Hospitals Are Gaming 340B.
Americans Are Paying the Price.
The Problem
A federal safety-net initiative designed to protect vulnerable patients has morphed into a $100+ billion hospital markup program riddled with waste, abuse, and little to no transparency.
Accountability and enforceable guardrails have not kept pace with program growth, leaving patients to pick up the tab.
The Solution
Hospital Accountability Project is working to expose loopholes, increase transparency, and ensure the program serves the patients and communities it was created to help.
Washington can take action today to pass real reforms that address eligibility requirements, claims-level verification, patient benefit standards, rural integrity, and more.
How 340B Went Off Track
The Original Mission
Congress created the 340B program in 1992 to help vulnerable patients access affordable medicines. The program requires drug manufacturers to provide steep discounts to eligible safety-net hospitals and clinics. These “covered entities” were supposed to use those savings to expand care for low-income and uninsured patients.
The Missing Safeguards
The 340B program has changed dramatically since 1992, but the rules governing it have not kept pace with its growth. The program now involves thousands of covered entities, extensive pharmacy networks, and more than $100 billion in annual drug purchases. Yet hospitals are not required to provide comprehensive public reporting on the financial benefits they receive through 340B or exactly how those benefits are used.
The Profit Motive
340B hospitals have a financial incentive to maximize revenue rather than patient benefit. Today, many hospitals purchase medicines for pennies on the dollar and bill patients and insurers at a massive premium — with markups in some cases exceeding 1,000%. Without requirements tying those savings directly to lower prices for patients or specific investments in care, hospitals can retain that difference as revenue. That creates a fundamental accountability question: When a hospital receives a federal drug discount, where does the benefit actually go?
Expansion Beyond the Safety Net
Driven by these profits, the program has exploded. 340B drug purchases now top $100 billion annually. Thousands of participating hospitals, and their sprawling pharmacy networks, have expanded into high-income neighborhoods — moving far beyond the vulnerable communities the program was built to serve. Research has raised questions about the extent to which 340B participation and expansion are reaching communities with the greatest need.
Loopholes Can Open the Door to Benefits Intended for Others
The problem is not limited to how hospitals use 340B savings. It also matters which hospitals qualify for benefits in the first place. One example is the growing use of “administratively rural” classifications by hospitals located in urban and suburban communities, allowing them to receive additional government benefits because they claim to serve rural patients. If a hospital is located in a metropolitan area, why should it qualify for benefits intended for rural patients? Read more about HAP’s investigation into this issue here.
Growth Outpaced Accountability
The program was permitted to grow unchecked in the absence of robust oversight. Only a small fraction of participants are ever audited, even as 340B hospitals continue to provide low levels of charity care amidst ever-increasing revenue. Today policymakers, patients, and taxpayers have limited visibility into: How much hospitals benefit from 340B; where those benefits are being generated; how the money is being used; whether participating hospitals are serving the communities the program was designed to help; and whether the program rules are being following consistently.
The Bottom Line
We now have a hospital markup program where billions of dollars flow with effectively no transparency — and no clear evidence that the patients who need help the most are actually seeing the benefit. This accountability gap burdens families with higher premiums and out-of-pocket costs, while driving up spending for taxpayer-funded programs like Medicaid and Medicare.
What 340B Reform Should Look Like
Transparency
Hospitals receiving significant federal benefits should disclose the financial value they receive through 340B and how those resources are used. Recent research specifically recommends requiring covered entities to report their 340B financial benefits and how those resources are invested in patient care.
Accountability
Hospitals should face stronger, more transparent oversight to ensure they remain eligible for the program and comply with its requirements.
Eligibility Reform
Congress and regulators should close loopholes that allow hospitals to qualify for benefits intended for populations or communities they do not meaningfully serve. Modernizing eligibility requirements will better reflect a provider’s commitment to serving vulnerable patients, including measures such as charity care, uncompensated care, and Medicaid-related financial losses.
Claims-Level Verification
The government should have the information necessary to verify that 340B discounts are being applied to eligible transactions and prevent duplicate discounts. HRSA’s audits test 340B transaction records and verify internal controls designed to prevent diversion and duplicate discounts, but only a small number of covered entities ever face such audits. HRSA’s revised rebate pilot is intended to improve transaction-level transparency and require all claims to be validated before rebates are provided. See more about the Trump Administration’s rebate pilot here.
Patient Benefit
The program should provide greater transparency into whether 340B benefits are actually improving access to care for low-income and uninsured patients.
Rural Integrity
Federal rural-health benefits should be targeted toward hospitals and communities that genuinely need them, rather than allowing urban institutions to use benefits intended for rural American communities. See our series on the dual classification loophole: Does This Look Like a Rural Hospital to You?