340B | PhRMA

The 340B Hospital Markup Program

Big tax-exempt hospitals and clinics abuse a little-known federal program to charge huge markups on medicines, sometimes up to 7x or more, to boost their profits, while they pass the bill to patients, taxpayers and employers through higher drug costs.

They get away with this by exploiting, sometimes illegally, the 340B hospital markup program. This government program was created in 1992 to help patients access more affordable medicines. Today, the 340B program has become less about patients and more about boosting the bottom lines of hospitals and for-profit pharmacies.

Here’s how.

The program significantly lowers what hospitals and clinics pay for medicines and lets them charge whatever they want for those medicines. The hope is they use the money to help uninsured and low-income patients afford the care they need, but that’s often not what happens.

Because there’s no oversight, 340B has strayed far from its safety net purpose and become a way for hospitals and clinics to rake in big profits with little charity care to show for it.

At the same time, they’ve found loopholes and illegal ways to generate even more profit. More medicines to mark up means more profit for large hospitals systems, pharmacy benefit managers (PBMs), private equity firms and big chain pharmacies. For everyone else—patients, taxpayers, employers—it’s a hidden tax that inflates their drug costs.

In fact, profits from 340B markups now make up 10 percent of what is spent on brand medicines—that’s nearly $65 billion going to pad the profits of big hospitals, clinics and for-profit companies. Without any guardrails on the program, the amount going to hospitals is increasing every year.

To make matters worse, hospitals can charge needy patients full price, and, if they can’t pay, hospitals can bury them in a mountain of medical debt.

When hospitals have a blank check to mark up medicines, we all pay the price. It’s time to know where the money is going and hold the hospitals and clinics that abuse this program for profit more accountable for their greedy behavior.

Where is 340B?

340B hospitals and their many contract pharmacies are found in every state. How much charitable care are 340B hospitals in your state providing as compared to the national average? Are 340B hospitals in your state contracting with local pharmacies, or are they profiting from contracts with pharmacies nationwide? Explore the interactive map below and select a state to access state-specific data on 340B.

How Did 340B Become a PBM Giveaway?

Hospitals that participate in the 340B program contract with pharmacies to dispense the program’s drug prescriptions. Today there are over 33,000 distinct pharmacies participating in the program, known as contract pharmacies. While one might expect to find 340B contract pharmacies located in medically underserved neighborhoods to help vulnerable patients access medicines, that isn’t the case. Studies have found the exponential growth in contract pharmacies from 2011 to 2019 was concentrated in affluent and predominately white communities, and not in areas with high unmet need where expansion could help improve health equity.

Because of consolidation in the supply chain, PBMs now own the vast majority of pharmacies nationwide and make the largest share of their profits (55%) from their pharmacy business. They use the 340B program to drive that profit. There are more than 85,000 contracts between a 340B provider and a pharmacy with financial ties to one of the three largest PBMs — CVS Health, Express Scripts and OptumRx. More than 50 cents of each $1 in profits contract pharmacies receive through the 340B program go to just four PBM and pharmacy companies.

These for-profit entities and their affiliates have found their way into the 340B program to capture profits that could otherwise have been used to lower drug costs for low-income and vulnerable patients.

What's the solution?

The 340B program lacks guardrails for how 340B profits can be used or oversight to where the money is going. This enables large, wealthy hospitals and chain pharmacies to exploit the program for profit, often at the expense of patients.

An analysis published in the New England Journal of Medicine found no evidence hospitals invest their 340B profits into safety-net care. Similarly, a study published in the Journal of the American Medical Association concluded: “Nonetheless, our work adds to a growing body of evidence questioning the degree to which 340B program growth serves vulnerable communities.”

If the money isn't going to help patients, where is it going?

Here are some ways Congress can fix 340B:

Ensure Benefits Reach Low-Income Patients

Confirm True Safety-net Participation

Strengthen Accountability Measures

Ensure Benefits Reach Low-Income Patients

All hospitals in the program and their contract pharmacies should be required to pass through 340B discounts to reduce the cost of medicines for low-income and vulnerable patients. Further, Congress needs to clarify in the law who is an eligible “patient” to help ensure the benefits of 340B are reaching those patients. There are currently zero patient protections and zero requirements for how hospitals use 340B discounts to help patients afford their medicines, enabling large hospital systems, chain pharmacies and pharmacy benefit managers (PBMs) to generate massive profits without commensurate growth in access and affordability for patients most in need.

Confirm True Safety-net Participation

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Many hospital participants are not located in medically underserved communities, provide very little charity care and, alarmingly, engage in aggressive debt collection practices aimed at patients who are least able to afford care. This program isn’t working for patients. Congress needs to ensure that only true safety-net entities are participating in 340B and require 340B hospitals to provide meaningful levels of charity care to uninsured, low-income and other vulnerable patients.

Strengthen Accountability Measures

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Congress must implement stronger, common-sense accountability measures for the program. This includes requiring hospitals to publicly report basic information like how much charity care is provided at each 340B hospital and its associated offsite facilities. Creating a neutral, third-party clearinghouse for claims-level data will help ensure 340B discounts are being properly claimed by hospitals and clinics, and that all participants are complying with key program safeguards. Congress should also clarify that 340B is a federal program governed by the federal government exclusively.