It has been more than three decades since Congress established the 340B Drug Pricing Program to offset the unintended consequences of earlier legislative efforts to address rising healthcare costs. Enacted with bipartisan support as part of the Veterans Health Care Act of 1992, the program was designed to preserve safety-net providers’ access to affordable outpatient drugs. As the program has grown, it has come under increased scrutiny from lawmakers, regulators, and industry stakeholders, with some now asking whether it may be generating unintended consequences of its own.
Background
Taking its name from the section the Veterans Health Care Act added to the Public Health Service Act, 340B grew out of congressional efforts to address the downstream effects of the Medicaid Drug Rebate Program (MDRP), enacted two years earlier.
MDRP, which was created through the Omnibus Budget Reconciliation Act of 1990, requires drug manufacturers to provide state Medicaid programs with their “best price” on covered outpatient drugs. Changes in manufacturer pricing practices following MDRP’s implementation reduced the availability of discounts previously offered to certain hospitals, federally qualified health centers (FQHCs), and other organizations serving high proportions of low-income and uninsured populations. The 340B Drug Pricing Program introduced a new framework for purchasing discounts by requiring manufacturers that participate in Medicaid and Medicare Part B to sell outpatient drugs at discounted prices to eligible safety-net providers.
Program Structure
Under 340B, drug manufacturers participating in MDRP are required to provide discounts on covered outpatient drugs to eligible “covered entities.” These covered entities—which include disproportionate share hospitals, children’s hospitals, FQHCs, and other safety-net providers (see Figure 1)—purchase drugs at the discounted price and bill insurers, including Medicaid and Medicare, at standard reimbursement rates. The difference between a covered entity’s acquisition cost and reimbursement generates revenue that has been used to support patient care or expand access for low-income and underserved populations.
The 340B statute does not specify how covered entities must use revenue associated with discounted drug purchases, nor does it require public reporting on how such funds are allocated. By statute, oversight focuses primarily on eligibility and pricing compliance (Figure 2). In administering the program, the Health Resources and Services Administration (HRSA) is authorized to issue regulations in three areas: the administrative dispute resolution process, the calculation of the 340B ceiling price, and the imposition of civil monetary penalties on manufacturers. Questions that fall outside these areas—including the use of 340B-related revenue—have been the subject of ongoing policy debate and litigation, with further clarification dependent on congressional or judicial action.
HRSA characterizes 340B in broad terms, stating that it enables covered entities to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” In practice, how covered entities pursue this objective and the extent to which patients directly benefit can vary widely across providers and care settings. That variation has drawn increasing attention as participation in the 340B program has grown.
Scale and Growth
What began as a targeted policy initiative affecting a relatively limited number of safety-net providers now encompasses tens of thousands of hospitals, clinics, and affiliated outpatient sites nationwide.
According to the Government Accountability Office (GAO), the number of registered 340B covered-entity sites more than doubled between 2013 and 2023, surpassing 55,000. Much of that growth has occurred among hospital-based entities, as eligible hospitals added outpatient clinics and other “child sites.” While federally funded grantees—including FQHCs—continue to participate, hospitals now account for a growing share of overall program activity.
Drug purchasing under the program has also increased. The Congressional Budget Office (CBO) estimates that spending on 340B-discounted drugs rose from approximately $6.6 billion in 2010 to nearly $44 billion in 2021, far outpacing growth in the broader prescription drug market. CBO attributes that increase to rising use of high-cost outpatient drugs, expansion of eligible provider sites, and hospitals’ integration of outpatient practices into the 340B program.
Changes in administrative guidance have reshaped the program’s reach. Program rules originally limited covered entities to partnering with a single outside pharmacy to dispense 340B drugs away from their main campus. In 2010, HRSA issued guidance permitting covered entities to use multiple contract pharmacies. This change expanded 340B dispensing well beyond hospital and clinic settings into retail, brick-and-mortar pharmacies more commonly associated with prescription drug distribution. By 2021, CBO reported nearly 130,000 contract pharmacy arrangements nationwide.
As the number of contract pharmacies has increased, their role has become a focal point of policy debate and litigation. Manufacturers have raised legal challenges related to HRSA’s authority to require the provision of 340B-priced drugs through contract pharmacies, while covered entities and states have taken differing positions on access, compliance, and oversight.
Administrative complexity has grown alongside participation. Managing eligibility across thousands of sites, coordinating drug purchasing and distribution, and ensuring compliance with program requirements increasingly requires centralized infrastructure—both within HRSA and among covered entities themselves.
Compliance Challenges and Increasing Scrutiny
That growth in scale and complexity has sharpened questions about oversight and accountability. Analyses by GAO, CBO, and others note that the program’s statutory design places primary emphasis on eligibility and pricing compliance, while offering limited mechanisms to monitor how 340B-related revenues are ultimately used or to assess their direct impact on patients.
Oversight reviews point to constraints on HRSA’s authority to monitor areas that have become increasingly central to the program’s operation, including hospital eligibility determinations, the proliferation of contract pharmacy arrangements, and safeguards against duplicate discounts.[1] At the same time, fiscal analyses have highlighted how the program’s rapid growth and interaction with other federal drug pricing policies may influence provider behavior, prescribing patterns, and overall federal spending.
Members of both parties have raised concerns about the program’s scale, the absence of transparency requirements tied to patient benefit, and the difficulty of overseeing a decentralized network of covered entities and dispensing arrangements. At the same time, lawmakers have acknowledged the program’s importance to safety-net providers operating on thin margins, particularly rural hospitals, children’s hospitals, and community health centers.
