Push for Change in 340B Drug Pricing Program
As the 340B Drug Pricing Program continues to grow in size and importance, its operations are being scrutinized more than ever. Pharma manufacturers, who have long noted issues with this program, have made various attempts at reform.
Their latest strategy — which would move away from up-front discounts to a rebate model — is currently in limbo as the courts weigh in. If drugmakers are successful in their efforts, however, findings from a recent MMIT survey indicate they would be advised to tread carefully.
340B Background
Congress created the 340B program in 1992 via Section 340B of the Public Health Service Act as a way for certain healthcare facilities or programs that serve low-income people to purchase outpatient drugs at deeply discounted prices.
Overseen by HHS’s Health Resources and Services Administration (HRSA), the program requires manufacturers that participate in Medicaid and Medicare Part B to offer prescription drugs and biologics other than vaccines to covered entities at or under the 340B ceiling price. HRSA calculates that price based on a formula set out in legislation, and the prices are available online. Prices are generally 20% to 50% lower than a drug’s wholesale acquisition cost (WAC).
Covered entities consist of four categories of facilities: four types of federally qualified health centers, including tribal and urban Indian health centers; six types of hospitals, including disproportionate share hospitals (DSHs) and free-standing cancer hospitals; specialized clinics, including hemophilia treatment centers and black lung clinics; and Ryan White HIV/AIDS Program grantees.
According to an April 2025 report from the Senate Committee on Health, Education, Labor & Pensions (HELP), more than 60,000 covered entities were in the 340B program in February 2025, an increase of more than 600% since 2000. In 2023, covered entities made a total of $66 billion in 340B drug purchases, with DSHs accounting for $52 billion — or 79% — of those sales.
Rapid Expansion, Ongoing Oversight Challenges
When the program started, the drugs were dispensed through in-house pharmacies only. But that changed in 1996, when covered entities were allowed to use either an in-house pharmacy or one external contract pharmacy to distribute 340B drugs to their patients. Then in 2010, the Affordable Care Act allowed covered entities to have agreements with an unlimited number of contract pharmacies to provide their patients with 340B drugs. In 2023, Drug Channels Institute found that more than 33,000 pharmacy locations act as 340B contract pharmacies, compared with fewer than 1,300 locations in 2010.
The 340B program requires that covered entities prohibit the diversion of 340B drugs to ineligible people and prevent duplicate discounts. But according to the Senate HELP report, “This growth in the use of contract pharmacies has amplified the complexity of 340B Program oversight, particularly regarding patient eligibility, drug diversion, and duplicate discounts.”
Multiple reports have indeed found evidence of errors and inaccuracies, particularly as it concerns duplicate discounts, which occur when a covered entity gets both the Medicaid best price and the 340B price for one drug. Meanwhile, the Inflation Reduction Act (IRA), which became law in August 2022, will likely exacerbate the issue. The IRA introduced the Medicare Inflation Rebates and the Maximum Fair Price (MFP) programs, which both forbid duplicate 340B price discounts.
According to HRSA, “the 340B Program enables covered entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” But the HELP report also said that “there are concerns about whether the 340B Program truly benefits low-income and uninsured patients, with some studies suggesting that the 340B benefit does not translate into increased care or lower costs for vulnerable populations.”
Pharma manufacturers have tried various methods to put a stop to these ongoing issues, but HRSA, providers and pharmacies have pushed back on their efforts. Drugmakers’ latest approach began last summer.
Manufacturers Advocate for Rebate Model
In August 2024, Johnson & Johnson sent a notice to its 340B end customers explaining that it would be updating the way it provided the 340B discount for Stelara and Xarelto starting in October 2024. Both drugs were among the first 10 agents that underwent negotiations with CMS for a Medicare MFP, which will go into effect on Jan. 1, 2026.
Rather than providing the discount at the point of purchase, DSH covered entities would have to purchase the drugs at a commercial price and submit rebate claim data through vendor Beacon Channel Management’s platform within 45 days. After verifying that the information was compliant with the 340B program, and submitted within the required time frame, J&J would then have 7-10 days to provide the covered entity with a rebate (the difference between the purchase price and the 340B price).
J&J said that it “remains deeply committed to the 340B program. We believe this update will significantly improve program integrity while at the same time enabling covered entities to obtain the 340B price on eligible 340B sales.”
But HRSA pushed back on J&J’s effort to implement the model, claiming that the agency’s secretary must first approve it. It warned the drugmaker that if it did not halt implementation, it would be in violation of the 340B statute, making it potentially subject to civil monetary penalties, and the agency would end its agreement to participate in the 340B program, Medicaid and Medicare Part B and refer the issue to the HHS Office of Inspector General.
On Sept. 30, J&J said it was forgoing implementation of the model, which it maintained was “not only legally permissible but sorely needed to improve the integrity of the 340B Program and provide an effective mechanism for manufacturers to comply with their obligations under the Inflation Reduction Act’s de-duplication and 340B price effectuation requirements.”
Not quite a month and a half later, the company filed a lawsuit against HRSA asserting that the agency’s reasoning prohibiting J&J from adopting the rebate model was “unlawful.” (Kalderos, a drug discount management company, filed a similar lawsuit in 2021 over its ability to offer a 340B platform.) Since J&J’s lawsuit, Bristol Myers Squibb, Lilly, Novartis and Sanofi also have sued HRSA over their right to implement a rebate model.
Providers Fear Rebate Model Would Decimate Patient Services
Hospitals have been some of the most vocal opponents of the efforts.
Allowing the rebate model “would cause crippling damage to safety-net hospitals throughout the nation,” said Maureen Testoni, president and CEO of 340B Health, an organization of more than 1,600 public and private nonprofit hospitals and health systems participating in the 340B program. “It would force hospitals to divert scarce resources to comply with rebate requirements, pay tens of millions of dollars in additional drug purchase costs, and assume the enormous financial risk of drugmakers rejecting legitimate rebate claims based on their own interpretations of 340B rules.”
Respondents to a survey for an April 2025 MMIT Indices Market Event Primer expressed those same concerns. None of the respondents—all pharmacy directors, clinical pharmacists, medical directors and vice presidents at IDNs that participate in 340B—said that retrospective rebates would have a positive impact on the program.
One respondent commented that their IDN “relies heavily on the 340B pricing to subsidize other patient care services provided by our organization in our community. If 340B pricing went away, these patient services would end as well.”
More than half of the respondents said that the rebate model would have a negative impact on their relationships with manufacturers, with one saying the companies “will likely be banned from visiting any of our sites moving forward.” And another commented that they don’t “want to be associated with manufacturers that are trying to throw a wrench in the program. We cannot fully cut them off from a use and business case perspective, but this would not be desirable to maintain a healthy relationship.”
Waiting for a Final HRSA Decision
While the J&J case is ongoing, on May 15, a U.S. district judge denied the other drugmakers’ motions for summary judgement against HHS and HRSA, ruling that HRSA did need to approve the use of the rebate model before the companies could implement them. However, the judge did not rule that rebate models are prohibited in 340B, and advised HRSA to reconsider Sanofi’s credit rebate model.
At the beginning of May, the government filed a notice explaining that it was evaluating its options and would be able to provide guidance within 30 days. On June 1, HHS and HRSA submitted that 340B rebate guidance to the Office of Management and Budget. But the proposal is not public, and it is unclear when it will be finalized.
If pharma manufacturers ultimately are allowed to implement rebate models, they should move forward carefully to avoid damaging their relationships with providers or negatively impacting future negotiations.
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