More than three decades ago, Congress created the 340B program to help safety-net hospitals and clinics expand resources and care for underserved communities.

By requiring pharmaceutical companies to offer deep discounts on outpatient drugs, the program has become a hallmark resource to help health systems support vulnerable patients. In recent years, however, the program has drawn scrutiny from federal lawmakers as several drugmakers have introduced alternative rebate and drug pricing models, raising questions about the direction of the program.

Hospitals have also faced increased scrutiny in recent years over how they are utilizing 340B savings. This intensified after a Senate report published in April found some of the largest health systems were exploiting the system. According to the report, Cincinnati-based Bon Secours Mercy Health and Cleveland Clinic generated hundreds of millions of dollars by acquiring discounted 340B drugs and then charged patients significantly higher prices. Both health systems defended their participation in the 340B program, telling Becker’s they operated the program in compliance with federal rules.

History of the 340B program

Congress established the 340B program in 1992 through the Veterans Health Care Act.

Named after Section 340B of the Public Health Services Act, the program requires pharmaceutical manufacturers that participate in Medicaid to sell specific outpatient drugs to eligible providers at discounted prices.

Administered by the Health Resources and Services Administration, the program allows safety-net providers such as federally qualified health centers and disproportionate share hospitals to purchase discounted drugs from manufacturers. Disproportionate share hospitals account for more than 75% of 340B purchases, according to the HRSA.

Hospital participation has tripled since the program’s inception to its current level of more than 53,000 registered 340B sites. The increase in participants since 2014 has been particularly rapid; it has doubled in that period. The Affordable Care Act of 2010 expanded eligibility to include more kinds of hospitals and authorized the HRSA to strengthen oversight mechanisms. The expanded list includes children’s hospitals, cancer treatment facilities, critical access hospitals, rural referral centers and sole community centers that have a certain disproportionate share hospital percentage.

In 2023, the program reached a record of $66.3B of outpatient drugs purchased, a 24% increase from the previous year, and disproportionate share hospitals accounted for around $51.9 billion.

Drugmakers push for restrictions

In recent years, drugmakers have sought to reshape the 340B program by imposing restrictions, from limiting the use of contract pharmacies to testing rebate-based alternatives to traditional discounts. Manufacturers argue these measures improve oversight and curb abuse; hospitals contend they threaten the financial support safety-net providers rely on to serve vulnerable patients.

Many covered entities, such as smaller hospitals and community health centers, rely on contract pharmacies to dispense 340B drugs because they do not have their own in-house pharmacies. Federal courts have largely sided with manufacturers in the contract pharmacy fight, with rulings in 2023 and 2024 affirming their ability to impose certain limits. In response, Maryland has enacted a law requiring drugmakers to offer discounts to drugs dispensed at contracted pharmacies, and several other states have introduced bills that aim to do the same. A similar West Virginia law has been blocked by a judge.

In response to efforts by drugmakers to restrict access to discounts, lawmakers in both chambers of Congress introduced a bill aimed at reinforcing protections for the 340B program. According to a July 22 news release from 340B Health, the bill would not only require manufacturers to honor discounts from eligible providers, it would also prohibit placing conditions on 340B discounts.

In late 2024, drugmakers also started mounting legal challenges against the federal government over proposed rebate alternatives to traditional 340B discounts. They argued their models would improve transparency and ensure cost savings for safety-net hospitals. Hospitals and the HRSA, however, said the plans violate the 340B statute and would threaten financial support.

Johnson & Johnson said in August 2024 that it would end up-front discounts for blood thinner Xarelto and anti-inflammatory drug Stelara and replace them with a 340B rebate model. Under the plan, 340B hospitals would have to purchase drugs at commercial prices, then submit claims data through an online portal to qualify for a rebate.

Healthcare groups including the American Hospital Association and American Society of Health-System Pharmacists opposed the model, arguing the plan was unlawful and financially burdensome for safety-net hospitals. As a result, the HRSA issued a warning stating rebate models are not permissible under the 340B statute and could result in the drugmaker losing eligibility for Medicaid and Medicare Part B participation.

J&J halted the plan on Sept. 30, but on Nov. 12, the drugmaker filed a lawsuit against HHS and the HRSA, requesting a federal judge declare its rebate plan legal and to block federal authorities from taking enforcement action.

On Nov. 14, Eli Lilly filed a similar lawsuit over its own rejected rebate plan, which would have required hospitals to pay full price up front and then receive weekly cash rebates.

On Nov. 22, Sanofi notified 340B hospitals that it planned to roll out a new credit model in 2025 that would require hospitals to purchase drugs at the wholesaler acquisition cost and submit claims and purchase data to determine eligibility for a credit equal to the 340B discount.

