“When a program designed to provide targeted assistance increases costs throughout the system, reform is no longer optional,” says health expert Sally Pipes. “It is necessary.”
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If a charity raised billions of dollars with little evidence that it benefited the needy, regulators and the public would they require answers.
However, many large hospital systems that participate in the federal 340B Drug Pricing Schedule they are quietly doing just that — funneling billions into drug rebates with limited oversight and no obligation to demonstrate that vulnerable patients benefit.
This should concern anyone concerned about rising health care costs, the misuse of taxpayer dollars, financial burdens on employers, or the integrity of our nation’s safety net. Congress needs to stop ignoring this problem and introduce some much-needed transparency to 340B.
The data show that hospitals—not the patients 340B was intended to serve—are reaping the benefits of the program. In Minnesota, hospitals were virtually occupied 98% of net 340B earnings in 2024, according to a report. In Illinois, 340 billion hospital revenue was more than 2.5 times what they spent on care for low-income and uninsured patients in 2022.
This misuse has gone unchecked primarily because policymakers and regulators lack access to the routine data already collected by 340B providers. Without this data, it is almost impossible to determine whether the program is achieving its intended purpose.
Programs of this size and importance usually come with clear rules, consistent reporting and measurable results. With 340B, these guardrails are largely absent.
The program requires manufacturers to provide safety net providers steep discounts on outpatient drugs. Providers can then charge insurers higher rates, with the expectation that they will use the difference to support care for low-income and uninsured patients.
But there are no requirements that hospitals actually use the profits that way—or even pass the rebates on to patients at the pharmacy counter.
With so little federal oversight, hospitals use the program as an unregulated profit stream. Providers have sharply expanded the use of discount drugs, with 340 billion purchases growing from $6.9 billion in 2012 in more than 80 billion dollars in 2024. The program is now the second oldest Federal prescription drug program after Medicare Part D—a dramatic change for what was once a narrowly targeted safety net policy.
When hospitals overcharge insurers for drugs they bought at 340 billion rebates, taxpayers, employers and insured patients foot the bill. An analysis found that these labels are costing state employee health plans roughly 1 billion dollars annually.
The program’s design also incentivizes providers to prescribe more expensive drugs, since higher list prices mean larger rebates 340 billion. This dynamic increases drug costs throughout the health care system. The non-partisan Congressional Budget Office concluded that 340B encourages behaviors that “tend to increase federal spending because they lead to higher drug prices or increased drug use.”
When a program designed to provide targeted assistance raises costs throughout the system, reform is no longer optional. It is necessary.
The Trump administration proposed a pilot program last year that would have required 340 billion entities to prove that drugs are actually eligible for the program before receiving a rebate. Hospitals pushed back quickly and the pilot was blocked in court.
Management is now reconsidering the idealooking for evidence of a discount-based model that would create a clearer record of how the program is used for select drugs.
This is a positive development. But the delay—and the proposal’s narrow scope—has prompted some drugmakers to act on their own. Some have begun requiring providers to submit claims-level data to verify that drugs given to patients after an appointment are indeed eligible for 340B.
While constructive, these efforts will not restore integrity to the program by themselves. Without comprehensive legislative reform, 340B will continue to be plagued by abuse, opacity, and uneven enforcement.
At the very least, Congress should enforce basic transparency measures that are standard in others federal health programs, including reporting at the claims level and clearly documenting how each provider spends its $340 billion in revenue.
Policymakers should also establish stricter standards and increase audits to verify that each 340B provider serves low-income patients and meets a minimum charity care threshold before receiving discounted drugs.
These common sense accountability measures will align 340B with the expectations that govern other large federal programs. They would also help ensure that the significant financial benefits of the program are directed to the patients who need them most.
