The 340B Drug Pricing Program is a US federal government program created in 1992 that requires drug manufacturers to provide outpatient drugs to eligible health care organizations and covered entities at significantly reduced prices. The intent of the program is to allow covered entities to "stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services."Veterans Health Care Act of 1992, Pub. L. No. 102-585 § 602, 106 Stat. 4943, 4967–4971 (1992).GAO, Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement, GAO (Washington, D.C.: Sep. 2011) at 1 [hereafter referred to as GAO 340B Report]. Maintaining services and lowering medication costs for patients is consistent with the purpose of the program, which is named for the section authorizing it in the Public Health Service Act (PHSA).GAO 340B Report p. 1:"Thirteen of the 29 covered entities we interviewed reported that they generated 340B program revenue that exceeded drug-related costs, which includes the costs of purchasing and dispensing drugs." It was enacted by Congress as part of the Veteran's Health Care Act of 1992 and codified in Section 340B of the PHSA, signed into law by President George H. W. Bush.
As of 2023, covered entities' spending on 340B outpatient drug purchases exceeds $66 billion per year, with disproportionate share hospitals accounting for nearly $52 billion.
Program description and history Congress created the Medicaid Drug Rebate Program in 1990. It required pharmaceutical manufacturers to provide rebates for medication purchases, based on sales to Medicaid beneficiaries, as a condition of having their products covered by Medicaid. The amount of the rebates paid to the states were based on a "best price" calculation that did not take into account the discounted prices that manufacturers were offering directly to Federally funded clinics and public hospitals serving large numbers of low-income and uninsured patients.H.R. Rep. No 102-384 (II), at 10–11 (1992).
Congressional hearings in 1992 found that failing to exempt these voluntary discounts under the Medicaid Drug Rebate Program caused prices to rise "dramatically" for such facilities. According to a detailed study of the most widely used outpatient drugs at five public hospitals, hospital costs for the previously discounted drugs increased, on average, by 32 percent, far in excess of the historical five to nine percent annual increases in drug prices experienced by public hospitals. The steep rise reflected the size of the discounts previously offered, and the dramatic shift once "best prices" were imposed in place of voluntary discounts.H.R. Rep. No 102-384 (II), at 10–11 (1992)
Consequently, Congress created the 340B program in November 1992 through the enactment of Public Law 102–585, the Veterans Health Care Act of 1992, which is codified as Section 340B of the Public Health Service Act (created under Section 602 of the Veterans Health Care Act of 1992).Veterans Health Care Act of 1992, Pub. L. No. 102-585 §602, 106 Stat. 4943, 4967–4971 (1992). The law protected specified clinics and hospitals ("covered entities") from drug price increases and gave them access to price reductions. This law requires pharmaceutical manufacturers participating in the Medicaid program to enter into a second agreement with the Secretary of HHS—called a pharmaceutical pricing agreement (PPA)—under which the manufacturer agrees to provide statutorily specified discounts on "covered outpatient drugs" purchased by government-supported facilities, known as covered entities, that are expected to serve the nation's most vulnerable patient populations.42 U.S.C. § 1396r-8(a)(1), (a)(5). These discounts only apply to purchases of covered outpatient drugs.U.S. Government Accountability Office, Report to Committees: Drug Pricing (GAO-11-836), September 2011. Covered entities are allowed to dispense the discounted medication both to uninsured patients, and patients covered by Medicare or private insurance.Andrew Pollack, Dispute Develops Over Discount Drug Program, N.Y. Times, Feb. 13, 2013.
The number of covered entity sites ("parent" sites plus off-site outpatient facilities, also referred to as "child" sites) that take advantage of the 340B program has grown from 8,605 in 2001 to 16,572 in 2011.GAO 340B Report, 8 From 2005 to 2011, the number of hospitals participating nearly tripled, from 591 to 1,673, and the number of hospital sites (separate locations of a given hospital that all participate in 340B) almost quadrupled, from 1,233 to 4,426.GAO 340B Report, 27–28 As of October 2017, there are 12,722 covered entities participating in the program. The program's growth can be attributed in part to three laws that Congress passed over the last decade. Growth in the number of covered entity sites also stems from a recent federal policy change. In 2012, the Health Resources and Services Administration (HRSA) began requiring hospitals to register all offsite facilities using 340B drugs. Previously, hospitals had to register only those sites at separate addresses that received direct shipments of 340B drugs. Additionally, all clinics located off-site of the parent hospital, regardless of whether those clinics are in the same building, must register with HRSA as outpatient facilities of the parent 340B-eligible hospital if the covered entity purchases and/or provides 340B drugs to patients of those facilities. Approximately one-third of all US hospitals participate in the 340B program.GAO 340B Report, 20
Pharmaceuticals purchased at 340B pricing now account for five percent of all medicines purchased in the United States each year.Drug Channels analysis, The 340B Program Hits $16.2 Billion in 2016; Now 5% of U.S. Drug Market. As of 2016, covered entities' spending on 340B drug purchases was estimated to be about $16.2 billion annually. In 2024, 340B spending increased to a record $66.3 billion, with disproportionate share hospitals accounting for nearly $52 billion alone.
