We all feel the pinch of ever-increasing healthcare costs. There are a myriad of factors contributing to this cost escalation, but some may be
surprised to learn that the 340B program, designed as a manufacturer discount program on drugs dispensed to outpatients of covered entities, has been identified as contributing to increased commercial plan costs nationwide.
A recent IQVIA study[1] found that employer- and state and local government-provided health plans, along with their 150 million beneficiaries, saw an increased cost of approximately $7.6 billion as a result of the 340B program in 2023. IQVIA’s model posits that in some states, plan sponsors and their beneficiaries are unknowingly subsidizing the 340B program due to the lack of pricing transparency in the PBM industry. According to IQVIA, the 340B program increases plan costs by displacing manufacturer rebates; in other words, employers may have fewer rebateable claims because PBM contracts generally prohibit paying rebates on claims filled at 340B pharmacies, despite employer groups paying the same pharmacy reimbursement rates for these claims.
The IQVIA study found that in 2023, 340B utilization for employer-sponsored plans varied by state, from 4% in New Jersey to 43% in Vermont. Estimated cost increase by state ranged from $13 to $152 per beneficiary, for a nationwide total increased cost of $6.6 billion for employer-sponsored plans. 340B utilization for state and local government plans was estimated to increase aggregate plan costs by $1 billion, with the beneficiary costs estimated to be 10% higher than found in the employer-sponsored plans. State and local government plan costs are expected to have higher per-beneficiary costs versus commercial plans due to greater utilization.
Other studies have quantified a higher charge for drugs at 340B program covered entities, positing that the average cost per prescription is 150% higher for patients of covered entities vs. non-covered entities. Some critics allege that hospitals may be pocketing a significant portion of these savings instead of allocating them for the benefit of the intended underserved populations.[2] As a counterpoint, The American Hospital Association (AHA) cites that “in 2020 alone, 340B hospitals provided nearly $85 billion in benefits to their communities which was a 25% increase from the prior year” and to put the 340B program size and impact in perspective, the 340B program discounts accounted for just 3% of drug manufacturer’s global revenues in 2022.[3]
An additional cost, which is more difficult to quantify, is that the revenue and profit potential from the 340B program incentivizes covered entities to consolidate into larger hospital systems, leading to higher health care service costs due to greater bargaining leverage. PhRMA reports that 340B covered entities engaged in approximately 80% of hospital acquisitions between 2016-2022.[4]
Potential 340B Program Growth
In the last several years, eight states have passed laws to prohibit drug manufacturers from applying conditions on contract pharmacy access, and in 2024 over 20 states introduced comparable bills.[5] The IQVIA study estimates that if enacted, these bills would result in an increase in 340B utilization that would additionally increase costs by $1.9 billion across all employer-sponsored plans and $273 million across all state and local government-sponsored plans.
340B program critics argue that legislation at the federal level is needed to address 340B program issues, such as the inadvertent cost displacement from covered entities to plan sponsors and the complication created by inconsistent 340B state laws. In PHSL’s opinion, the 340B program’s “hidden” costs are ultimately part of the larger issue of a lack of industry-wide transparency, which may prove more difficult to legislate and monitor. As the complex landscape of 340B program dynamics continues to unfold, PHSL is committed to advising and assisting our clients on all aspects of 340B program management and impact. Specific stakeholders impacted include the following:
- Plan sponsors should be diligent about seeking PBM bids prior to contract renewal and vet for competitiveness.
- Covered entities will want to pay particular attention to contract pharmacy arrangements and may want or need to hire an independent consulting company to audit their contract pharmacies. Covered entities may find it beneficial to expand existing in-house pharmacies to include outpatient pharmacy operations.
- Pharmaceutical manufacturers will want to understand the evolving state legislation and what is required to remain compliant.
- Pharmacies will want to understand the profitability of 340B covered entity contracts, which is paramount in this time of decreasing third-party reimbursements.
[1] “The Cost of the 340B Program to the States,” Sun, Zeng, and Martin, IQVIA, 2/4/2025. https://www.iqvia.com/locations/united-states/library/white-papers/the-cost-of-the-340b-program-to-states
[2] “New data: The 340B program is driving up costs for patients and our health care system,” Longo, PhRMA, 9/15/2022. https://phrma.org/blog/new-data-the-340b-program-is-driving-up-costs-for-patients-and-our-health-care-system
[3] “Fact Sheet: The 340B Drug Pricing Program,” AHA, January 2025. https://www.aha.org/fact-sheets/fact-sheet-340b-drug-pricing-program
[4] “New Year, same exploitation of the 34oB program,” Longo, PhRMA, 1/25/2025. https://phrma.org/blog/new-year-same-exploitation-of-the-340b-program
[5] “IQVIA: 340B program hikes costs,” Chain Drug Review, 2/17/2025.
Spring 2025 Newsletter: