What does the evidence tell us about the 340B Drug Pricing Program?
The 340B Drug Pricing Program has grown far beyond its original scope, creating significant tensions across the US healthcare system. During a recent webinar, leading 340B researchers and policy experts examined evidence on who benefits from the Program's expansion, its effects on hospitals, employers, and patients, and how transparency initiatives may inform future reform efforts.
As policymakers, employers, healthcare providers, and manufacturers continue to grapple with rising healthcare costs in the US, the federal 340B Drug Pricing Program has become an increasingly prominent subject of public scrutiny. Originally established in 1992 to support safety-net providers serving vulnerable populations, the Program has grown into one of the largest drug purchasing mechanisms in the US, with discounted drug purchases exceeding $100 billion in 2025 (a 23% yearly increase). The Program's expansion – doubling in size in just five year – has attracted growing attention from researchers and policymakers seeking to understand whether current 340B incentives and activities remain consistent with its original purpose. Recent policy debates, state-level transparency initiatives, and media attention have intensified discussions around accountability, patient benefit, and the broader economic consequences of the Program.
To discuss these developments, Reuters Events Pharma held a webinar, “The Business of the 340B Program: Who Benefits from the Boom, and Who Pays for It?”, with leading national 340B experts. Moderator Brian Reid, Senior Fellow at Tufts University, brought together Sayeh Nikpay, Associate Professor at the University of Minnesota; Neal Masia, CEO of EntityRisk and Adjunct Professor of Business at Columbia University; and Shawn Gremminger, President and CEO of the National Alliance of Healthcare Purchaser Coalitions.
They explored:
- What current evidence reveals about the beneficiaries of the Program's growth
- How the Program evolved from its original purpose
- The broader consequences across healthcare markets
- What reforms may be necessary to improve transparency and accountability
This Deep Dive, with exclusive clips from the webinar, brings together the key perspectives and insights shared during the discussion.
How is 340B growth shaping hospital incentives?
Reid opened the discussion by focusing on a fundamental question: if the 340B Program continues to grow at more than 20% annually, who is ultimately capturing the value generated by those discounts?
Masia argued that answering that question first requires understanding whether the Program's benefits are reaching patients. He described a series of analyses examining charity care and other indicators of community benefit, noting that after controlling for hospital characteristics it is difficult to detect significant differences between 340B and non-340B hospitals.
"It's very hard to see how those benefits are flowing out to patients," he said. The lack of systematic evidence on how eligible hospitals and clinics use the revenue the program generates to improve patient care or affordability for vulnerable Americans led Masia to examine how the Program has evolved over time. His recent work focuses on patterns of participation, growth, and organizational behavior among covered entities. While acknowledging that the Program remains important for some rural and critical access hospitals, he found that much of the structural growth in recent years was disproportionately concentrated among large hospital systems and especially large teaching hospitals.
His research also examined how hospitals expand their 340B footprint. The key finding was that 340B hospitals locate their satellite clinics or “child sites” overwhelmingly in higher-income, healthier and better-insured neighborhoods, as opposed to areas with greater socioeconomic and clinical needs. Masia found that, across thousands of relationships nationwide, the average 340B child site is placed in a zip code with more affluent and healthier patients than both the parent hospital or alternative neighborhoods the hospital could have expanded into. He remarked this is “the opposite of where you would want the treatment benefits to go," highlighting concerns that the Program's growth may not align with its original objectives to expand care to vulnerable patients.
Masia also highlighted new research examining the relationship between 340B participation, hospital consolidation, and broader healthcare spending patterns. According to his findings, hospitals that consolidate appear more likely to become eligible for 340B participation over time. He suggested that larger systems can sometimes "engineer their way to eligibility" through changes in organizational structure and patient mix, creating new opportunities to participate in the Program.
The implications, he asserted, extend well beyond hospital finances. As participation expands among larger health systems, the incentives created by 340B may increasingly influence broader healthcare market dynamics. Masia pointed to research linking 340B participation with higher Affordable Care Act marketplace premiums and higher employer-sponsored insurance premiums, while noting that additional work is underway to better understand these relationships. He remarked:
"The whole ecosystem is now affected by the incentives in the 340B Program. It permeates through everything from employers to Medicaid to Medicare costs."
How far has 340B drifted from its original purpose?
“It's a house built on sand that is shifting.”
To better understand the central tension underlying 340B, Reid asked Nikpay to step back and discuss her new research examining the origins of the Program.
Drawing on in-depth interviews with individuals who helped shape the 340B Program, including policymakers, congressional staff, and advocates involved in its development back in 1992, Nikpay described a history that differs significantly from contemporary perceptions of 340B.
