially and to provide a weekly cash rebate to effectuate the discount. The new system would help prevent duplicate discounts and improve documentation and transparency.
HRSA has resisted this approached and balked at transparency measures because shining a light on 340B’s tangled web of revenues and rebates would clearly reveal that discounts aren’t finding their way to patients. As a recent lawsuit argued, HRSA also appears to be captured by advocates opposed to program integrity measures. Major hospitals would face embarrassment, and, more importantly, lower revenues. To protect its hospital clients, the agency has come out swinging, issuing a letter, which not only rejects the new plan, but threatens fines and even termination of manufacturer participation if the new discount mechanism is implemented. The loss of 340B participation would mean a manufacturer’s drugs were no longer covered by Medicaid and Medicare Part B.
However, 340B regulations are silent on how discounts are implemented. But even if HRSA had previously issued regulations foreclosing the manufacturers’ plan, the restrictions they point to are not outlined in statute. Ultimately, the changes to the 340B program over the past decade necessitate an evolution in how the program functions in order to create a balance between providers and manufacturers. HRSA’s primary purpose is serving the public and the most vulnerable, underserved populations, not the shareholders and venture capital firms behind major hospital systems.
The clash between HRSA and CMS is creating a compliance nightmare that demands reform. In the next Trump Administration, the Department of Health and Human Services and Congress should reexamine the 340B program. A detailed review will help determine if it is in fact helping underserved patients and fulfills the goal of the president-elect’s initiative to Make America Healthy Again.
Joe Grogan is a Nonresident Senior Scholar at the USC Schaeffer Institute and served as director of the White House Domestic Policy Council under President Donald J. Trump. He consults for pharmaceutical companies.