Hospital groups, including the American Hospital Association (AHA), have emphasized this latter point in response to calls for greater oversight or structural change. The AHA argues that 340B remains an essential source of support for safety-net institutions and that Congress deliberately afforded providers flexibility in how savings are used, given variation in local needs and patient populations. From this perspective, proposals to impose new reporting requirements or narrow eligibility risk undermining the program’s core purpose without addressing broader funding pressures facing safety-net providers.
Pharmaceutical manufacturers and their trade associations, including PhRMA, have taken a different view. They contend that the program’s expansion—particularly among hospital systems and contract pharmacy networks—has weakened the connection between discounted pricing and patient benefit. Manufacturers point to the absence of reporting requirements, the growth in 340B drug purchasing documented by CBO, and the increasing administrative complexity identified by GAO as evidence that the program now operates with insufficient accountability. In their view, these dynamics may contribute to higher overall drug spending and distort incentives beyond the program’s original intent.
Other critiques focus on the program’s interaction with employer-sponsored insurance. Because 340B discounts are generally not reflected at the point of sale, some analysts argue that savings are effectively financed through higher costs borne by commercial payers and their enrollees, raising questions about affordability and cost shifting within the healthcare system.
The tension between preserving support for safety-net providers and addressing concerns about scale, transparency, and incentives has been evident in briefings and legislative proposals on Capitol Hill. An October 2025 hearing convened by the Senate Committee on Health, Education, Labor, and Pensions (HELP) highlighted how even lawmakers within the same party differ in their assessments of the need for 340B reform.
Pointing to the program’s rapid growth and limited oversight, Committee Chair Bill Cassidy (R-La.) questioned how 340B revenues are used and whether they consistently benefit low-income patients. By contrast, Senator Tommy Tuberville (R-Ala.) emphasized the program’s importance to hospitals serving large uninsured populations, citing an Alabama hospital that provided roughly $100 million in uncompensated care while generating about $70 million in 340B savings. From his perspective, 340B represents a critical source of support for safety-net institutions and warrants expansion rather than reform.
Several bills and discussion drafts introduced by members of Congress since 2023 would amend the statutory framework governing the 340B Drug Pricing Program. None has been enacted as of January 5, 2026, and some proposals remain in draft form. Taken together, the measures reflect differing congressional approaches to addressing the program’s expansion, oversight, and administration, including whether reforms should focus on clarifying manufacturer obligations, increasing reporting and accountability requirements, or standardizing key program definitions that have been the subject of administrative and judicial dispute.
Some proposals would amend the Public Health Service Act to clarify manufacturer obligations under the 340B Program, particularly with respect to contract pharmacy arrangements. The 340B PATIENTS Act, reintroduced by Rep. Doris Matsui (D-Calif.) and Sen. Peter Welch (D-Vt.), would prohibit manufacturers from conditioning the provision of 340B-priced drugs on the location or method of dispensing, including through contract pharmacies. Other proposals emphasize revisions to statutory definitions and expanded transparency requirements. The 340B ACCESS Act, introduced by Rep. Buddy Carter (R-Ga.), would establish patient affordability requirements, create new reporting obligations for covered entities, and impose eligibility requirements for hospitals. The SUSTAIN 340B Act, released as a bipartisan Senate discussion draft in 2024 and referenced by Sen. Cassidy after the October HELP Committee hearing, would combine elements of these approaches by explicitly recognizing contract pharmacy arrangements, expanding reporting requirements, clarifying statutory definitions, and authorizing additional oversight mechanisms.
Changes Ahead
In July, HRSA announced the 340B Rebate Model Pilot Program, which would allow manufacturers of drugs selected for the Medicare Drug Price Negotiation Program for 2026 to provide covered entities with post-purchase rebates, rather than upfront 340B drug discounts. While all eligible manufacturers received approval to participate in the pilot, which was set to begin on January 1, 2026, implementation is paused following a preliminary injunction.*
CMS is also conducting an Outpatient Prospective Payment System (OPPS) Drug Acquisition Cost Survey, during which CMS will collect data on the acquisition costs of covered outpatient drugs. CMS will use the survey findings to inform payment policy proposals in the CY 2027 OPPS/Ambulatory Surgical Center (ASC) Proposed Rule, expected to be released in July 2026. The survey is expected to reduce reimbursement rates for 340B-acquired drugs, a policy that was previously in place but struck down by the courts. Under the prior policy, reimbursement for 340B-acquired drugs was Average Sales Price (ASP) minus 22.5 percent, rather than ASP plus 6 percent.
Conclusion
More than three decades after its enactment, the 340B Drug Pricing Program remains a central feature of safety-net financing. As participation has expanded and program mechanics have evolved, questions about oversight, transparency, and alignment with statutory intent have become more prominent. How policymakers respond to those questions will shape the program’s role in supporting eligible safety-net providers and its interaction with broader drug pricing and healthcare financing policies in the years ahead.
*Update (2/09/26): In a February 5, 2026, filing, the Department of Health and Human Services announced that it would vacate the existing pilot program after losing at both the district and appellate court levels, concluding that further litigation would not be productive.
On February 6, 2026, the Health Resources and Services Administration filed a pre-rule notice titled “340B Drug Pricing Program Manufacturer Rebate Models” in the Executive Order 12866 Regulatory Review database. The filing signals that the agency is considering a renewed effort to pursue manufacturer rebate models through a new administrative process that would include public notice and comment. Applied Policy continues to monitor developments.
[1] As HRSA notes, under 42 USC 256b(a)(5)(A)(i), “manufacturers are not required to provide a discounted 340B price and a Medicaid drug rebate for the same drug. Covered entities must have mechanisms in place to prevent duplicate discounts.”