Why drugmakers and hospitals are fighting over the 340B program

Drugmakers and hospitals are once again locked in battle.

At issue is 340B, the federal drug discount program created in the ’90s as a way to financially support hospitals treating a large percentage of low-income, uninsured patients. Those hospitals, called safety-net hospitals, receive up to 50% in discounts on pharmaceuticals, which they can sell at regular price and keep the difference to help them stay afloat.

The Health Resources and Services Administration, or HRSA, the division of the Department of Health and Human Services (HHS) that oversees the program, has floated the idea of a rebate model in which hospitals would receive the discounts after purchasing and dispensing the drugs, rather than the current upfront model.

Hospitals say this would be financially disastrous and involve them supplying a ton of money up front, while drugmakers are all for it, arguing it’ll help cut down on waste, fraud, and abuse in the program. PhRMA, the drug industry’s top lobbying group, has alleged that in 2019, participating facilities pocketed $1.6 billion worth of duplicate discounts from 340B, citing a 2021 analysis from drug discount platform Kalderos.

Some hospitals have been accused of taking advantage of the money they save from the 340B program and using it to invest in facilities in wealthier areas rather than serving low-income communities.

Backstory. HRSA first announced the pilot program for its updated rebate model in August 2025. Under the model, hospitals would have to submit data within 45 days of dispensing medication, including the drug’s fill number and national drug code, to drugmakers after dispensing prescriptions in order to receive a discount.

The pilot was supposed to go into effect at the start of 2026, but a group of hospitals, including trade group the American Hospital Association (AHA), which represents close to 5,000 hospitals and health systems, sued HHS in December to block it. The AHA argued in a statement the pilot program would “impose overwhelming financial and administrative burdens on 340B hospitals.”

A federal judge paused the pilot program in late December, and on Feb. 5, HHS agreed to ditch it altogether.

However, HRSA didn’t back down for long. A week later, on Feb. 13, the agency sent out a request for information, essentially starting the rulemaking process over again.

In a statement shared with Healthcare Brew, Alex Schriver, a spokesperson for PhRMA, said the group is “pleased to see that HRSA is seeking public input on a possible new 340B rebate model pilot.” The group claimed the 340B program has “little oversight or accountability” and a rebate model would be “common sense.”

On the other hand, Maureen Testoni, president and CEO of 340B Health, a group that represents roughly 1,600 hospitals and health systems participating in the program, said in a statement shared with Healthcare Brew the rebate model would “place significant financial and operational strain on safety-net hospitals.”

The group estimates a rebate model would force disproportionate-share hospitals to float an average $72 million annually. However, PhRMA has rebuked that claim, saying in a September 2025 statement the rebate program would require drugmakers to pay for 340B drugs within 10 days of dispensing, so “in most cases, hospitals will receive rebates before they have to pay their wholesalers.”

An outside perspective. Sayeh Nikpay, an associate professor at the University of Minnesota’s division of health policy and management, told Healthcare Brew if 340B switched to a rebate model, drugmakers would probably be “quite pleased” because it could cut down on the amount of money they’re losing from the program. A 2024 report from the AHA-affiliated health consultancy Healthsperien estimated drugmakers lose about 7% of annual US revenue to the 340B program.

For hospitals and other 340B facilities, however, it could create hardship.

The financial impact for hospitals would vary widely depending on the individual facility’s financial structure, Nikpay said. For some, it could be “really bad,” but for others “it might not actually be that big of a deal because they’re generating a lot of spread revenue on this program, and they have some fat, so this would basically trim some of that.”

A majority of the money in 340B goes to hospitals that are “not that liquidity constrained and could carry the full amount of the purchase on their books and wait for a rebate in a month or two months,” Nikpay added.