By Surabhi Dangi-Garimella, PhD

In a bid to ensure access to medications for low-income and uninsured patient populations, the 340B drug discount program was launched in 1992. Designed primarily with safety-net hospitals in mind—meaning hospitals that serve a significant proportion of low-income, uninsured, or otherwise vulnerable individuals—there has been a tremendous increase in hospitals participating in the program. However, gaps in oversight, lack of transparency in how the savings are used by the hospitals, and complications associated with increased involvement of contract pharmacies have created turmoil with the 340B program.

How Does 340B Work?

Drug manufacturers enrolled in the Medicaid Drug Rebate Program are required to participate in 340B, which is set up to provide discounts (often between 20% and 50%) on outpatient (self-administered) drugs to safety-net hospitals and other covered entities such as federally qualified health centers, tribal/urban Indian clinics, Ryan White HIV/AIDS program grantees, and certain specialized clinics. These entities cannot bill Medicaid for these drugs if they are receiving a manufacturer rebate. 

When the program launched, only in-house pharmacies were allowed to dispense these drugs. A lot of the covered entities did not have an in-house pharmacy, so they were allowed to designate a single contract pharmacy where the outpatient drugs could be dispensed. Then, following the passage of the Affordable Care Act in 2010, the single-pharmacy restriction was removed and 340B participating entities were allowed to contract with any number of pharmacies for dispensing the discounted drugs. The pharmacy dispenses the drug and receives the reimbursement, part of which is passed on to the covered entity.

Savings generated by the covered entities from being reimbursed at a higher amount than the 340B acquisition costs may need to be reinvested in patient benefits, such as improving access to high-quality care to underserved populations, expanding services to these populations, etc. The contract pharmacies, however, are not required to provide any such patient benefits from the revenue generated through 340B drug dispensing.

Questions Raised About Program Misuse and Patient Benefit

For several years now, concerns have been raised that the program has been misused at various levels. Here are a few of the concerns:

  • Drug diversion: Diversion within the context of the 340B program means selling an outpatient drug to a patient who does not qualify for the discount, which could include dispensing the drug at an ineligible facility or written by a provider who doesn’t qualify for the program, or a drug dispensed to someone who is not a patient of the covered entity. 
  • Lack of transparency: Lack of oversight and/or transparency means that there is no clear view of the how many of the target population are actually benefitting from this drug discount program and to what extent are the savings from this program reinvested to benefit this population.
  • Duplicate discounts: Duplicate discounts or double dipping happens when a manufacturer provides a drug at a 340B discounted price and gives a Medicaid drug rebate for it as well. 
  • Awareness: There is a general lack of awareness among the stakeholders—the target patient populations and the pharmacy—that the drug being dispensed is part of the 340B drug discount program at the point of sale. So, they may not often receive the discount they deserve. On the flip side, a 340B-designated hospital may end up selling the discounted drugs to any patient, independent of their income or insurance status. This often results in prescription of costly medicines because the delta between the 340B acquisition cost and the reimbursement at Medicare or commercial insurance rates is a good revenue stream for hospitals. 
  • For-profit contract pharmacies: There has been a spike in large retail pharmacy chains, which are for-profit entities, among the contract pharmacies dispensing 340B drugs. About 60% of 340B pharmacy locations in 2020 were a combination of pharmacies run by retail giants Walgreens, CVS, Walmart, and Rite Aid.

Push Back from Pharma

Ten drug manufacturers have now restricted 340B drug discounts to contract pharmacies that work with safety net hospitals. Hospitals will be asked to choose one pharmacy location for pharmacy-benefit products. Medical benefit products are not included in this policy shift. Also, contract pharmacies entirely owned by a 340B hospital or that are commonly owned by the health system are excluded from this change. 

The Health Resources & Services Administration, which manages the program, has found the manufacturers in violation of the statutes within the 340B program and has issued warnings and other actions. While the program needs a massive overhaul, its future remains up in the air.


Surabhi Dangi-Garimella, Ph.D. is a biologist with academic research experience, who brings her skills and knowledge to the health care communications world. She provides writing and strategic support to non-profit groups via her consultancy, SDG AdvoHealth, LLC.