"What we learned pretty quickly is that 340B was born almost by accident to solve a different problem," she explained.
According to Nikpay, the 340B Program emerged in response to unintended consequences of the Medicaid Drug Rebate Program, a federal initiative designed to reduce outpatient prescription drug costs through manufacturer rebates. While the rebate program lowered costs for Medicaid, it also disrupted existing discount arrangements relied upon by certain federally funded clinics and safety-net providers. As a result, 340B was introduced as a targeted intervention to help these providers continue delivering care to vulnerable populations and maintain access to medicines for the patients they served. Rather than functioning as a broad hospital financing mechanism, its original purpose was relatively narrow: to support a limited number of safety-net providers in providing access to more affordable medicines.
Over time, however, the Program expanded. Public hospitals were added, eligibility criteria evolved, and subsequent interpretations of the statute created opportunities for broad participation. Nikpay noted that some of the eligibility thresholds still used today emerged through a particular political compromise at that time, rather than through a deliberate assessment of ongoing safety-net need. In her view, the cumulative effect of these changes has been a significant shift in who benefits from the Program. "We now have this Program that is kind of flipped on its head," she said. "Really the hospitals, the nonprofit hospitals, are the biggest beneficiaries of this Program."
What do transparency reports reveal about today's beneficiaries?
The discussion then turned from the Program's original intent to an important contemporary question: what does the evidence tell us about who benefits from 340B today?
Nikpay pointed to state-level transparency initiatives as some of the most important recent developments in understanding the current 340B Program. While federal reporting requirements remain limited, some states have recently introduced their own transparency measures, providing new insights into how 340B revenues are distributed. Minnesota has been among the most active, producing public reports examining program participation and financial flows.
"States are the frontier of transparency," Nikpay said, describing state reporting requirements as "a really vital element to program reform" and to ensuring that the providers the Program was originally designed to support are not overlooked.
According to Minnesota's most recent report, covered entities in the state received approximately $3 billion in reimbursements from payers and patients for drugs acquired at a cost of roughly $1.5 billion. After accounting for operational expenses, the state reported that entities recorded net 340B revenue (or profit) of approximately $1.34 billion.
The distribution of the financial benefit was a key focus of the discussion. Nikpay noted that around 80% of the profit was generated by hospitals, with disproportionate share hospitals (DISH) accounting for the vast majority of those gains. "The benefits of this program are primarily accruing to hospitals," she said.
By contrast, many federally qualified health centers and other traditional safety-net providers generated relatively modest returns. As Nikpay described it as “a completely different game for the grantees than it is for the nonprofit hospitals."
Masia argued that these patterns are increasingly reflected in national growth trends. His research has shown recent expansion to be dominated by large teaching hospitals and health systems with strong operating margins and the administrative resources needed to maximize participation opportunities. He explained that small rural hospitals and community health centers – often operating on thin margins – may face a persistent disadvantage versus larger systems in contract pharmacy negotiations, superior data infrastructure and patient capture to maximize 340B revenues.
Who ultimately pays for the Program's expansion?
Having examined who benefits from the Program, the discussion turned to a related question: who bears the costs?
Gremminger argued that the consequences of 340B extend far beyond hospitals and manufacturers. Manufacturers, he noted, face diminished revenues on 340B sales, which may affect profitability and research and development investment. However, he argued that manufacturers may also have to account for 340B discounts when setting commercial prices, meaning that some portion of list price growth may be linked to 340B.
More important for Gremminger was that employers, healthcare purchasers, and ultimately working families experience downstream effects. One mechanism involves pharmaceutical rebates. Under traditional commercial arrangements, employers can often retain manufacturer rebates that reduce the net cost of medicines. In 340B transactions, those rebates are generally unavailable, thereby increasing costs for employers, both in the commercial market and for state employee health plans.
Gremminger also pointed to a second concern – evidence suggesting that 340B may contribute to healthcare consolidation, particularly in oncology, where provider-administered drugs represent a significant source of revenue. Because participating hospitals can purchase medicines at substantial discounts while being reimbursed at standard rates, he was concerned that the Program creates incentives to prescribe higher-cost therapies and expand hospital ownership of outpatient services.
He also cited research indicating that 340B hospitals often charge higher prices than comparable non-340B institutions. In one analysis comparing large 340B hospitals with similarly situated non-340B hospitals, 340B participants were found to be approximately 7% more expensive overall and nearly 20% more expensive in outpatient settings, where many 340B drugs are administered.
According to Gremminger, these implications extend beyond drug spending alone. He offered estimates suggesting that these price differentials may contribute more than $30 billion annually in additional costs for employers and healthcare purchasers.
