PhRMA report finds 340B program lost states $6.5b in rebates last year

There’s a multibillion-dollar game of tug-of-war happening between drugmakers, hospitals, and Medicaid over a popular drug discount program, and everyone says they’re fighting for the greater good.

According to a new report funded by trade group PhRMA (aka the pharmaceutical industry’s lobbyist squad), the 340B program reduced the amount rebated to managed care beneficiaries by $6.5 billion in 2024.

Wait, what’s 340B again? Glad you asked. Created in 1992, 340B requires drugmakers that participate in Medicaid to give drug discounts to hospitals and clinics; these “covered entities” treat a large proportion of low-income, uninsured patients.

The idea is for medical centers to use these discounts to help serve their communities and keep their doors open. But critics have accused some providers, especially large nonprofit health systems, of using program savings to bolster profits rather than reinvesting them into costly community care.

In 2023, 340B covered entities purchased a record $66.3 billion in drugs, up from $53.7 billion the year before, according to government data.

“It’s a massive program that’s impacting what patients, employers, and taxpayers are all paying for prescription drugs,” Robby Zirkelbach, PhRMA’s chief public affairs officer and head of strategic initiatives, told Healthcare Brew.

Bharath Krishnamurthy, director of health policy and analytics at trade group the American Hospital Association (AHA), a big-time hospital industry lobbyist, said these discounts are necessary to combat steep price hikes by pharmaceutical companies—a fact “this drug industry-funded report conveniently ignores.”

A June 16 AHA report found drug companies are less likely to be in compliance with 340B’s rules than hospitals are. The association is pushing for more program oversight of Big Pharma, rather than hospitals.

Digging in. The new report from PhRMA, conducted by the Berkeley Research Group, examines states that use private managed care organizations (MCOs) to operate their Medicaid programs.

Basically, when a Medicaid patient gets a drug, the drug manufacturer typically has to give money back to states. This type of discount is called a rebate. For most brand-name drugs, the rebate is at least 23.1%. 

But drugmakers don’t have to give Medicaid a discount if the drug gets one through the 340B program. So, as 340B grows, states and the federal government miss out on more money, but participating clinics and hospitals get more.

“It’s a discount that the state would be getting that is instead going to hospitals,” Zirkelbach said.

A March 2024 report by AHA found the rebates given through 340B in 2023 only equaled about 7% of drug companies’ US revenue.

Using each state’s specific 340B and Medicaid policies, this new report claimed that if the 340B program hadn’t exempted certain prescriptions from Medicaid rebates, drugmakers would have handed over $6.5 billion more to Medicaid in 2024, including $4.2 billion to the federal government and $2.3 billion to states.

Hospitals clap back. Hospitals use the money saved to invest in their community, said Krishnamurthy in his statement, which cited a 2020 report that found 340B hospitals provided $84.4 billion in community benefits like patient financial assistance and contributions to local groups.

Another 2020 study, however, suggested hospitals didn’t seem to start investing more in the community after they joined the program.

The Trump administration recently proposed moving oversight of this program from the Health Resources and Services Administration to the Centers for Medicare and Medicaid Services, which has a history of more regulation.