As drug companies face the possibility of increasing costs due to tariffs, there is little doubt that the impact on healthcare will be significant. According to an Ernst & Young analysis, tariffs could increase annual U.S. drug costs by nearly $51 billion and raise prices on some cancer treatments by as much as $10,000 per course. Generic drugs, which account for 90% of prescriptions filled in the U.S., could increase from 82 to 94 cents per pill—an 11% jump with broad system-wide impacts.
If drug companies decide to simply pass along those costs to consumers, the shockwaves will ripple throughout the healthcare system and into every home in America.
Generic manufacturers that operate on thin margins could discontinue certain drugs. Increases would also force hospitals to make difficult decisions about resource allocation, patient treatment, and medication availability. Low-income patients, especially the uninsured and those served by programs like Medicaid and the 340B drug program, would be hurt the most.
In short, managing the cost of drugs is complicated. The 340B drug program is a good example. For thirty years, it has required pharmaceutical manufacturers to provide outpatient drugs at significantly reduced prices to eligible safety-net healthcare providers in exchange for having their drugs covered by Medicaid and Medicare Part B. These discounts aren’t taxpayer-funded handouts—they are part of a mutually agreed framework that according to Congressional report language not only discounts drugs, but also helps to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”
The savings generated through 340B allow safety-net hospitals to absorb cost increases, maintain medication access, and continue offering critical but financially unsustainable services at safety-net hospitals like emergency rooms, labor and delivery, and cancer treatment. Without the 340B savings, many of these services would be scaled back, ending the original intent of the program to improve the health of low-income patients.
Hospitals that participate in 340B often serve communities with disproportionately high poverty rates and health disparities, including many rural areas where the nearest alternative provider may be hours away. In Baton Rouge, Louisiana, for example, Our Lady of the Lake Regional Medical Center uses its 340B savings to reduce the cost of prescriptions for uninsured patients from nearly $80 to just $7.77 for retail drugs—and from nearly $4,000 to $48 for specialty medications. 340B hospitals also provide 77% of all Medicaid hospital careand deliver nearly $68 billion in annual community benefits—nearly double the value of all the program purchases.
Yet despite these benefits, there are legitimate questions about the growth and transparency of the 340B program. Between 2000 and 2020, the number of sites participating in the 340B program increased from 8,100 to 50,000. Their discount purchases increased from $4 billion in 2007-2009 to $38 billion in 2020. Vaguely worded legislation, limited data, and a lack of regulatory guidance have raised concerns about how the program operates and if it still aligns with the legislation’s original intent to reach low-income patients.
While more oversight may be needed, as recommended in a recent Senate report, the proposed tariffs complicate the program and raise a new problem. 340B was the result of a grand bargain that provided significant benefits for the drug companies, hospitals and patients that the government and the healthcare system want to protect. Tariffs would change that bargain by imposing new and unanticipated costs on every party to the bargain, except the government.
One or two changes will not solve this dilemma. Key stakeholders need to cautiously work together with a clear understanding that any legislative or regulatory adjustment must acknowledge the legitimate concerns of drug companies while preserving the ability of the program to insulate patients and providers from the fallout of economic shifts – like tariffs that threaten the affordability and availability of life saving medications.
The balancing act is not perfect, but the 340B program is indispensable. The ripple effect of cutting or weakening it during a time of mounting cost pressure would be catastrophic. Hospitals, especially in rural areas, would be forced to shutter clinics, cancel community health programs, and lay off staff. Patients—especially those who are underinsured and face chronic or serious illnesses—would face higher out-of-pocket costs, limited access to treatment, or no care at all.
As policymakers consider the future of healthcare affordability, they must recognize that the 340B drug program is one of the few tools available that directly cushions vulnerable hospitals and patients from rising drug costs and economic disruption, and act accordingly.
Brenda Destro, Ph.D. served as the Acting Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services (HHS) from 2018-2021 and was previously a Senior Public Health Advisor to the Senate Committee on Health, Education, Labor, and Pensions (HELP)
