Freedom Line Blog

The U.S. House Energy & Commerce Committee’s Health Subcommittee today will host the third hearing in its health care affordability series, specifically examining the role providers and hospitals play in shaping the cost of care for Americans.

While the hearing will likely examine numerous issues, there is none more ripe for reform than the flawed 340B drug pricing program.

Originally enacted to help eligible safety-net providers buy medicines at steep discounts and pass the savings on to lower-income and vulnerable patients, the program has ballooned as a revenue stream for many participating hospitals and contract pharmacy chains.

As the size and complexity of the 340B program has expanded, participating hospitals and contract pharmacies have instead used the program to increase their own revenues – to the tune of $1.8 billion from 2024 to 2025 alone – rather than helping consumers, who were the law’s intended beneficiaries.

Study after study into that failure over the years has exposed how participating providers hoard tens of billions of dollars each year from drug sales occurring under the 340B program.  In fact, some of those hospitals went so far as to charge full prices to patients for discounted drugs, only to pocket the difference.  Federal agencies tasked with administering the 340B program have highlighted transparency concerns and the inability to accurately audit the program.

Fortunately, the Trump Administration has offered a proposal to actually improve matters for consumers.

Under the administration’s proposal, the 340B program would require hospitals to file claims with drug manufacturers for rebates, rather than the current process of granting those hospitals up-front drug price discounts.  With that change, the program would create a paper trail to prevent hospitals from exploiting the discounts in the shadows.

There have been similar successful real-world reforms enacted in other federal drug pricing programs such as the Medicaid Drug Rebate Program of 1990 and the Department of Veterans Affairs Federal Supply Schedule.  Each of those reforms created a more transparent paper trail that enhanced program efficiency in the way that the Trump Administration’s 340B program reform idea proposes.

Simply put, the 340B program, however well-intentioned, has proved to be a prescription for disaster.  In practice, its murky logistics has ended up benefiting participating providers at the expense of patients and increased healthcare costs.

Accordingly, as Congress continues its effort to reduce healthcare costs, it should focus on where reform and savings constitute low-hanging fruit:  the 340B program and the way it has to date served the interests of participating hospitals rather than patients.

Today, the House Energy & Commerce Committee holds a hearing entitled “Lowering Health Care Costs for All Americans: An Examination of the Prescription Drug Supply Chain” that offers another opportunity to advance substantive reform.

CFIF applauds the Committee, and members Brett Guthrie (R – Kentucky) and Morgan Griffith (R – Virginia), for their collective efforts on this issue of affordability.  In that effort, we also continue our own effort to emphasize the importance of avoiding destructive government price controls, which only serve to make lifesaving pharmaceuticals less available to Americans, not more available.  It’s also critical to maintain focus on ongoing reform in the pharmaceutical benefit manager (PBM) arena, which actually can bring improvement, as we’ve consistently emphasized:

For those unfamiliar, Pharmacy Benefit Managers (PBMs) amount to middlemen that control prescription drugs for millions of Americans.  A majority of Americans receive health insurance through employer plans or government programs such as Medicare, which in turn cover prescription drugs through PBMs.  Those PBMs negotiate with drug companies and pay pharmacies, but throughout the process determine the drugs that insured patients may obtain and at what cost.

The problem is that PBMs operate in such an opaque and complex manner that they’re able to inflate drug costs while claiming to be working to reduce them.  It has reached a point where even the Federal Trade Commission (FTC) is now investigating PBMs’ role in driving up costs for Americans.”

Another critical arena offering potential reform? What’s known as Section 340B:

At issue is Section 340B of the Public Health Service Act passed in 1992 to help hospitals – especially those serving low-income and uninsured populations – to purchase pharmaceuticals from drug manufacturers at significantly discounted prices.

In theory, those savings for hospitals should have translated into lower out-of-pocket prices for everyday patients by being passed along to them.

Since 1992, however, real-world practice has not lived up to that laudable Congressional intent.  As the number of participating hospitals and pharmacies has grown, oversight has failed to keep pace with the scale and complexity of the program.

As a result, hospitals and their partner pharmacies have increasingly exploited the 340B program in ways that bring significant revenue streams for themselves, but no demonstrable benefits for the consumers who were the law’s original intended beneficiaries.  Multiple studies examining the growing discrepancy have exposed how hospitals and their partners generate tens of billions of dollars each year from 340B drug sales.  Rarely, however, have those funds been passed on to patients in the form of lower drug prices or even reinvested into better patient care.

Outrageously, some hospitals even charged full prices to patients for pharmaceuticals discounted under the 340B program, and then pocketed the difference rather than pass them on to consumers as designed.  The federal agency in charge of administering the 340B program has highlighted those transparency concerns and an inability to accurately audit the program in practice.

Accordingly, since 1992 the 340B program hasn’t fulfilled its intended aspirations.  Instead of reducing drug costs for patients, it has too often incentivized hospital profiteering, distorted healthcare behavior and ultimately raised costs rather than lowering them.”

Our message is clear:  Keep up the positive work, and focus on reform where it works, while avoiding the catastrophic potential pitfalls of drug price controls, whether through so-called “Most Favored Nation” (MFN) or other iterations, or erosion of strong patent rights that make American pharmaceutical innovation the envy of the world.