Much like other federal healthcare programs, the 340B Drug Discount program is a well-intentioned program that has gone off the rails and has become ripe with waste, fraud, and abuse. It was designed to help low-income patients receive greater access to the medicines that they need at a cheaper price, but those patients rarely see the benefits and the program is used by hospitals and pharmacies to inflate their profits. The program is ripe for reform, including developing a clear definition of an eligible patient, and increasing transparency.
The 340B program was created in 1992 and requires that drug manufacturers participating in Medicaid to sell drugs at a discount of between 20 to 50 percent to covered entities (CEs), including federally funded facilities like community health centers, black lung clinics, tuberculosis clinics, and hemophilia treatment centers.1Council for Citizens Against Government Waste, “The 340B Drug Pricing Program is Overdue for Reform,” June 17, 2025, https://www.ccagw.org/legislative-affairs/letters-officials/340b-drug-pricing-program-overdue-reform. 340B also includes disproportionate share hospitals, which receive supplemental federal funds related to the number of low-income Medicare, Medicaid, and uninsured indigent patients they serve.
In 1992, after 340B was created, the House of Representatives passed legislation that would have clarified that savings from the discounted drugs should be used to stretch scarce federal resources in order to reach more eligible patients and provide greater services. However, this bill was never taken up by the Senate, so CEs are not required to pass the savings on to patients. The lack of a mandate to pass on savings and no clear definition of an eligible patient has allowed 340B eligibility to be broadly interpreted and has allowed the program to be used as a way to inflate hospital and pharmacy profits. 2Citizens Against Government Waste, “The 340B Drug Pricing Program Needs a New Prescription,” March, 2024, https://www.cagw.org/The-340B-Drug-Pricing-Program-Needs-a-New-Prescription/.
340B has continued to grow exponentially in recent years. According to the Health Resources and Services Administration (HRSA), which runs the 340B program, in 2005 340B CEs purchased $2.4 billion in drugs, and in 2023 purchases had increased by 2,500 percent to $66.3 billion.3Health Resources and Services Administration, “2023 340B Covered Entity Purchases,” October 1, 2024, https://www.hrsa.gov/opa/updates/2023-340b-covered-entity-purchases#:~:text=In%20calendar%20year%202023%2C%20340B,drugs%20under%20the%20340B%20Program This make 340B the second largest federal prescription drug program after Medicare. A September 9, 2025, report by the Congressional Budget Office (CBO) found a 19 percent increase in annual average spending by 340B on pharmaceutical drugs, while spending on brand-name drugs nationwide increased an average of 4 percent annually.4Congressional Budget Office, “Growth in the 340B Drug Pricing Program,” September 9, 2025, https://www.cbo.gov/publication/60661. The CBO report also found that 340B purchases more expensive drugs, including cancer drugs and anti-infective drugs.5Ibid.
This unchecked growth has come with a great cost to taxpayers. According to a May 2024 Health Capital Group report, increased participation in 340B from 2014 to 2021 raised Medicaid spending by $391 per enrollee, or $32 billion annually.6Health Capital Group, “The 340B Drug Purchasing Program and Per-enrollee Medicaid Costs,” May 2024, https://www.healthcapitalgroup.com/340b-and-total-medicaid. This cost accounted for approximately 10 percent of total Medicaid spending. Employers are also bearing the cost of 340B. A March 2024 IQVIA report found that 340B increases costs by more than $5 billion annually for employer-sponsored health plans.7IQVIA, “The Cost of the 340B Program Part 1: Self-insured Employers,” March 12, 2024, https://www.iqvia.com/locations/united-states/library/white-papers/the-cost-of-the-340b-program-part-1-self-insured-employers.
To date, Congress has failed to pass legislation that would reform 340B. In the wake of federal reforms, several states have enacted legislation reforming 340B. Congress’ inaction has led to a patchwork of laws regulating how 340B operates across the country. Many states have enacted bills that include manufacturer mandates, which will not only change how the 340B program operates but will drive up costs through foregone rebates. According to a 2023 IQVIA report, 340B is costing employers and workers in Florida $246 million annually.8IQVIA, “The Cost of 340B: State-Specific Insights and Trends,” April 11, 2025, https://www.iqvia.com/locations/united-states/library/fact-sheets/the-cost-of-340b-state-specific-insights-and-trends. If Florida were to enact legislation that includes a manufacturer mandate, this cost would rise to $302 million annually.9Ibid. Rather than pass legislation that would change how 340B operates in their state, state legislators should consider bills that would increase transparency around how 340B revenues are being used by hospitals.
Since 340B was created by federal statute, it is up to Congress to enact permanent reforms to the program. An April 24, 2025, Senate Health, Education, Labor and Pension Committee Majority Staff report on 340B includes a recommendation to clarify the definition of an eligible patient and ensure that the discounts benefit those patients.10U.S. Senate Committee on Health, Education, Labor and Pensions, “Congress Must Act to Bring Needed Reforms to the 340B Drug Pricing Program,” April, 2025, https://www.help.senate.gov/final-340b-majority-staff-reportpdf. Reforms to the 340B program should include a clear definition of an eligible patient, better verification of patient eligibility at the time the prescription is filled, a relationship between the patient and the CE, verification that services were provided within the last 12 months, and increased transparency.
The 340B Drug Discount Program was designed to help low-income, indigent patients receive affordable prescription medicines. However, this program has been misused and is now more of a profit-driving mechanism for hospitals and pharmacies and patients rarely see the benefits that they deserve. Because of inaction by Congress, state legislatures have stepped in to fill the void and have passed bills that affect how 340B operates in their states. While states can pass legislation that increases transparency on 340B, the bills that have been enacted have created a patchwork of laws across the country.
Since 340B was created by federal statute, it is up to Congress to make permanent reforms to the program. Members of Congress should develop a clear definition of an eligible patient and enact other reforms like better verification of eligibility when the prescription is filled, increased transparency, a relationship between the patient and the CE, and verification that services were provided within the last 12 months. These reforms would return the program to its original mission and eliminate the waste, fraud, and abuse that has become commonplace with 340B.
Thomas Schatz is the president of Citizens Against Government Waste.
