The 340B drug discount program was intended to help low-income and uninsured patients afford medicine, not create lucrative revenue streams for hospital systems in wealthy communities. However, without oversight, that is what it has become. Congress should return the program to its intended purpose by requiring hospitals to show that the program reaches the vulnerable patients it was intended for.
The 340B program allows qualifying hospitals and other providers to purchase outpatient drugs at substantial discounts. They can then bill insurers, including Medicare, at normal reimbursement rates and retain the difference. Congress intended those savings to help safety-net providers stretch their resources and expand services for vulnerable patients. In practice, federal law does not require hospitals to prove those savings are passed on to patients or even disclose how the resulting revenue is spent.
Discounted 340B drug purchases reached roughly $81 billion in 2024. At that scale, Congress should expect something more than assurances from hospitals that the money eventually benefits the people the program was created to help.
Once a patient qualifies under the program’s broad rules, an eligible provider can purchase the discounted drug even when the patient has generous commercial insurance. That makes a wealthy, well-insured patient potentially far more valuable to a 340B hospital than an uninsured patient who cannot pay the full bill. Once a hospital qualifies, individual patients receiving 340B drugs do not have to be low-income or uninsured.
Minnesota’s experiment with 340B transparency shows how large those incentives can become. A state report found participating providers generated roughly $630 million in net 340B revenue, with the overwhelming majority generated by large health systems rather than traditional safety-net providers.
340B expansion increasingly follows affluent patients. A Health Affairs study found that clinics affiliated with hospitals entering the program after 2004 tended to serve wealthier and more heavily insured communities than earlier participants. These clinics often operated in higher-income, lower-poverty areas while qualifying for 340B discounts through their ownership or affiliation with an eligible 340B hospital.
Contract pharmacies, outside pharmacies that dispense 340B drugs on behalf of eligible hospitals and other providers, show a similar pattern. After federal policy dramatically expanded their use in 2010, the share of 340B pharmacies located in the lowest-income neighborhoods declined while the share in the highest-income neighborhoods increased. Rather than concentrating where vulnerable patients live, expansion increasingly reached affluent communities.
The problem is compounded by remarkably weak transparency requirements. Federal law generally does not require hospitals to publicly disclose how much net 340B revenue they generate, how many low-income or uninsured patients receive discounted drugs, how much patients save at the pharmacy counter, or where the revenue ultimately goes. Hospitals frequently respond that 340B revenue pays for charity care and other valuable community services. That may be true. But if it is, hospitals should be able to demonstrate it.
Every participating hospital should be required to publish annual data showing its 340B drug acquisition costs, reimbursements received, net revenue, charity-care spending, patient discounts, and other uses of 340B funds. Hospitals should also report how many low-income and uninsured patients actually received discounted drugs and how much their out-of-pocket costs were reduced.
Congress should also require hospitals to pass a meaningful portion of 340B savings directly to low-income and uninsured patients. A program justified as a way to help vulnerable patients should produce an identifiable benefit for those patients.
Rules governing affiliated “child sites” and contract pharmacies also need to be tightened. An off-campus oncology practice, specialty clinic, or pharmacy in an affluent neighborhood should not automatically receive 340B privileges simply because its corporate parent owns a qualifying hospital miles away. Affiliated sites should have to demonstrate that they actually serve substantial numbers of low-income or uninsured patients before receiving the subsidy.
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Finally, the definition of who counts as a 340B patient needs to be made explicit. The program’s benefits should be directed toward low-income and uninsured patients instead of allowing hospitals to generate large discounts from affluent, well-insured patients.
None of these reforms would prevent hospitals from receiving help for treating vulnerable patients. They would simply require the subsidy to follow the patients who need financial assistance. Institutions benefiting from billions of dollars in federally mandated drug discounts should be able to tell policymakers and the public how that money is spent.
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.