The $80 billion healthcare loophole disguised as charity

In 1992, Congress created what’s commonly known as the 340B program in order to help safety-net hospitals and clinics stretch limited resources to serve low-income and uninsured patients. By requiring pharmaceutical manufacturers to sell prescription drugs at steep discounts to qualifying hospitals and clinics, the logic went, the 340B program aimed to keep medications accessible and affordable in underserved communities. Nearly 35 years later, however, the program bears little resemblance to what Congress had in mind, and there’s no reliable way to know whether patients still benefit from its growth. In part, that’s because the sheer scale of the 340B program dwarfs what its creators originally envisioned. Congress expected roughly 90 hospitals to enroll in the program, but today nearly 2,700 hospitals participate. That makes it the second-largest federal prescription drug program, trailing only Medicare Part D. Annual purchases under the program have climbed from $6.9 billion in 2012 to more than $80 billion in 2024. It goes without saying that a program that size should come with real accountability. Instead, it still operates under rules intended for a much smaller and simpler initiative. Those rules are no longer sufficient for a program of this scope. Covered entities aren’t required to show that 340B discounts actually reach patients, disclose how much revenue the program generates for them, or explain how that money gets spent. Federal oversight hasn’t kept pace either. The Health Resources and Services Administration audits only about 200 covered entities each year, and those audits still fail to catch duplicate discounts, confirm provider eligibility, or ensure violations get corrected. The program’s loose definition of a “patient” also allows multiple entities to claim discounts tied to the same individual, or even the same prescription, and providers can, in some cases, collect discounts on the same drug from more than one federal program simultaneously. The Health and Human Services Office of Inspector General has flagged inconsistent methods that covered entities use to decide whether a prescription even qualifies, so without clearer rules and oversight, nobody can say with confidence whether 340B is fulfilling its mission or simply padding hospital revenue. One thing is certain: The 340B program has been a boon to big participating hospitals. More specifically, hospitals purchase drugs at steep 340B discounts, bill insurers close to full price, and keep the spread, with little obligation to pass any savings on to patients. In Minnesota, for instance, hospitals kept 98% of the net 340B profits generated in 2024. Nationally, 340B participants generated an estimated $66.4 billion in profit that year alone, a sum that dwarfs the modest safety-net program Congress originally built. Obviously, when hospitals bill close to full price for deeply discounted drugs, the difference shows up in higher premiums and health spending borne by employers, taxpayers, and insured patients. The incentives compound that problem: Because pricier drugs generate bigger 340B margins, hospitals possess a financial incentive to prescribe more expensive medicines rather than more affordable ones. Accordingly, commercially insured patients at 340B hospitals therefore faced drug spending three times higher than patients at non-340B hospitals in 2023, and one estimate put the added cost to employer health plans at roughly $23 billion in a single year. Even the Congressional Budget Office has warned that these incentives “tend to increase federal spending because they lead to higher prices or an increased use of drugs.” None of these defects require dismantling 340B. Instead, the program needs basic transparency. Covered entities should report how much 340B revenue they collect, and how those dollars support low-income patients. Additionally, regulators should have the data they need to verify patient eligibility and stop duplicate discounts before they happen. Small providers with legitimate capacity concerns also deserve technical assistance, just as Congress has offered in other federal health programs, rather than a blanket exemption from accountability. CONGRESS CREATED A DRUG PRICING PROGRAM TO DELIVER AFFORDABILITY. INSTEAD, IT’S RAISING COSTSCongress built 340B to help vulnerable patients get the care they need, but three decades of unchecked growth has obscured whether that promise is being kept. Restoring that confidence now means requiring the transparency that should have accompanied the program’s growth long ago. Patients, taxpayers, and the employers who ultimately foot the bill deserve nothing less. Jeffrey Mazzella is the president of the Center for Individual Freedom.