340B changes loom as the program attracts congressional, White House scrutiny

Both Congress and the White House are proposing 340B Drug Pricing Program changes that could add administrative burdens and ultimately limit the available savings for hospitals.

A new report issued by Republican members of the Senate Health, Education, Labor and Pensions (HELP) Committee calls for changes that include requiring 340B covered entities to “provide detailed annual reporting on how 340B revenue is used to ensure direct savings for patients, providing a more transparent link between program savings and patient benefit.”

Congress also should examine legislative changes to the definition of eligible patient, per the report, possibly limiting 340B savings to the covered entity that wrote the patient’s prescription. Democrats can thwart changes in the Senate unless the provisions are included in a budget reconciliation package, and some members of that caucus have expressed trepidation about affecting 340B access. But there has been bipartisan interest in exploring new approaches.

Also, a preliminary version of President Donald Trump’s FY26 budget for HHS includes a proposal that would move the 340B program from the Health Resources and Services Administration (HRSA) to CMS. In a previously announced HHS restructuring plan, HRSA would cease to exist as a stand-alone agency.

Giving CMS oversight of 340B likely would mean new reporting requirements, enabling HHS “to set clear enforceable standards for participation in the 340B program and ensure that the program is used to benefit low-income and uninsured patients of the covered entities,” according to the budget document.

The congressional and White House proposals are in addition to a recent executive order on drug costs. The order includes a directive for HHS to conduct a survey of hospitals’ drug acquisition costs, and the results of the survey could pave the way for a sizable reduction in the Medicare payment rate for 340B drugs.

What’s in the report

Running nearly 200 pages when counting appendices, the congressional report describes an 18-month investigation initiated by Sen. Bill Cassidy (R-La.), currently the chair of the HELP Committee and the ranking member in 2023-24.

“The investigation’s goal was to determine how covered entities spend 340B revenue in the wake of multiple reports of certain 340B covered entities announcing record-setting profits with no transparency surrounding if and how much of their 340B revenue directly benefits patients,” according to the report.

The report drew on data and insights supplied by two hospitals, representing the Bon Secours Mercy Health (BSMH) and Cleveland Clinic systems, plus two federally qualified health centers, two large contract pharmacies and three leading drug manufacturers.

As such, the report admitted to being “limited in scope given the tens of thousands of covered entities and the vast number of contract pharmacies and drug manufacturers currently participating in the 340B Program,” but it said the findings provide useful information on “how 340B revenue flows among the largest 340B participants, and how they use this revenue on behalf of patients.”

Hospitals’ 340B gains

Information supplied by Cleveland Clinic’s flagship hospital and BSMH’s Richmond Community Hospital (RCH) indicated that each generated “hundreds of millions of dollars in 340B savings and revenue” over a five-year period ending in 2023.

The two hospitals don’t pass 340B discounts directly to their patients, noting in their responses to Cassidy’s inquiries that an explicit requirement to do so is not inherent in the 340B program design. The 340B statute “was intentionally left general to provide safety-net providers with latitude on how they use their savings in the ever-changing healthcare industry,” Cleveland Clinic wrote.

BSMH indicated that 340B savings allow RCH to stay open while “operating at a substantial loss for decades.” Cleveland Clinic said 340B revenue and savings “assisted the hospital in offsetting $1.7 billion in unpaid care in 2022 and contributed to the hundreds of millions of dollars it spends annually on subsidizing health services, community health improvement, medical education and medical research.”

“Both hospitals state that the 340B benefit is vital for them to provide indirect benefits to patients through the financial support provided for broader healthcare initiatives,” according to the report. “These include offsetting shortfalls in government reimbursements through Medicare and Medicaid, funding community benefit programs, offering financial assistance and investing in capital improvements to medical facilities.”

In comments on the report, the provider advocacy group 340B Health wrote, “It is important to keep in mind that 340B helps maintain access to care for low-income patients. Without capital improvements and community benefits, providers cannot make the upgrades, add newly developed specialized services that save lives, and address key healthcare needs of the community.”

Other key players

The report also examines the 340B roles of contract pharmacies and drug manufacturers.

Summarizing the data supplied by two leading contract pharmacies, CVS and Walgreens, the report says they “charge a complex range of fees for pharmacy services to covered entities that generally increase each year.”

The dispensing fees and third-party administrator fees generally are indexed to measures of medical cost inflation, thereby driving “significant growth in revenue for contract pharmacies,” according to the report. Covered entities said the fees affect patient care by “taking a sizable percentage of the total 340B revenue the covered entities otherwise would retain.”

CVS countered that the fees compensate pharmacies for bypassing traditional revenue sources such as insurer payments.

The report says drug manufacturers have struggled to ensure 340B program integrity even as one company, Johnson & Johnson, provided $6.42 billion in 340B discounts in 2021.

Sales of 340B drugs to contract pharmacies are far outpacing direct sales to hospitals and grantees, manufacturers said in the report. Manufacturers have sought to implement various types of restrictions on the use of contract pharmacies, leading to disputes that have been playing out in court for nearly five years. Data provided for the report suggests such restrictions only temporarily stanched the steady growth in 340B sales.

Per the report, stricter legislative rules for drug replenishment models at contract pharmacies should be considered. Manufacturers Amgen and Eli Lilly said the system of virtual replenishment used by contract pharmacies prevents the physical separation of 340B drugs from other drugs, and pharmacies are not required to verify that a customer is a 340B patient when a drug is dispensed.

Key budgetary provisions

The preliminary HHS budget is subject to change before being released as part of a formal FY26 request, and the final request can be modified — perhaps substantially — by Congress.

In addition to giving CMS direct supervision of 340B as a step toward ramping up reporting and oversight, the budget would limit the out-of-pocket cost that community health centers can charge for 340B drugs.

Other noteworthy aspects of the FY26 budget document include assuming an unspecified decline in Affordable Care Act marketplace enrollment through expiration of the enhanced subsidies, and zeroing out the budgets for agencies that would be folded into new or existing agencies under the HHS restructuring plan: among others, HRSA, the Substance Use and Mental Health Services Administration, the Agency for Healthcare Research and Quality, the Office of Civil Rights, the Assistant Secretary for Technology Policy (ASTP) and two Medicare hearings and appeals boards.

Although the fate of ASTP, previously known as the Office of the National Coordinator for Health Information Technology, was not made clear in the recently announced restructuring plan, the proposed budget allocates funding to a new Office of the Chief Technology Officer with consolidated functions. The new role appears to be part of HHS’s general division rather than standing as an operational agency such as CMS, with funding specified only for cybersecurity efforts and mission-critical functions.

Healthcare programs to be eliminated across HHS would include a number that support primary care, maternal and child health, mental health, environmental health and HIV/AIDS. Funding for some programs in those areas would remain.

Among health workforce programs, mandatory funding for graduate medical education and the National Health Service Corps would remain, but termination of programs would affect some funding for nursing workforce development, behavioral health training and public health workforce development.