The federal 340B Drug Pricing Program was established in 1992 with the goal of helping low-income and uninsured patients afford medicine. Under the program, pharmaceutical manufacturers participating in Medicaid must sell drugs at steep discounts–often 25 percent to 50 percent below list price–to eligible hospitals and clinics that serve vulnerable communities. Those discounted medicines are intended to reduce the cost of prescriptions for low-income patients. However, what began as a support program for struggling Americans has morphed into a sprawling system whose benefits often bypass the very people it was meant to help.
Initially, 340B covered a limited set of hospitals (mainly those with a high proportion of indigent care) and community clinics like federally qualified health centers. But in 2010, Congress opened the door to more hospitals and pharmacies, many of which may serve higher income patients. Between 2010 and 2020 alone the program grew nearly 500 percent.
Today, the 340B program has exploded into the nation’s second-largest federal drug program—trailing only Medicare Part D. Discounted 340B drug purchases reached $147.8 billion in 2024, growing over three times faster than the rest of the pharmaceutical market. More than 60,000 hospitals, clinics, and pharmacies now participate, up from just a few thousand in the early 2000s.
Amid this rapid expansion, one thing has not grown: evidence that patients are benefiting. Multiple analyses indicate that 340B program’s current structure is failing low-income patients in underserved urban and rural communities. Instead of cheaper medicines, many hospitals are pocketing the difference between the discounted prices they pay and the full prices they charge insurers and patients.
Unlike Medicaid, which is required to pass drug savings on to beneficiaries, 340B has no requirement that hospitals share their discounts with patients. Many do provide uncompensated care and community programs, but the lack of transparency means it’s impossible to tell how much of their 340B windfall goes to charity care.
As a result, a patient at a 340B hospital—or one of its contract pharmacies—typically pays the normal copay or even full price, even if the hospital obtained the drug at a fraction of that cost. A Government Accountability Office study found that in a sample of 28 hospitals, 57 percent did not share 340B discounts with uninsured low-income patients. Another analysis found only 1.4 percent of brand name 340B-eligible prescriptions filled at contract pharmacies provided any savings to the patient. In other words, for 98–99 percent of eligible prescriptions, the 340B program might as well not exist at all. That same analysis found that the 340B program instead generated about $64.4 billion in profits for hospitals and intermediaries in 2023, and that charity care at 340B hospitals has declined. Even the Congressional Budget Office found no evidence patients are seeing lower costs.
For expensive specialty drugs, the hospitals’ margins can reach 100 percent in pure profit. This creates a powerful incentive for hospitals to maximize 340B volume, often by expanding services in wealthier areas or acquiring clinics and physician practices that serve wealthier, well-insured patients—effectively using poorer hospital campuses as gateways to access discounts for profits elsewhere.
Thankfully, the solutions are not complicated. The most important reform is to require that low-income and uninsured patients receive the discounts intended for them. For example, hospitals could be mandated to provide qualifying patients with medications at the 340B price plus a modest dispensing fee. The discounts must flow through the system to the patient, not be absorbed by hospitals along the way. Community health centers already do this by charging indigent patients nominal fees; 340B hospitals should meet a similar standard of patient affordability.
To do this it is important to shine a light on where the 340B money goes. Hospitals and their 340B contract pharmacies should be required to report the discounts they receive through 340B and how much is passed to patients. Greater transparency would hold institutions accountable and help determine who is truly using the program as intended and who is taking advantage of it. While there has been pushback to this idea arguing that reporting costs hospitals, the costs are less than the $64.4 billion they make from the program.
Congress should also tighten the definitions that have allowed exploitation. Congress should redefine a 340B patient to ensure the program is used for those who are truly in need. Additionally, standards for contract pharmacies should require 340B hospitals’ contract pharmacies be in low-income communities.
Reforming the 340B program isn’t about punishing hospitals, its about ensuring the least fortunate among us can afford medicine. Every dollar in discounts that disappears into a hospital’s profits is a dollar that could have lowered a family’s prescription bill. A transparent, patient-focused 340B program would ensure that discounts meant for low-income communities actually reaches them.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.