For this reason, Gremminger argued that 340B should not be viewed simply as a transfer of resources from manufacturers to hospitals. "It is not just a shift away from manufacturers towards hospitals," he said. "It is, in fact, a substantial tax on employers, purchasers, and working families."
While he acknowledged that such trade-offs might be easier to justify if the benefits were clearly reaching underserved patients, he questioned whether the Program's existing structure can consistently achieve that goal. Similar concerns have been raised in the health policy literature, with analyses indicating that the program's underlying spread-based reimbursement model creates incentives that lead to market distortions and may conflict with its safety-net mission. Analyses suggest that program structure incentivizes behaviors such as the use of higher-priced drugs, increased utilization, provider consolidation, and expansion into areas offering the greatest reimbursement opportunities rather than those with the greatest unmet healthcare needs.
Are states also paying the price?
The discussion then turned to another area where 340B may be interacting with existing healthcare financing mechanisms in additional, unintended ways: Medicaid.
Nikpay explained that 340B is often portrayed as a program that operates largely outside the taxpayer-funded healthcare system because the discounts are not provided through direct government spending. However, she argued that the interaction between 340B discounts and Medicaid rebate requirements can, under certain circumstances, increase costs for state and federal governments.
According to Nikpay, this dynamic has received relatively little public attention despite its potential implications for taxpayers. Medicaid is jointly funded by state and federal governments, and she noted that inefficiencies or unintended financial consequences within the Program are ultimately borne by taxpayers.
"This [340B] is a channel that was not fully appreciated," she said. "People say this a program that doesn't affect taxpayers, it doesn't raise costs on taxpayers, and this is a pretty tangible example of how that reasoning is false."
Nikpay explained that as 340B discounts and Medicaid rebates intersect, government programs can end up paying more than expected for certain services and medications. Medicaid is by law prevented from collecting rebates on prescriptions filled at the 340B price, which can result in substantial amounts of lost Medicaid rebates. While the mechanics are complex, she argued that the broader implication is straightforward: 340B cannot be viewed as entirely separate from public spending.
“We are all paying more for those services because of this interaction", she remarked.
Can transparency lay the groundwork for reform?
As the discussion shifted toward potential solutions, the panelists agreed on one point: meaningful reform is unlikely without greater transparency.
Gremminger described transparency alone as insufficient for reform, but acknowledged it as the most realistic near-term policy option. Despite the Program's size and rapid growth, he noted that employers, health plans, and policymakers often lack basic information about which prescriptions are dispensed through 340B arrangements. Without reliable data on how the Program operates and who ultimately benefits from its discounts, he argued that efforts to evaluate or reform 340B will remain constrained. "That sort of transparency at the level of the stakeholders involved is really critical to starting to get a handle on this program," he concluded.
Masia extended the transparency discussion to patients themselves. If patients generate the discounts that create value within the Program, he argued, they should have visibility into how those benefits are being used. "Any effort in transparency has got to go all the way to the patient level," he said, emphasizing that patients should understand whether they are benefiting from the discounts generated in their name.
Nikpay agreed that transparency is a prerequisite for reform. Drawing on Minnesota's reporting requirements, she explained that policymakers first turned to transparency because they lacked reliable information about how 340B interacts with other healthcare programs. As new affordability initiatives, including Prescription Drug Affordability Boards (PDABs) and Medicare's Maximum Fair Price (MFP) provisions under the Inflation Reduction Act (IRA), begin to intersect with 340B, she argued that policymakers need better data to understand those interactions and anticipate unintended consequences.
"Without transparency, we don't really have a way to gauge how big that interaction is, how big that problem is, and how much pushback we're going to get," she said.
The Trump administration, through the Health Resources and Services Administration (HRSA), recently re-introduced a rebate pilot program to facilitate deduplication of the IRA’s MFP and 340B discounts for a limited set of products. The government anticipates the pilot “to improve transparency, support prospective validation of transactions, and reduce reliance on retrospective audits and dispute resolution processes”. While hospital groups opposed the pilot model, the government contends that the pilot is required to help address program integrity and complexity challenges considering the “progression of the 340B Program from a narrow pricing safeguard to a complex, multi-billion-dollar system.”
Beyond transparency measures, the expert panel discussion also turned to other key areas of reform. Gremminger suggested tightening the Program's patient definition and revisiting the role of contract pharmacies, arguing that discounts should be more closely linked to the care provided by the covered entity. Masia advocated linking eligibility more directly to demonstrated safety-net need and greater accountability for how program revenues are used. Nikpay highlighted an often-overlooked statutory requirement that nonprofit hospitals maintain agreements with state or local governments to provide indigent care services, suggesting that strengthening these expectations could better align participation with the Program's original purpose.
What evidence is still missing?
