The 340B Drug Pricing Program: Background, Concerns, and Solutions

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Hagop Kantarjian, MD

Robert Chapman, MD

The 340B Drug Pricing Program is a medical lifeline that should be maintained, nurtured, and expanded—but certainly not curtailed.

—Hagop Kantarjian, MD, and Robert Chapman, MD

The 340B Drug Pricing Program was created by Congress through the Veterans Health Care Act of 1992 to allow some health-care entities—including safety-net providers with large shares of uninsured and low-income patients and other “covered entities”—to obtain drugs at discounted prices.1,2 Congress gave these providers access to drug discounts in response to escalating drug prices that made it difficult for them to handle the needs of vulnerable patients. The Health Resources and Services Administration (HRSA) administers 340B.3

Drug manufacturers participating in Medicaid or Medicare Part B programs give 20% to 50% discounts on outpatient drugs (based on an average manufacturer price). In return, pharmaceutical companies are able to participate in Medicaid, thereby expanding their patient bases significantly. This mutually beneficial agreement allows 340B health-care organizations to stretch resources to help more patients and provide more comprehensive services.

To be eligible for 340B status, hospitals must show that about 30% of their patient load makes use of Medicaid or Medicare Supplemental Security Income (ie, benefits low-income elderly patients). Freestanding children’s and cancer hospitals as well as rural hospitals (25 beds or less, including rural referral centers, sole community hospitals, and critical access hospitals) have different eligibility requirements. The premise behind 340B is to enhance these organizations’ ability to continue to provide needed comprehensive services to rural, uninsured, and underserved populations.

Does 340B Fulfill Its Intended Role?

In creating the program, Congress stated that the purpose of 340B is “to enable [covered entities] to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”4

Confirmation that the 340B program is fulfilling its role is provided by the following observations: (1) The load of low-income patients in 340B hospitals is twice that of non-340B hospitals; (2) 340B hospitals account for one-third of all disproportionate share hospitals but provide nearly 60% of all uncompensated care; and (3) more 340B disproportionate share hospitals than non-340B hospitals provide specialized services, which are often not profitable. The 2011 Government Accountability Report on the program stated that 340B providers are using their savings to benefit vulnerable patients, consistent with the congressional intent.3

Recent Discussions Concerning 340B

A recent wave of concerns, criticisms, and analyses has swirled around 340B.5-7 The question is: Why so much interest now? The simple answer is: Follow the money. Drug sales under the 340B program were 2.3% of the $329 billion total U.S. drug spending in 2013, or about $7 billion.8,9

Curtailing 340B would allow companies to sell their drugs at higher prices and increase their already large profits (profit margins of 20%–30%, among the highest of any industry).10 To accomplish this, the drug industry relies on the most powerful lobby of any industry in the United States. In 2014, this formidable group spent $229 million on lobbying and another $32 million in campaign contributions to the 2014 elections.10 Drug companies pursue their aims by creating coalitions or front groups (with lofty titles that include words such as “concerned citizens,” “public interest,” “American,” “choice,” “freedom,” “institute,” and “integrity”) that recruit third parties as members; write letters to the editor, op-eds, analyses, and publications; influence the tone and content of the articles; and spin messages and talking points.11,12

Many of the reports criticizing the 340B program are directly or indirectly associated with the Alliance for Integrity and Reform of 340B,13 a group of mostly drug manufacturers and trade associations as well as other interest groups that might benefit financially from reducing the scope of 340B. Their arguments have been addressed by reports from 340B Health, which represents more than 1,000 hospitals participating in the 340B program.14,15

What Are the Concerns Related to 340B?

A major concern is that 340B hospitals provide discounted drugs to insured patients. In fact, this is exactly what Congress intended.1,2 Hospitals are able to stretch their scarce resources because they buy drugs at discounted rates but receive reimbursement from insurers through negotiated rates, thereby accessing savings. Hospitals use the savings to treat low-income patients, offset disproportionate levels of uncompensated care, and support unprofitable public health services that other hospitals do not provide.

Other concerns: (1) 340B may have caused the shift in private oncology practices to hospital settings through acquisitions of and mergers with community cancer clinics, with the goal of increasing profits from use of oncology products16,17; (2) the number of 340B hospitals continues to expand,18 340B locations (contract pharmacies dispensing 340B drugs) are increasing,19 and 340B sales may continue to increase; and (3) Medicaid expansion under the Affordable Care Act will allow more hospitals to treat Medicaid patients and qualify for 340B.

Here is why we believe these concerns are not problematic. First, hospitals are purchasing oncology practices regardless of their 340B status. The shift in cancer care to hospital-based settings is due to declining oncology practice revenues and declining reimbursements for visits and procedures, payment models that do not reflect the complexities of cancer care in community practices, and the need for a wider array of services and infrastructures (social workers, nutritionists, support groups, others) that hospitals are better equipped to provide than private oncology practices.6

Second, while the number of 340B hospitals is increasing, this is almost entirely due to congressional expansion of the program to rural and cancer hospitals in 2010.18 This is good for cancer care and for patients with cancer. Since 2010, and as of October 2015, 1,193 rural and cancer hospitals have joined the 340B program, most with 25 beds or less.