Administration
The program is administered by the Office of Pharmacy Affairs (OPA), located within the Health Resources and Services Administration (HRSA) of the Department of Health and Human Services, (HHS). OPA is charged with designing and implementing necessary policies and procedures to enforce agency objectives and assess program risk.H.R. Rep. No 102-384 (II), at 12 (1992) These policies and procedures are supposed to include internal controls that provide reasonable assurance that an agency has effective and efficient operations and that program participants are in compliance with applicable laws and regulations.GAO, Standards for Internal Control in the Federal Government, GAO-AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999)
Eligibility
Eligibility for the 340B program is defined under federal law.Public Health Service Act § 340B, 42 U.S.C. § 256B (2013). Six categories of hospitals are eligible to participate in the program: disproportionate share hospitals (DSHs), children's hospitals and cancer hospitals exempt from the Medicare prospective payment system, sole community hospitals, rural referral centers, and critical access hospitals (CAH).U.S. Department of Health and Human Services, Health Resources and Services Administration, Fiscal Year 2014 Justifications for Estimates for Appropriation Committees . Hospitals in each of the categories must be (1) owned or operated by or under contract with state or local government non-profit, (2) a public or private non-profit corporation that is formally granted governmental powers by a state or local government, or (3) a private non-profit hospital that has a contract with a state or local government to provide indigent care and, with the exception of CAHs, all hospitals must meet payer-mix criteria related to the Medicare DSH program. There are also ten categories of non-hospital covered entities that are eligible based on receiving federal funding. They include federally qualified health centers (FQHCs), FQHC "look-alikes", Ryan White HIV/AIDS program grantees, tuberculosis, black lung, family planning and sexually transmitted disease clinics, hemophilia treatment centers, public housing primary care clinics, homeless clinics, Urban Indian clinics, and Native Hawaiian health centers.
To participate in the 340B program covered entities must register, be enrolled, and comply with all program requirements. Once enrolled, covered entities are assigned a 340B identification number that vendors must verify before allowing an organization to purchase discounted drugs. Covered entities must complete the recertification process on the Office of Pharmacy Affairs (OPA) 340B database website every year. Failure to recertify will result in removal from the 340B program.
Two specific criteria are common to most of the 340B-eligible hospital types: the requirement for a "disproportionate share hospital (DSH) adjustment percentage" above a certain level;Disproportionate share hospital (DSH) as defined under Social Security Act § 1886(d)(1)(B), 42 U.S.C. § 1395ww(d)(1)(B), with a DSH adjustment percentage greater than 11.75. and the requirement that the hospital: (a) be owned or operated by a state or local government; (b) be a private nonprofit hospital "formally granted governmental powers" by a state or local government; or (c) be a private nonprofit hospital with a contract with a state or local government to provide care to low-income individuals who are not eligible for Medicare or Medicaid.42 U.S.C. § 256(a)(4)(L)-(O).
The Disproportionate Share Hospital (DSH) Adjustment Percentage
The DSH adjustment percentage determines whether hospitals receive higher cash payments from the federal government under Medicare's Inpatient Prospective Payment System."Interpretation of Medicaid days in Medicare DSH adjustment calculation" (PDF). Health Care Financing Administration Ruling no. 97-2. United States Department of Health and Human Services. February 1997. The DSH adjustment percentage was implemented as part of the Medicare program in 1986 so that hospitals with substantial low-income patient loads could get higher payments to cover the higher costs of treating low-income patients.MedPAC, Report to the Congress: Medicare Payment Policy (Washington, D.C.: 2007) p. 70. Since then, some policymakers have viewed the DSH adjustment as a way to help hospitals with their uncompensated care.Ibid. p. 50 "Uncompensated care" is a general measure of hospital care provided for which no payment was received from the patient or insurer, usually in the form of charity care or bad debt. Policymakers have used the DSH adjustment percentage as an indicator of how much uncompensated care hospitals are providing patients without receiving payment.
Impact on underserved populations Research regarding the effects of the 340B Drug Pricing Program on underserved populations has yielded mixed results. Studies have found no measurable increase in uncompensated care succeeding hospital participation in the program. Hospital participation in the program has not been associated with changes in typical indicators of safety net engagement. Indicators include provision of care to low income or uninsured populations. The program has expanded substantially in scale. This has prompted ongoing debate about whether it continues to primarily benefit underserved populations as was originally designed to do.
Additional research suggests that the distribution of benefits may vary across patient populations and payer types. The growth of contract pharmacy arrangements has been associated with changes in payer specific drug coverage. This indicates that program effects may differ depending on insurance type, not uniformly directed toward underserved patients. This reveals program impact based on system structure.