The HRSA issued a warning letter Dec. 13, reiterating the model conflicts with the requirement for up-front discounts, and shortly after, Sanofi paused implementation of the model and challenged the HRSA in a federal lawsuit. Bristol Myers Squibb also filed a lawsuit in March against the HRSA.

In March 2025, HHS filed a legal brief urging the dismissal of the lawsuits brought by the drugmakers. The agency maintained that the rebate-based pricing violates the 340B statute and argued the models would increase the financial burden on hospitals. In July, a federal judge rejected Johnson & Johnson’s challenge to block its proposed rebate plan.

Most recently, the HRSA launched a rebate model pilot program of its own in August, offering manufacturers an opportunity to propose alternative discount structures. In response, hospital groups voiced serious concerns about the speed and overall scope of the rollout. In an Aug. 8 joint letter, the AHA, America’s Essential Hospitals, the ASHP, the Association of American Medical Colleges, the Catholic Health Association of the United States, the Children’s Hospital Association and 340B Health urged the agency to extend key deadlines.

Preserving the program’s original intent

Although the 340B statute does not require providers to pass drug discounts directly on to patients, health systems have emphasized the importance of preserving the original intent of the program by reinvesting the savings into expanding care and focusing on supporting vulnerable populations.

At St. Louis-based Ascension Health, the health system is focused on educating lawmakers about how the 340B program functions and enables providers to reinvest the savings into care delivery.

“It was for safety providers, which Ascension is, to allow us to steward those very finite resources and extend that care,” Michael Wascovich, PharmD, chief pharmacy officer for Ascension, said in a July interview with Becker’s. “There are a lot of ways we do that. We do lower our drug prices. We have what we call our Ascension Prescription Assistance card. We put pharmacists and nurses and others in clinics to help people navigate a very complex system, especially when they have something difficult like a cancer diagnosis. There’s just a variety of ways that we extend that care.”

Nilesh Desai, chief pharmacy officer at Louisville, Ky.-based Baptist Health, said savings generated from the program have been critical to maintaining access for patient care. Leaders have expressed concern about what shifting Medicaid eligibility requirements could mean for participants’ ability to purchase discounted drugs and expand services for underserved patient populations.

“As Medicaid eligibility requirements change, fewer patients qualifying for the program could lead to reduced drug discounts, adding complexity,” Mr. Desai said. “Our focus is ensuring patients receive the medications they need, when they need them, while supporting our teams in delivering high-quality care.”

President Donald Trump issued an executive order April 15 aimed at reinstating a policy from his first term that reduces Medicare reimbursement rates for medications acquired through the 340B program. The White House said the order is meant to lower out-of-pocket drug costs for patients and to increase transparency in drug pricing.

Supporters contend the order could help curb Medicare spending and enhance fiscal oversight. Opponents of the measure, on the other hand, cautioned that the move may weaken the 340B program’s ability to aid safety-net hospitals.

As concerns grow in the healthcare sector over potential changes to the program, Greenville, S.C.-based Prisma Health, with locations in South Carolina and Tennessee, is emphasizing the impact 340B savings have had in its rural communities.

Jennifer Bair, PharmD, chief pharmacy officer for Prisma Health, told Becker’s the health system has relied on 340B funds to expand pharmacy access in rural areas where other commercial pharmacies have closed.

In one rural community, patient demand prompted the health system to open a 24/7 pharmacy, a project Dr. Bair said would not be feasible without the 340B program. Additionally, Prisma Health developed an internal steering committee to oversee 340B operations and ensure more transparency.

“I understand where the manufacturers are coming from when they see bad actors and question whether the funds are being used appropriately,” she said. “But we have to protect the original intent of the program. One of the things we’re doing is making sure we can track the impact and tell the story. We need to be able to explain why this program matters to us and what services would be affected if 340B went away.”

Lingering questions

All the recent shifts to this long-standing program has spurred growing questions for hospitals and health systems on the future of the 340B program.

One of the lingering questions revolves around the implementation of the HRSA’s pilot program. In a statement, 340B Health President and CEO Maureen Testoni expressed concerns about the financial and administrative burdens the rebate model could impose on hospitals in the future.

“Our recent analysis shows that shifting to rebates for all 340B drugs would force each disproportionate share hospital to front an average of more than $72 million to drug manufacturers while waiting for rebates, straining their ability to deliver critical care services,” Ms. Testoni said. “340B rebate models shift financial burden from highly profitable drug companies to hospitals with the fewest resources serving the most vulnerable patients.”

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