Third, 340B drug sales still account for only 2% of the $329 billion drug market in the United States—an insignificant amount, considering drug companies’ big profit margins and the fact that 340B is benefiting millions of Americans.8 Fourth, allowing 340B providers to contract with retail pharmacies gives vulnerable patients easier access to needed drugs, without necessarily increasing the volume of 340B sales.6

Finally, expanding Medicaid under the Affordable Care Act will help millions of vulnerable patients and save tens of thousands of American lives every year, without necessarily increasing the number of 340B hospitals. For example, when Massachusetts expanded insurance coverage to the previously uninsured, most vulnerable patients continued care with the same safety-net providers, citing convenience, affordability, and availability of nonmedical services.20

In response to some of the concerns related to the 340B program, discussions about policy changes were reflected in publications by ASCO5 and the Association of Community Cancer Centers.21 The HRSA, which monitors eligibility and ensures compliance with 340B requirements, can address these concerns and other perceived “abuses” of 340B.


The 340B Drug Pricing Program is a critical program that allows organizations caring for large proportions of vulnerable, poor, underserved, or rural populations to access badly needed health care while remaining solvent. The disproportionate amount of uncompensated care that 340B hospitals provide affirms that they deserve the 340B status and that they use their program savings well. Restricting 340B may help increase the already astounding profits of drug companies, but it will harm millions of Americans.

The 340B Drug Pricing Program is a medical lifeline that should be maintained, nurtured, and expanded—but certainly not curtailed. ■

Disclosure: Drs. Kantarjian and Chapman reported no potential conflicts of interest.

Note: For interested readers, two articles discussing various aspects and issues related to 340B in more detail were recently published in the Journal of Oncology Practice and in JAMA Oncology (references 6 and 7).


1. 340B Drug Pricing Program. Wikipedia, December 3, 2015. Available at Accessed January 6, 2016.

2. Veterans Health Care Act of 1992. Pub L No. 102-585, 42 USC §256b. Available at Accessed January 6, 2016.

3. U.S. Government Accountability Office: Drug pricing: Manufacturer discounts in the 340B program offer benefits, but federal oversight needs improvement. Available at Accessed January 6, 2016.

4. Health Resources and Services Administration: 340B Drug Pricing Program. Available at Accessed January 6, 2016.

5. American Society of Clinical Oncology: Policy Statement on the 340B Drug Pricing Program by the American Society of Clinical Oncology. J Oncol Pract 10:259-263, 2014.

6. Kantarjian HM, Chapman R: Role of the 340B drug discount program in recent cancer care trends. J Oncol Pract 11:303-307, 2015.

7. Kantarjian H, Chapman R: Value of the 340B drug discount program. JAMA Oncol 1:1029-1030, 2015.

8. Fein AJ: 340B sales totaled $7.5 billion in 2013, Apexus says. Drug Discount Monitor. February 14, 2014.

9. IMS Health: Medicine use and shifting costs of healthcare: A review of the use of medicines in the United States in 2013. Available at Accessed January 6, 2016.

10. A brief guide to Big Pharma. The Week. October 17, 2015. Available at Accessed January 6, 2016.

11. Potter W: Deadly Spin: An Insurance Company Insider Speaks Out on How Corporate PR Is Killing Health Care and Deceiving Americans, pp 222-224. New York, Bloomsbury Press, 2011.

12. Robert Kenner (director): Merchants of Doubt. Sony Pictures Classics, 2014.

13. Alliance for Integrity and Reform: AIR 340B. Available at Accessed January 6, 2016.

14. 340B Health: Hospital group refutes misleading study on cancer costs. May 6, 2014. Available at Accessed January 6, 2016.

15. Safety Net Hospitals for Pharmaceutical Access: Setting the record straight on 340B: A response to critics. July 2013. Available at Accessed January 6, 2016.

16. IMS Health: Innovation in cancer care and implications for health systems: Global oncology trend report. Available at Accessed January 6, 2016.

17. Berkeley Research Group: 340B covered entity acquisitions of physician-based oncology practices. April 22, 2014. Available at Accessed January 6, 2016.

18. HRSA Office of Pharmacy Affairs 340 B Database. Available at Accessed January 6, 2016.

19. HRSA Office of Pharmacy Affairs: Contract pharmacy oversight. Available at Accessed January 6, 2016.

20. Ku L, Jones E, Shin P, et al: Safety-net providers after health care reform: Lessons from Massachusetts. Arch Intern Med 171:1379-1384, 2011.

21. Association of Community Cancer Centers: Association of Community Cancer Centers Position Paper on the 340B Drug Discount Program. October 2013. Available at Accessed January 6, 2016.


Dr. Kantarjian is Chairman of the Leukemia Department at The University of Texas MD Anderson Cancer Center and a Baker Institute Scholar for Health Policies at Rice University, Houston. Dr. Chapman is Medical Director of Josephine Ford Cancer Institute at the Henry Ford Health System, Detroit.

Disclaimer: This commentary represents the views of the author and may not necessarily reflect the views of ASCO.