Senate hearing on 340B reflects congressional interest in altering the program

A leading healthcare policymaker in Congress sounds intent on modifying the 340B Drug Pricing Program.

Sen. Bill Cassidy (R-La.), chair of the Senate Committee on Health, Education, Labor and Pensions (HELP), led a 340B-focused hearing Oct. 23 during which he called for changes.

“If this committee is serious about making healthcare more affordable, about making drugs more affordable, about improving commercial insurance and helping the patient, perhaps we need to reform 340B and make sure that patients are put first,” Cassidy said.

The hearing illustrated bipartisan concern that the program affects not only federal healthcare spending but also costs for employers and premiums for employees, since negotiated rebates on drugs typically are not available to health plans for 340B products.

340B spending on the rise

The Congressional Budget Office (CBO) provided data for the hearing, reporting that 340B drug spending increased by 19% per year between 2010 and 2021. In comparison, the annual increase for brand-name drug spending overall was 4%. Per the CBO’s assessment, “the integration of hospitals with off-site outpatient clinics is the factor that contributed the most to the growth in 340B drug purchases” because many more facilities became eligible for the discounts.

Democrats on the HELP Committee agreed that changes are warranted but urged caution at a time when safety-net providers are preparing to face potentially significant Medicaid cutbacks as legislated in the One Big Beautiful Bill Act. There’s also looming uncertainty about the Affordable Care Act insurance marketplaces.

“We must ensure that the 340B program is sustainable for years to come and can support our safety-net healthcare providers,” said Sen. Tammy Baldwin (D-Wis.) “That doesn’t mean that the 340B program is without its issues.”

Senators on both sides of the aisle said reforms should be tailored rather than implemented on a sweeping basis across 340B covered entities.

“You don’t want to impose the same requirements on a rural health center as you do on a big academic medical center,” said Sen. Andy Kim (D-N.J.).

Transparency as a central issue

Concerns expressed during the hearing included the inability of policymakers to determine whether 340B savings are being used to lower patients’ costs, although such an application is not a statutory requirement of the program.

“Certainly, if Congress wanted to, they could put specifications on how revenue is to be used,” said Michelle Rosenberg, healthcare director with the Government Accountability Office (GAO). “You could, if you wanted to, [also] have covered entities report the amount of revenue that they receive.”

She said the Health Resources and Services Administration (HRSA), which administers the 340B program, has requested authority to require such reporting.

There are notable gaps in HRSA’s enforcement, according to the GAO. One example pertains to the 340B requirement for a disproportionate share hospital to contract with a state or local government to serve low-income patients who do not qualify for Medicare or Medicaid.

“The large majority of hospitals have been participating in the program for years, and HRSA has not verified whether they have a contract or not,” Rosenberg said.

Transparency requirements must not place an undue burden on providers, Baldwin and other senators said.

Contract pharmacy concerns

A long-running dispute between hospitals and drug manufacturers involves the increasing prevalence of contract pharmacies as a venue for distributing 340B drugs.

Manufacturers have gone to court seeking to restrict the use of contract pharmacies, saying they make the tracking of drugs more difficult and thus allow for prohibited duplicate discounts, whereby a provider gets a discount on the same drug in both 340B and Medicaid.

Critics also see a connection between contract pharmacies and murkiness around 340B patient eligibility. For example, a prescribing provider is supposed to be ineligible for a 340B discount if the patient received the associated healthcare services from another provider.

But contract pharmacies are a key part of the healthcare infrastructure, especially in remote areas, said Sen. Lisa Murkowski (R-Alaska).

“Contract pharmacies and tele-pharmacy services are critically important for us [in Alaska], connecting the patients to essential medications,” Murkowski said.

A worthwhile consideration for Congress is to ensure that both contract pharmacies and off-site clinics of 340B hospitals are placed in low-income or remote areas, rather than affluent neighborhoods with an advantageous payer mix, said William Feldman, MD, DPhil, MPH, a healthcare policy researcher at the University of California, Los Angeles.

Fine-tuning community benefit

The lack of direction on how covered entities should apply their 340B savings is surprising, Kim said during the hearing.

In his written testimony, Feldman noted an American Hospital Association finding that 340B hospitals provided $100 billion in community benefit in one year via uncompensated care, medical education, financial assistance and community-building activities.

Still, he proposed that Congress “outline a set of detailed standards for community benefits.”

There would be merit in “setting clear standards for hospitals in terms of the amount of uncompensated care that they provide, the amount of debt that they forgive, the number of community programs that they start, the amount of financial resources they’re committing to local communities,” Feldman said.

In a written statement after the hearing, the provider advocacy group 340B Health said data show that 340B hospitals “provide significantly more uncompensated and Medicaid care than other hospitals and use their savings to expand services for patients in need.”

Concepts of 340B reforms

A bipartisan Senate working group has been examining prospective changes to 340B, said Baldwin. The group has a preliminary blueprint for legislation that would establish new guidelines for many of the issues that were discussed during the hearing.

Manufacturers would be obligated to offer 340B discounts at contract pharmacies, while providers would annually register their contract-pharmacy sites with HHS. Various transparency requirements would mean additional information for providers to include on their Medicare cost reports.

To reduce duplicate discounts, the working group proposes to implement a national clearinghouse that would receive claims-level rebate-file data from state Medicaid programs and 340B covered entities, while ensuring the data stays confidential.

Areas that remain under discussion include how to set a stronger definition of eligible patient with respect to 340B discounts and whether to tighten 340B eligibility requirements for off-site clinics.

Rebate models are approaching

One 340B issue that received only limited discussion during the hearing was the rebate model concept that HRSA is looking to implement starting Jan. 1, 2026. HRSA has not said whether the ongoing government shutdown could affect the implementation timeline, with nearly half the agency’s personnel on furlough.

“I’ve heard from hospitals and community health centers across Wisconsin that a rebate model would be disruptive to their finances and threaten their ability to continue to provide their current level of care and services,” Baldwin said.

Provider advocates say problems with a rebate model include potentially significant constraints on cash flow while hospitals wait to receive their rebates, plus the administrative burden involved in submitting claims as required.

In addition, the model “puts the pharmaceutical industry in control of determining which rebates to give,” Feldman said. “I would much prefer to see a solution like a third-party clearinghouse that is helping to resolve the discounts that are being given.”