Congress should take the action necessary to address the four key flaws of the 340B program. Doing so will ensure that the focus of the program shifts back to the intended beneficiaries of the program—vulnerable patients.
Congress created the 340B program in 1992, which required participating drug manufacturers to offer discounts on most outpatient drugs to certain hospitals and clinics, referred to as “covered entities,” or CEs. Under the program, manufacturers cannot charge CEs more than the “ceiling price” for a given drug. CEs typically obtain a 20 to 50 percent discount (or even more) off the average price at which a manufacturer sells a drug to wholesalers.
The relevant legislative history reveals that Congress created the program to protect certain facilities serving significant numbers of low-income, uninsured, and/or vulnerable patients (referred to herein as “safety net facilities”). Specifically, Congress was concerned that Medicaid-related legislation enacted in 1990 had had the unintended result of causing manufacturers to cease offering the discounts on drugs that they had previously offered to safety net facilities, or at least to scale them back dramatically. This in turn had financially strained these facilities, making it difficult for them to provide the care their patients needed. Congress sought to correct this oversight, estimating that numerous clinics and about 90 hospitals would qualify for discounted drugs under the 340B program.
The size of the program, measured in terms of the total (discounted) price CEs pay for drugs and the number of CEs participating, has soared since 2010. In 2023, CEs purchased $66.3 billion worth of 340B drugs (that figure reflects discounts), a figure ten times greater than the corresponding $6.6 billion figure just 13 years earlier. Since 2013, the program’s compound annual growth rate is 24.9 percent; if that is the future growth rate, the program will double in size approximately every three years. The program quadrupled in size from 2016 to 2023, the latter being the most recent year for which data is available.
Some of the growth is due to the 2010 Affordable Care Act expanding the definition of CEs to include more types of hospitals. Currently, 6 types of hospitals qualify for the 340B program, with the most important being disproportionate share hospitals (DSHs), which have (among other traits) inpatient populations with relatively high percentages of low-income Medicare and Medicaid beneficiaries. Since 2010, hospitals have accounted for almost 90 percent of the growth in the program (as measured by CEs’ acquisition costs for 340B drugs). But crucially, most growth in the dollars involved in the program is attributable to DSHs—the one hospital type that qualified for the program under the original federal statute. In 2023, these particular hospitals accounted for almost 80 percent of the total discounts flowing under 340B.
Download the full PDF.