Dan Crippen was the director of the Congressional Budget Office from 1999 to 2003.
In its first report on the 340B drug discount program’s effect on the budget, the Congressional Budget Office revealed that a previously obscure federal program originally meant to help a few dozen safety-net hospitals has exploded into a multibillion-dollar subsidy for thousands of nonprofit hospitals, driving up healthcare costs for patients — burdening taxpayers and contributing to the federal deficit — while delivering little measurable benefit to patients in need.
The good news is that Congress is already working to solve the problem, and in the process can substantially reduce the deficit.
As a former CBO director, I’ve seen how federal programs can balloon when well-meaning policies are left unchecked. And that’s exactly what has happened to the 340B Drug Pricing Program that Congress created in 1992 to help safety-net hospitals and clinics serve low-income and uninsured patients.
The program allows qualifying hospitals and clinics to buy prescription drugs at steep discounts that manufacturers are required, by law, to provide. The idea was simple: Hospitals would use the savings to expand care to indigent patients.
But in practice, the program has evolved into something very different — and far more costly. Today, 340B discounted drugs can be sold to any out-patient (including commercially insured) for any price.
Recent CBO analysis shows that 340B spending rose from $6.6 billion in 2010 to nearly $70 billion in 2023. During that same time, brand-name drug spending across the rest of the market grew at just 4% per year.
So what’s driving the surge? CBO identifies several culprits.
First, the report points to hospital consolidation. Between 2013 and 2021, the number of off-site outpatient clinics enrolled in 340B grew from about 6,100 to nearly 28,000. These “child sites” let hospital systems pull in more prescriptions under the program — even when those sites serve commercially insured patients in higher-income neighborhoods.
Second, contract pharmacies — retail drugstores that dispense 340B medicines — are fueling the furious pace of growth. CBO found that 340B purchases made at contract pharmacies grew at an average of 34% per year from 2010 to 2021 to over 30,000 pharmacies — nearly 60% of all eligible pharmacies. Altogether, nearly 20% of the program’s total spending growth now comes from discounted drugs dispensed through these pharmacies. The problem is the savings from these drugs don’t reach many patients, who still pay their full copay at the counter, while hospitals capture the discount as profit.
Third, and most importantly, the program’s incentives are upside down. Because hospitals can pocket the difference between the discounted 340B price and the insurer’s reimbursement, they’re financially rewarded for prescribing higher-priced drugs. CBO puts it bluntly: These incentives “lead to higher prices or an increased use of drugs and other health care services” — and that translates to higher federal spending across Medicare, Medicaid, and private plans while costing taxpayers billions.
And the program still lacks basic transparency. There’s no requirement that hospitals pass savings on to patients. No mandate to reinvest the windfall in charity care. No clear definition of who actually qualifies as a 340B patient. And no meaningful reporting of where the subsidies go.
This kind of structural failure is fixable — but only if Congress intervenes. There is currently pending legislation that would restore integrity to the program without undermining its original mission. And given CBO’s report, it could save the federal government money.
The elements of the legislation would finally establish a patient definition in statute, guarantee that low-income patients receive the benefit of discounted drugs, rein in contract pharmacy abuse, and require hospitals to show how they’re spending 340B dollars. These are common-sense steps to bring accountability to a program that’s strayed from its original purpose.
The CBO has now done what both Congress and the Executive have avoided for years: evaluated the size, scope, and consequences of a program long overdue for reform. With this report in hand, Congress has no excuse to look the other way. If its goal is to lower healthcare spending and increase tax revenue, reducing 340B subsidies fits the bill.
