A program off track: How 340B drives both hospital consolidation and system gaming

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What's happening: Due to little oversight and no transparency of the federal 340B program, tax-exempt hospitals and clinics are able to exploit the program to boost profits at the expense of patients, taxpayers and employers. These behaviors are drawing growing scrutiny from Congress, the administration and outside voices, including the Washington Post Editorial Board.

Between 2022 and 2024, 40% of the growth in national health care spending was driven by spending on hospitals. As policymakers examine growing hospital spending, it’s important to understand a key driver: the 340B program. The lack of 340B guardrails is shaping hospital behavior in three specific ways: driving consolidation, rewarding loophole gaming, and increasingly utilizing 340B discounts at provider locations in wealthier areas.

It’s clear that hospitals are increasingly structuring themselves around 340B revenue opportunities, with no evidence of patient benefit.

How “safety-net” hospitals became system giants: Large, tax-exempt 340B hospital systems are reducing competition by consolidating the market. They do this by buying up smaller providers and turning them into hospital outpatient departments, according to independent research and the Congressional Budget Office (CBO).

This allows hospitals to shift care to costlier settings, driving up costs for patients, taxpayers and employers.
Hospital vertical integration also expands the 340B program, allowing large hospitals systems to generate enormous profit without any guaranteed benefit for patients.
Originally the program helped around 50 safety-net hospitals, but now some 2,700 hospitals now qualify for discounts.

“Rural” in name only: Some of the largest hospital systems in the country are exploiting loopholes to qualify for 340B as “rural” providers, despite operating in major metropolitan areas and serving few, if any, rural patients.

Big city hospitals are able to classify themselves as rural referral centers (RRCs) to tap into the 340B program, bypassing the requirement to serve a higher share of Medicaid and low-income Medicare inpatients.
This also allows them to qualify for rural-specific benefits like higher Medicare reimbursement rates and access to rural health funds.
The number of urban hospitals leveraging this loophole has grown by over 14,000% since 2017 after hospital lawsuits required that CMS make changes that made it easier for urban hospitals to take advantage of RRC status.

Expanding 340B away from the safety net: Instead of strengthening care for underserved patients, weak 340B guardrails are incentivizing hospitals to expand the program into wealthier communities where profits, not patient need, are greatest.

Nearly 75% of contract pharmacy arrangements involve large, for profit chains, and almost 60% of affiliated outpatient hospital facilities are located in higher income areas than their parent hospital.
Despite generating significant 340B revenue, hospitals are not required to pass savings on to patients, and research shows 340B hospitals provide less charity care than the national average, raising serious questions about whether the program is serving the communities it was designed to help.

The bottom line: The 340B program’s lack of oversight and transparency has turned it into a powerful financial incentive, one that encourages hospital consolidation, rewards system gaming, and fuels expansion away from the patients and communities the program was meant to serve. Instead of strengthening the safety net, 340B is driving higher costs and misaligned priorities across the health care system. Fixing 340B requires real guardrails, accountability, and transparency to ensure patients, not profit come first.

Learn more at PhRMA.org/340B.

Eliza Maciag

Eliza Maciag is a senior manager on PhRMA’s Public Affairs team, focusing on 340B, PBMs and the cost and value of medicines. Prior to joining PhRMA, she worked in the Strategic Communications department at the Investment Company Institute, where she led rapid response initiatives and grassroots campaigns. Eliza holds a bachelor’s degree in political science from Trinity College (CT) and a master’s degree from the Graduate School of Political Management at George Washington University.

Originally from Connecticut, Eliza is based in Washington, D.C. Outside of work, she enjoys golfing, biking, skiing and swapping book recommendations.

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