Though you have probably never heard of it, the 340B Drug Discount Program is already the second-largest federal drug program—and it’s growing explosively. Despite providing billions in subsidies to hospitals and others across the country, it is doing a poor job of helping patients struggling to pay their drug copays.
The program is certainly well-intentioned. It’s designed to assist safety net hospitals, clinics, and other select providers provide “direct care” to the uninsured and underinsured, including the medications they need. Unfortunately, though some of the recipients of the program’s massive subsidies pass on a portion of those subsidies to patients, the program leaves many patients unable to afford their drugs and saddled with medical debt.
The 340B program is growing by leaps and bounds. Created in 1992, the program grew by nearly 700% from just 2012 to 2022. Last year, the program reached $62 billion in deeply discounted purchases, a breathtaking 24% increase. That means that 340B covered entities likely received more than $58 billion in subsidies generated from those deeply discounted drug purchases in 2023.
340B covered entities take the discounted drugs they purchase and then mark them up to Medicare, commercial payers, and others. Because 340B covered entities aren’t required, under the program, to report their profits from drugs sales, the full value of the 340B subsidy isn’t known. That’s right, we do not even understand fully how many billions of dollars are being generated by the program.
We do know, however, that 340B hospitals are the biggest recipients of the largest share of the massive 340B subsidies the program generates. 340B hospitals account for about 80% of the total program and gobble up the lion’s share of its benefits.
Driven by 340B hospital purchases and mark ups, 340B is already the second-largest drug program in the country, bigger than Medicare Part B and the entire Medicaid drug rebate program. 340B will be the largest drug program in the country in 3 years, or less—bigger than the Medicare Part D program that serves 53 million beneficiaries.
So, the incredible increase in the size of 340B must mean that charity care for those who can’t afford their health care has also grown by leaps and bounds, too, right?
Well, no.
Not at all, as it turns out.
The massive growth in 340B discounts and subsidies isn’t even partially justified by an increase in charity care. The increase in the size of the program has actually been accompanied by a reduction in 340B hospital charity care ratios.
In 2012, the charity care ratio for 340B hospitals was 4.11%, itself not very impressive. But, by 2022, the charity care ratio had fallen to a measly 2.28%. That means that, even as 340B hospitals raked in billions of 340B subsidies, they spent just $2.28 of every $100 on charity care.
The 340B program supports some excellent, affordable health care, particularly at community-based clinics, often in rural areas. But massive program growth with falling charity care rates at 340B hospitals? That’s a program that has lost its way—and fails the patient.
The recent election creates a moment where, after three decades in which struggling, financially needy patients have been increasingly ignored, we can refocus this program on what matters – the patient. The new Secretary of the Department of Health and Human Services and the Administrator of the Health Resources and Services Administration, the two appointees responsible for this program that is so far off course, have a lot to do. But they have a unique opportunity to bring accountability and transparency to a program that is broken.
Once in office, they should roll up their sleeves, get their team to work, and fix 340B.
William “Bill” Sarraille is a Professor of Practice at University of Maryland Francis King Carey School of Law and an Independent Director at Kalderos, Inc.
