340B or Not to Be?

💡 What’s Happening?

Pharmaceutical drugs are expensive for everyone. That includes hospitals, who must maintain a ready supply of medications for patients who need them. Thankfully, there’s a 30-year federal program designed to solve this problem – enter the 340B Drug Pricing Program.

The 340B Program is the price of admission for drug manufacturers who want in on Medicaid: in return for that access, manufacturers voluntarily agree to discount certain outpatient drugs for hospitals and clinics serving the most vulnerable patients. That discount, known as the 340B “ceiling price,” is set by a federal statutory formula – hospitals don’t negotiate it or set it themselves – and manufacturers still profit from the arrangement.

Not every hospital gets this deal. In Texas, just a quarter of hospitals qualify, including hospitals serving a disproportionate share of low-income, uninsured or Medicaid-dependent patients (DSH hospitals), critical access hospitals, and children’s and freestanding cancer hospitals. For-profit hospitals are ineligible by law.

Covered entities qualify by proving they serve large numbers of patients who cannot cover the cost of their own care – patients whose expenses might otherwise fall to hospital districts, local taxpayers or government assistance. 340B provides additional support to these providers with manufacturer-funded savings instead.

The savings help sustain more comprehensive services and programs, like affordable medications, financial assistance, community health programs and high-cost services such as maternal care, behavioral health or infusion services.

340B is a tightly defined federal program that already comes with oversight. So, what’s behind the growing scrutiny and manufacturers trying to backtrack their end of the deal?

🧐 Something is Unusual in the State of Pharma

Manufacturers have written in a few of their own rules beyond what the federal government has set. Those rules restrict which contract pharmacies can dispense 340B drugs and impose claims timelines and data demands the official program doesn’t require.

The additional requirements are just that: additional. They make participation more costly in both time and resources for hospitals and other covered entities, cutting into the savings available to support care. Lost 340B savings means lost revenue for hospitals: every 340B prescription that fails to get filled are funds that never reaches a hospital or clinic’s community of patients – and instead stays with the manufacturer.

States that have enacted 340B contract pharmacy protections have already addressed this issue, and their covered entities are protected from these manufacturer restrictions. But there’s another reason 340B is attracting so much attention in the first place.

🎢 Diagnosis: Inflation

The healthcare landscape looks very different from the one that existed when 340B began in 1992. The program’s growth reflects how Americans receive care:

First, prescription drug spending has climbed industry-wide; 340B purchases rise and fall with the same pharmaceutical market affecting every other payer.

Second, more care has moved from inpatient to outpatient settings; outpatient care can be less expensive, patients prefer it, outcomes are just as good if not better, and it just so happens that 340B covers outpatient drugs.

Third, treatment is increasingly shifting from surgical to pharmaceutical; conditions that once required surgery and a hospital stay are increasingly treated with drugs instead – often outpatient, often 340B-eligible.

And fourth, new, exceptionally high-cost drugs have entered the market; specialty drugs make up just 38.1% of 340B units purchased but account for 61.9% of all 340B purchases. The 10 highest-selling drugs alone represented about $28.6 billion, or 28.6% of total 2025 340B spending.

That growth has brought real scrutiny and Congress is considering potential reforms – but any changes have to preserve the structure that allows safety-net providers to generate savings and use those savings to support care in their communities.

🔎 Audit Report

Rest assured, real oversight exists – 340B is far from unsupervised.

The Health Resources & Services Administration, the agency which oversees 340B, already has tools to supervise the program: covered entities must recertify their eligibility annually, prevent diversion and duplicate discounts and report billing through the federal Medicaid Exclusion file. HRSA also conducts audits, and entities found out of compliance risk removal from the program and repayment of funds. HRSA approves and audits contract pharmacy arrangements too.

HRSA and manufacturers both have audit authority over hospitals – and they use it. Up to 200 covered entities are audited each year, compared to just five manufacturers. Yet when it comes to a repayment of funds – the most significant audit consequence short of expulsion – it’s the manufacturers who fail at higher rates than covered entities. From 2023-2025, manufacturers had to repay 40-60% of the time, compared to 25-37% for covered entities.

This can be debated and reformed by Congress. But Texas has a separate question to answer: What can the state do to protect the safety net right now?

🐎 Texas’ Defense

Every state bordering Texas – and over 20 nationwide – have passed 340B contract pharmacy protection legislation to safeguard covered entities’ ability to participate in the program. These states recognize that 340B is a critical part of the financial safety net securing healthcare access for their low-income and uninsured community. Texas can easily take action to enact the same protections, including addressing manufacturers layering their own unnecessary rules on top of existing federal oversight. State legislation, modeled on what works in other states, would do three things:

Protect contract pharmacy access: Covered entities should be able to fill 340B prescriptions at any pharmacy HRSA has approved for the program, not only those a manufacturer is willing to allow.

Rein in excessive data and claims demands: Texas can prevent manufacturers from imposing additional or duplicative claims-submission requirements that go beyond what HRSA requires.

Stop discriminatory reimbursement by PBMs: A 340B hospital should not be reimbursed less than a non-340B hospital for the same drug simply because it participates in the program.

Why does it all matter? Because 340B is one key piece of the healthcare safety net – manufacturer-funded savings help hospitals sustain services when patients can’t or have difficulty covering the cost of their care. It allows rural hospitals to provide infusion care to patients who’d otherwise have to travel for hours for treatment; it allows local initiatives to provide uninsured patients with insulin and other life-saving medications, all without letting that cost fall in the public’s lap.

Because through 340B, manufacturers share in the responsibility for covering the cost of uncompensated care.

The question isn’t whether Texas needs a healthcare safety-net. It’s whether the money intended to support that safety-net stays here.

📖 Learn More

Protect Texas’ 340B Drug Pricing Program

The 340B Program: How it Delivers Value to Patients and Providers