The webinar concluded by looking ahead to important research questions that remain unanswered.
Masia emphasized that significant opportunities remain for future research, encouraging students and researchers to engage with those already publishing in the field. He reinforced a key message throughout the webinar: that without stronger evidence and greater transparency around both the costs and benefits associated with the Program, policymakers will struggle to fully understand its impacts or evaluate future policy options.
Gremminger identified another important evidence gap: the relationship between 340B and manufacturer pricing decisions. Understanding whether anticipated discount obligations influence launch pricing could provide a more complete picture of the Program's broader market effects.
Nikpay emphasized the need for distributional analyses that examine how proposed reforms would affect different stakeholder groups, including different type of hospitals, community providers, employers, taxpayers, and patients. Understanding who gains and who loses under various policy scenarios, she argued, will be essential for informed decision-making.
She also highlighted the need for additional qualitative and legal research examining the contractual arrangements, regulatory interpretations, and administrative structures that shape how the Program operates in practice.
About the speakers
Brian Reid
Founder and Principal, Reid Strategic
Senior Fellow, Tufts’ Center for the Evaluation of Value and Risk in Health
Brian Reid is an award-winning communicator with three decades of experience in healthcare journalism, public affairs, and public relations. His specialty: explaining the economics of an increasingly broken and inscrutable health care system. He is also a senior fellow at the Center for the Evaluation of Value and Risk in Health (CEVR) at Tufts Medical Center.
He has a BS in biology and political science from Emory University and a MS from the Columbia University School of Journalism.
Sayeh Nikpay
Associate Professor, Division of Health Policy & Management, School of Public Health, University of Minnesota
Sayeh Nikpay is a health policy economist specializing in the 340B Drug Pricing Program, a federal program that allows certain hospitals and federal grantees to purchase discounted prescription drugs. In her research, Professor Nikpay applies econometric and statistical techniques to evaluate how the 340B Program affects hospital safety net engagement, pharmaceutical spending, and patient affordability. She has also analyzed the growth of retail pharmacies that dispense prescriptions through the 340B Program.
At the University of Minnesota School of Public Health, Professor Nikpay teaches statistics, healthcare delivery, economics, and policy courses. Previously, she served on the faculty of Vanderbilt University’s Department of Health Policy and as a visiting scholar at the University of California, Berkeley.
Professor Nikpay served as a staff economist at the US President’s Council of Economic Advisers shortly after the passage of the Affordable Care Act.
Neal Masia
CEO, EntityRisk
Adjunct Professor of Business, Columbia University
Neal Masia is an Adjunct Professor of Business and Economics at Columbia University and serves as a consultant and advisor to a variety of healthcare companies and healthcare-focused investment firms. Neal spent nearly 18 years rising through the ranks at Pfizer, Inc., most recently as Chief Economist and Vice President of Patient and Health Impact. Before joining Pfizer, Neal worked as a consultant at the Advisory Board Company, as an economist with the US Congressional Budget Office, in planning and marketing at a venture-backed insurance technology startup, and as a policy advisor to Senator Bill Bradley during his 2000 Presidential campaign. Neal earned a BA (High Honors) in Mathematical Economics from Colgate University and a PhD in Economics (specializing in Public Finance and Game Theory) from the University of Rochester.
Shawn Gremminger
President & CEO, National Alliance of Healthcare Purchaser Coalitions
Prior to joining the National Alliance of Healthcare Purchaser Coalitions, Shawn was senior vice president at Reservoir Communications Group where he led communications and public affairs strategy and execution on a range of relevant issues, including 340B and the drug supply chain, employer-sponsored insurance regulations, and Medicare payment. He has a strong history of healthcare advocacy and public affairs with employers, plans, hospitals, and consumer organizations. Shawn was previously director of health policy for the Purchaser Business Group on Health, a member of the National Alliance, where he ran efforts to improve quality and affordability for consumers and healthcare purchasers through federal policy. He has held senior leadership roles at Families USA, and America’s Essential Hospitals. Shawn began his career as a lobbyist for the Children’s Hospital Association. He achieved a Master of Public Policy from George Washington University in Washington and a Bachelor of Arts from the University of Mary Washington in Fredericksburg, VA.
Disclaimers
The webinar, “The Business of the 340B Program: Who Benefits from the Boom, and Who Pays for It?”, was facilitated by Reuters Events through sponsorship from Johnson & Johnson. Johnson & Johnson had no editorial input into the webinar presentations and all opinions expressed are those of the speakers and do not necessarily reflect the views of Johnson & Johnson, The Evidence Base®, or Becaris Publishing Ltd.
Sponsorship for this Deep Dive was provided by Johnson & Johnson.