Reforming the 340B Drug Pricing Program: Tradeoffs Between Hospital and Manufacturer Revenues

The maligned and ardently defended 340B drug pricing program allows qualifying hospitals and clinics (those serving a disproportionate share of low-income patients or receiving federal grants to provide specific services) to generate revenue by purchasing prescription drugs from pharmaceutical manufacturers at discounted prices while being reimbursed by Medicare and other payers at standard levels.¹ The discounted price available to 340B purchasers has 2 components: a fixed base discount (23.1% for brand drugs) and an additional discount triggered by manufacturer price increases greater than inflation (termed the inflation penalty). This inflation penalty accounts for more than one-half of the 340B discount.²