340B Drug Pricing Program Under Fire: Fraud, Profits, and Reform Proposals

The 340B Drug Pricing Program, created by Congress in 1992 to help hospitals and clinics serving low-income patients buy prescription drugs at a discount, is facing mounting scrutiny after a Florida fraud scheme and new data showing that hospitals generate billions in profits from the program. A federal judge sentenced a fraudster to nearly 10 years in prison and ordered him to repay $14.3 million for a scheme that billed Medicare, Medicaid, and private insurers full price for drugs bought at 340B discounts. Meanwhile, a Minnesota Department of Health report found that nonprofit hospitals in the state earned more than $1.3 billion in 340B net profits in 2024—nearly a billion dollars more than they provided in uncompensated care.

The Florida scheme involved a fake health clinic that recruited people to accept prescriptions they never needed, mostly for HIV and AIDS drugs, paying them kickbacks. The ringleader bought the drugs at a steep 340B discount, billed payers full price, and pocketed the earnings. Some drugs were dispensed to fake patients and then thrown away. The scheme ran north of $58 million and paid for a Bentley, a Mercedes, and a $2.5 million mansion. Federal law still does not clearly define who counts as a 'patient' under 340B, does not require covered entities to report how they spend savings, and does not require verification that a prescription is legitimate before drugs move through the supply chain.

The Minnesota Department of Health's 2024 report shows 340B net profits more than doubled from $630 million in 2023 to $1.34 billion in 2024, a growth that primarily reflects the inclusion of physician-administered drugs. Hospitals account for 93% of the state's 340B purchases and absorbed 98% of the 340B net profit. Federal grantees—the entities with explicit drug affordability mandates—account for only 7% of purchases and 2% of net profit, and almost half of federal grantees in Minnesota claim to lose money on 340B because their direct costs exceed 340B prescription revenue.

A separate analysis of claims data from 5.5 million patients found that 71% of patients who visit a grantee provider also receive care from a 340B hospital. Because pharmacy benefit managers and third-party administrators earn more from grantee arrangements—grantees pay a median 23% of gross 340B revenue to intermediaries versus roughly 8% paid by hospitals—there are incentives to shift prescription attribution toward grantees. The analysis estimates that shifting attribution for all overlapping patients from hospitals to grantees would triple middlemen profits from grantees to $5.6 billion annually.

Lawmakers have proposed reforms to close loopholes. A discussion draft released in June by the Senate Health, Education, Labor and Pensions Committee chair would codify a definition of '340B patient' for the first time, tighten contract pharmacy rules, and give manufacturers a rebate option. Bipartisan companion legislation in the House sets new patient eligibility standards and creates a third-party clearinghouse to check claims before they are paid. At the federal level, the legislative landscape remains a patchwork of proposed bills with no comprehensive reform enacted. State legislatures have introduced measures to protect contract pharmacy access and increase transparency and reporting, with Texas prohibiting discrimination against covered entities and North Dakota requiring additional data submissions.

Hospital advocates defend the program. The Michigan Health & Hospital Association says 340B savings are reinvested into patient care, keeping rural emergency departments open, funding behavioral health services, and expanding pharmacy access. It notes that drug costs for hospitals grew 13.6% last year while hospital prices only increased 3.3%, and that drug companies set their own prices with virtually no regulatory check. America's Essential Hospitals says courts have repeatedly found that manufacturers have restricted access to 340B pricing at contract pharmacies, and that altering the program would undermine the fundamental spirit of the agreement between manufacturers and federal programs.

Some initiatives are expanding 340B services. Alchemy, a startup that works with 340B-eligible organizations to develop in-house pharmacy services, raised $31 million in 2024 with help from former NBA star Earvin 'Magic' Johnson. It now has 14 active sites and 12 more in onboarding, with clinics reinvesting pharmacy revenue into hiring more providers, extending hours, and adding services.