- Health Care
- Answering Challenges to Advanced Economies
The federal 340B drug pricing program lets hospitals buy outpatient drugs at steep discounts and keep the difference when insurers pay full price. It requires no proof that the savings reach low-income patients. The program rewards costlier drugs, drives hospital acquisitions of independent physician practices, and pushes clinics into wealthier neighborhoods. This brief proposes ending 340B discounts for hospitals and replacing them with a patient-centered fund financed by drug manufacturers.
Key Takeaways
- The 340B drug pricing program is not a discount program but an arbitrage program that creates opportunities for profit: Hospitals keep the gap between the 340B price and what Medicare, Medicaid, and private plans reimburse. Nothing in the statute requires the revenue to reach patients or fund low-income care.
- The incentives are predictable: Because margins rise with drug price and volume, 340B encourages costlier drugs, acquisition of independent physician practices, and expansion into affluent areas.
- The eligibility test measures the wrong thing: Hospitals qualify based on inpatient Medicaid utilization, but they use the discount on outpatient clinic drugs. With no incentive beyond the qualifying threshold to serve more low-income patients, many hospitals game the system by expanding into more profitable areas while keeping their inpatient Medicaid numbers just high enough to stay qualified.
- The costs of 340B go beyond the discounts manufacturers are required to provide. Employers, Medicare, Medicaid, and state budgets all pay more through higher list prices, lost rebates, and consolidation.
- Congress should end 340B discounts for hospitals and replace them with a safety-net fund financed by manufacturers and distributed to healthcare providers based on low-income outpatient volume. Independent clinics should be eligible, and safety-net clinics, the original beneficiaries of the 340B program, should retain access.
Cite this essay:
Anthony DiGiorgio, “Reforming the 340B Drug Pricing Program,” Healthcare Policy Working Group, Hoover Institution, October 2026.
