The House Energy and Commerce Committee’s Subcommittee on Health recently held a hearing examining the drivers of rising health care costs. While much of the discussion focused on consolidation among providers, a key cause of that consolidation received far less attention: the Section 340B drug pricing program.
As Charles Sauer explains in RealClearMarkets, 340B—originally intended to support care for low-income and uninsured patients—is now distorting incentives across the health care system, contributing to higher costs and fewer choices for patients.
“One factor behind this consolidation is the Section 340B drug pricing program… Section 340B enables these qualified entities to purchase pharmaceuticals at a discount, while still being reimbursed as if they paid full price.”
Congress designed 340B to allow hospitals and clinics serving vulnerable populations to stretch limited resources. However, the law does not require that savings be used to expand care for those populations—creating a gap between intent and reality.
“An analysis published in the New England Journal of Medicine found no evidence that hospitals invest their 340B savings into safety-net care.”
Instead, the structure of the program incentivizes expansion and consolidation. Hospitals can extend 340B pricing advantages across their networks, encouraging acquisitions of independent practices and community providers.
“This creates an incentive for larger hospitals to purchase smaller hospitals, community health care centers, and private practices in order to ‘game’ Section 340B to maximize their profits.”
The result is a shift in where care is delivered—and how much it costs. As more physicians become part of hospital systems, patients are increasingly steered toward higher-cost settings, even for identical treatments.
“Employer sponsored health care plans pay twice as much for a cancer infusion treatment administered in a hospital than for one given in a physician’s office—even though it involves the exact same procedure and the exact same drug.”
Despite claims that 340B supports underserved communities, the data tells a different story. Many participating facilities are not located in areas with the greatest need.
“Just 38% of 340B DSH hospitals, 29% of DSH child sites, and 26% of contract pharmacies are located in medically underserved areas.”
Even more concerning, trends show the program drifting further away from its original purpose.
“Between 2011 and 2019, the percentage of 340B contract pharmacies located in the lowest-income neighborhoods declined… while the share located in the highest income neighborhoods increased.”
Patients are also paying more—undermining one of the central justifications for the program.
“Patients in hospitals that participate in Section 340B spend approximately 30% more on prescription drugs than patients in non-Section 340B facilities.”
Research confirms that these higher costs are not being offset by improved outcomes for vulnerable populations.
“Financial gains for 340B hospitals have not been associated with clear evidence of expanded care or lower mortality among low-income patients.”
The evidence suggests that while 340B was created with good intentions, it is now contributing to consolidation, higher prices, and reduced competition in health care markets.
Congress appears to recognize the problem. The next step is meaningful reform—ensuring that 340B savings are tied directly to care for low-income and uninsured patients, rather than fueling further consolidation.
Without reform, a program meant to expand access will continue to do the opposite.
Read more in RealClearMarkets by clicking here.
