He 340B Drug Pricing Program is a federal initiative designed to help certain health care providers, known as “covered entities,” stretch their resources to better serve vulnerable and underserved patient populations. Created in 1992, the program requires pharmaceutical manufacturers to sell outpatient drugs at significantly reduced prices (typically between 25% and 50% off) to eligible hospitals, clinics, and health centers that serve large numbers of uninsured and low-income patients.These covered entities can then use the savings from these discounted drug purchases to provide more comprehensive services, reach more eligible patients, and offer additional programs that improve patient care and access in their communities.. Defenders of the 340B program They claim it improves access to health care for underserved populations without using taxpayer money (since all funding comes from mandatory rebates from drug manufacturers).
While the 340B program was intended for covered entities serving underserved populations, in recent years the size of the program has grown. According to a report by Farmhouse (2024)Over the past decade, the number of hospitals participating in the 340B program has increased by 31%. While this may seem like a high number, each recipient is now more likely to expand its reach by operating multiple subsites or subrecipients. By this definition, hospital sites have increased by 126% (the recipient site increased by 61%) over the past decade. There are now nearly 200,000 340B contracted pharmacies in the U.S.
Masia then examines the impact of 340B on Medicaid costs:
Our regression estimates suggest that increased participation by hospitals and beneficiaries in the 340B program between 2014 and 2021 increased total Medicaid spending by $391 per beneficiary, or more than $32 billion per year. This suggests that 340B-driven spending may account for approximately 10% of total Medicaid spending, significantly increasing the cost of the program to taxpayers.
Why would 340B increase costs? The author posits that 340B-driven market consolidation, choice of site of care, and choice of therapy could be affecting outcomes. For example, 340B hospitals may prefer to prescribe brand-name drugs compared to generic drugs under 340B, since the profit they earn from brand-name drugs is much higher. While 340B-covered entities get discounts for these drugs, payers reimburse covered entities for the full cost.
You can read the full article by Neal Masia here.
