The 340B Drug Pricing Program was originally intended to ensure that patients at a narrow set of community-based clinics and a handful of hospitals had access to reduced-cost prescription medicines.
Over the last 30 years, it has grown into a massive program, its impact on par with Medicare Part D, the largest federal drug spending program. Participating entities purchased $81.4 billion in medicines in 2024, a 23% increase over the previous year and a whopping twelve times the size of the program in 2010.
The growth begs the question – where are the tens of billions of dollars generated by this program coming from, and where are they going?
My latest research shows that 340B growth is driven overwhelmingly by large teaching hospitals, rather than smaller community-based hospitals and clinics, allowing already-dominant providers to capture a growing share of 340B benefits.
Effectively, 340B has become a drug mark-up program. Hospitals buy drugs at low cost and sell them high – and are incentivized to do so as often as possible. A wide range of healthcare decisions, from acquisition strategies to formulary design, are increasingly influenced by how large teaching hospitals can maximize 340B revenues.
The key to revenue maximization is to establish documented relationships with as many well-insured patients as possible. Large hospital systems can use their scale to find 340B revenues by investing in off-campus treatment locations called “child sites,” and establish partnerships with “contract” pharmacies – often national chains or mail order pharmacies – to cast a wide net. This gives them as many opportunities as possible to fill prescriptions for people they can claim are associated with their system. As they do so, they undoubtedly maximize profits – in some cases, by establishing relationships with patients who otherwise might be connected to smaller hospitals or clinics.
Contract pharmacies also have relationships with those smaller entities, and some smaller hospitals and clinics set up satellite treatment centers too. But my recent analysis of data from the U.S. Department of Health and Human Services found that growth in the 340B program is concentrated in large hospitals, particularly the large teaching hospital systems that often dominate their regional market. Hospitals in the top quartile by bed count made up a third of hospitals in of the 340B program – yet they accounted for 81% of child site growth and 60% of contract pharmacy expansion between 2017 and 2023.
Among those large institutions, teaching hospitals had 66% more child sites than non-teaching hospitals in 2017, a gap that widened to 95% more in 2023. Large teaching hospitals averaged 50 child sites and 94 contract pharmacy relationships.
Data shows that when hospital systems expand through child sites, they generally do not increase care by placing off-campus sites closer to vulnerable patients. Instead, the average 340B child site is in an area with significantly higher incomes, lower unemployment rates, lower uninsured rates and overall healthier populations than its parent hospital campus. Why? Because the large hospital systems are expanding where they are most likely to generate profits. Large hospital systems are not just getting lucky with how they interact with the program. They manage their 340B strategies very proactively to generate the most profits possible.
Another way to grow a hospital system’s 340B program is for it to acquire independent practices that don’t qualify for the 340B and turn them into 340B sites under the system’s umbrella. Independent, community-based doctors can’t access 340B on their own, but once they’re part of the hospital system, they can.
Once they acquire those practices, 340B also can impact site-of-care decisions. If you’re a hospital system, and you can tell a patient either ‘Go get your prescription filled wherever you want,’ or ‘Come to the hospital for your infusion,’ you’re likely to steer them toward the hospital. It’s more expensive, but the hospital system makes more money off 340B.
What are the costs of this unchecked growth and decisions made to maximize 340B profits? My research shows that Medicaid costs are higher when there is more 340B activity, and that commercial insurance premiums are higher. Other research has shown that drug spending is higher at large 340B hospitals than at large non-340B hospitals, and that net drug spending increases because some rebates are lost when drugs are acquired through 340B.
All of this revenue generation might theoretically serve to alleviate funding gaps in the healthcare system. But in practice, 340B is not correlated with a positive impact on charity care. More than half of 340B hospital systems have rates of charity care below the national average of 2.15% of operating expenses. There are no limitations on how hospitals use the money they reap from 340B and no reporting requirements.
While the hospital lobby presents smaller, rural hospitals and clinics as the face of the program to lawmakers, my research demonstrates that the opposite is true. Large hospitals with substantial financial resources are increasing their share of the 340B market, leaving smaller institutions and community-based providers at a disadvantage.
These findings support the need for fundamental redesign and course correction of 340B. The lack of transparency in 340B means we can’t fully quantify the program’s effects or identify the best opportunities to improve accountability.
Neal Masia is an Adjunct Professor of Business and Economics at Columbia University and a consultant and advisor to a variety of healthcare companies.
