A controversial program to subsidize safety-net hospitals’ drug spending “has expanded beyond its original intent,” incentivizing provider consolidation while doing little to better serve patients’ needs, Department of Health and Human Services policy heads wrote in a new report.
The 340B Drug Pricing Program was established under statute in 1992, but in recent years has been besieged on all sides as its scale ballooned to more than $100 billion of purchases in 2025. While drugmakers have sought to impose limits on hospitals’ use of the program, citing integrity concerns and expansions beyond congressional intent, providers contend the discounts are more important than ever as operating pressures like rising supply costs and policy-driven revenue cuts mount.
The administration began taking its own actions to rein in the program, including a pilot rebate program set to begin with the new year and a proposed rule that would trim 340B reimbursements from the current average sales price (ASP) plus 6% down to 33.4% below ASP.
On Thursday, an HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE) report brief (PDF) made the department’s views on 340B’s shortcomings crystal clear while offering new numbers backing up the proposed reimbursement changes that have so far been lambasted by the hospital industry.
Because of the substantial margin between discounted prices and reimbursement rates, the brief reads, “covered entities are incentivized to consolidate practices and engage in anticompetitive behavior in order to maximize their spread revenue. Consumers can be harmed by related increases in healthcare costs and clinical choices that are made to increase revenue over patient outcomes,” it reads in reference to coinsurance requirements tied to reimbursement rates as well as providers’ financial incentive to administer high-cost, high-discount drugs.
The brief’s included analysis, meanwhile, looked at utilization and spending trends among hospital outpatient department claims from 2015 through 2024. It focused on changes before and after the Centers for Medicare and Medicaid Services imposed a payment rule in 2018 that trimmed 340B drug payment to 22.5% below ASP, which the Supreme Court reversed in June 2022.
The analysis found that while overall outpatient drug payments increased almost 15% per year from 2015 through 2017, but “generally plateaued” between 2018 through 2021. Inflation-adjusted payments for the drugs then rose about 25% per year from 2021 through 2023, reflecting the court’s reversal.
The brief’s authors—analysts and economists in the office, as well as HHS Chief Economist and Chief Regulatory Officer Casey B. Mulligan and Principal Deputy Assistant Secretary for Planning and Evaluation in ASPE—suggested that the pay change proposed this summer would mark a return to the checked spending growth highlighted by the data.
“With the current reimbursement rate of ASP plus 6%, hospitals are incentivized to increase their spread by overusing high-cost drugs, seeking Medicare insured patients to increase reimbursement, and drive consolidation through take-up of child sites,” they wrote. “In addition to mitigating spread-chasing behaviors that ultimately inflate premiums, reducing the reimbursement rate would also have a direct effect on lowering out-of-pocket costs for Medicare beneficiaries, who under Medicare Part B, typically pay 20% of the [Outpatient Prospective Payment System] reimbursement amount as their coinsurance.”
CMS estimates the proposed payment rule would reduce drug payments by $4.85 billion in calendar year 2027 and save $1.15 billion for Medicare beneficiaries who receive discounted drugs and are responsible for cost-sharing.
Hospital groups in public comments all but explicitly threatened litigation to block the proposed rate cut, telling CMS its proposal is “straightforwardly unlawful” and that a survey the agency conducted in order to satisfy the courts’ prior opposition was still insufficient.
Some hospital groups, as well as independent analyses, have noted that the proposal’s budget-neutral 8.44% increase in payments for non-drug outpatient services shifts the policy from cost reduction to payout for for-profit hospitals and others that either don’t participate in 340B or are exempt from the proposed change (rural sole community hospitals and children’s hospitals, for instance). The non-drug offset also means that patients will still pay the same amount of coinsurance in aggregate, and could potentially increase their burden as the facilities being most detrimentally impacted also serve a higher portion of dually eligible patients.
Meanwhile Congress, spurred by public pressure to reduce healthcare costs, has begun proposing its own legislative fixes to 340B. Though each bill outlines a goal of preserving the program and its goal of subsidizing safety-net care, some have been more friendly to the hospital industry than others.