Program creep is a familiar Washington problem. Good ideas, originally intended to solve targeted challenges, expand beyond their original mission, often bringing higher costs and unintended consequences.
The federal 340B program is a case study in that phenomenon. Congress created 340B in 1992 to help hospitals and clinics serving low-income and uninsured patients stretch scarce resources by providing them deeply discounted drugs. Today, the program has grown far beyond those origins, creating opportunities for hospitals and other health-care providers to generate considerable revenue with little transparency about where the money goes.
To address this problem, the Department of Health and Human Services (HHS), through the Health Resources and Services Administration (HRSA), recently announced a 340B rebate model pilot program. It is a promising attempt to bring greater transparency and accountability to 340B — and begin steering the program back toward its original purpose. 340B was born of good intentions.
Drug manufacturers provide substantial discounts on outpatient medicines purchased by qualifying safety-net providers. Those providers can then receive reimbursement significantly higher than their discounted acquisition cost and retain the difference. The original idea was aimed at providers serving vulnerable populations to help them stretch limited resources and offer more care. Congress described the goal succinctly: to enable providers to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”
That mission should remain the policy rudder to guide the program back on course.
Unfortunately, the program’s financial incentives have increasingly overshadowed that mission. Over the past two decades, 340B has expanded dramatically while federal oversight has struggled to keep pace. The program is now used for more than just assisting safety net patients; in some cases, it has been used to expand major health systems, hospitals, and clinics.
The numbers tell the story. According to HRSA data, purchases through 340B increased from $6.6 billion in 2010 to $100 billion in 2025. Participation has expanded as well. In addition to hospitals, the program encompasses federally qualified health centers, Ryan White HIV/AIDS clinics, family-planning clinics, tribal health programs and other eligible providers.
As HHS recently acknowledged, this expansion has introduced oversight challenges that were less pronounced when the program was smaller and less complicated, making it more difficult to verify compliance and ensure that the program’s benefits serve its intended mission and patient population.
Institutions respond to the incentives government creates, and hospitals and other 340B participants are no exception. When federal policy allows institutions to maximize the spread between a discounted acquisition price and reimbursement, they have a powerful incentive to organize their operations around that spread. The result can be additional revenue that isn’t necessarily tied directly to providing additional assistance to vulnerable patients.
In other words, a program designed as a safety-net risks becoming a revenue engine.
Critics have long pointed to gaps in transparency and oversight, particularly the difficulty of determining how institutions use the revenue generated through 340B. At the same time, HHS has encountered considerable legal constraints when it has attempted to impose new requirements administratively.
The status quo needs to change.
That is why HHS’ new 340B pilot comes at an important moment.
How would it work? Under the pilot, participating manufacturers of selected drugs could replace the traditional upfront 340B discount with a rebate. A covered entity would purchase an eligible drug at a higher upfront price and submit transaction-level information after dispensing it. Once the transaction is validated, the manufacturer would provide the rebate reflecting the 340B discount.
Importantly, the pilot is limited to drugs selected for Medicare price negotiation for the 2026 and 2027 applicability years. This makes the initiative a genuine test rather than a wholesale restructuring of 340B. If it succeeds operationally, policymakers will have evidence to consider whether the approach should play a larger role in the program’s future.
The pilot also includes safeguards intended to protect covered entities. Once a manufacturer receives a complete data submission, it must pay the rebate — or deny it with supporting documentation — within 10 calendar days. Manufacturers also face requirements governing data, reconciliation, technology costs and the grounds for denying rebates.
The significance of the pilot goes beyond the mechanics of when a discount is paid. A claims-based rebate system gives HHS greater visibility into individual 340B transactions, creates a stronger mechanism for identifying duplicate discounts, and produces data that can help regulators determine whether the program is operating as intended.
Hospitals and other covered entities will object that moving from an upfront discount to a rebate could disrupt cash flow and impose new administrative burdens. Those concerns deserve consideration. But they are also an argument for a limited pilot rather than for preserving the status quo indefinitely. HHS can measure those costs, identify operational problems, and adjust the model before contemplating broader changes.
The goal of 340B should not be to maximize revenue for participating institutions. It should be to stretch scarce resources, strengthen the healthcare safety net, and help the patients that safety net was originally developed to serve.
HHS’ pilot is a measured step toward restoring that principle. If it delivers greater transparency and accountability without undermining legitimate safety-net providers, it could offer something Washington rarely achieves: a way to reform a growing federal program by refocusing it on its original purpose.
The writer is the Assistant Secretary for Legislation at the U.S. Department of Health and Human Services.
