The 340B Drug Pricing Program

Congress created the 340B Drug Pricing Program in 1992 to shield safety-net hospitals from rising drug prices and help them care for low-income patients and communities.

The program enables eligible hospitals and certain other covered entities to purchase outpatient drugs at a discount from pharmaceutical manufacturers, thereby helping them to stretch “scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” For over thirty years, the 340B program has allowed safety-net hospitals, many of which are teaching hospitals, to maximize their limited financial resources and better care for patients and communities, all at no cost to the taxpayer.

Section 340B of the Public Health Service Act requires pharmaceutical manufacturers to provide discounts to eligible safety-net providers in exchange for having their drugs covered under Medicaid and Medicare Part B. Safety-net providers that are eligible for these discounts are referred to as “covered entities,” and include six types of hospitals: children’s hospitals, critical access hospitals, disproportionate share hospitals, freestanding cancer hospitals, rural referral centers, and sole community hospitals.

340B covered entities have access to discounted pricing on covered outpatient drugs, which helps them to achieve savings. 340B hospitals use their savings to preserve and expand access to care for the patients and communities they serve. AAMC-member teaching hospitals reinvest their savings to increase access to lifesaving health care services, address the social determinants of health, support critical community health programs, and advance health equity. Learn more about how AAMC-member institutions use their savings to benefit low-income and historically under-resourced patients and communities (PDF).

• 340B is a small program with big benefits. While the program accounts for less than 5% of drug companies’ global revenues (PDF), it plays an outsized role in our nation’s health care safety net, helping to maintain and expand access to care for millions of low-income patients.
• 340B costs nothing to the taxpayer. Because 340B savings are provided directly through pharmaceutical manufacturers, the 340B program operates at no cost to the taxpayer.
• 340B supports safety-net hospitals through financial headwinds. From historic workforce shortages to inflationary pressures, teaching hospitals face serious financial challenges. The 340B program supports AAMC-members institutions’ continued ability to uphold their missions and care for low-income and historically under-resourced patients and communities.

Policymakers should protect and strengthen the 340B program so that safety-net hospitals, many of them teaching hospitals, can continue to care for under-resourced patients and communities.

AAMC Joins Amicus Briefs Supporting HHS Enforcement of 340B Statute Allowing Use of Community Pharmacies

Background: In 2010, HRSA issued guidance (PDF) allowing 340B - covered entities to dispense discounted drugs through contract pharmacy arrangements. The purpose of this guidance was to allow covered entities to “more effectively utilize the 340B program and create wider patient access by having more inclusive arrangements in their communities.” Ten years later, certain drug manufacturers attempted to restrict covered entities’ use of contract pharmacy arrangements and impose additional conditions on covered entities’ use of such arrangements.

In December 2020, the AAMC and other organizations representing hospitals and hospital pharmacists filed a lawsuit against the Department of Health and Human Services (HHS) for its failure to enforce program requirements and to require that drug manufacturers honor discounts on drugs distributed through contract pharmacies. The HHS General Counsel subsequently issued an advisory opinion affirming that pharmaceutical manufacturers are obligated to deliver covered outpatient drugs to contract pharmacies and charge covered entities no more than the 340B ceiling price for those drugs. The AAMC and others have urged the HHS to impose civil monetary penalties on pharmaceutical manufacturers that are found to be in violation of this requirement.

In May 2021, HRSA sent letters to six drug manufacturers that have withheld 340B discounts on eligible drugs purchased by contract pharmacies informing them that they were in violation of 340B statute. The letter noted that HRSA may charge a penalty of up to $5,000 for each instance of overcharging. In response, several of these manufacturers filed a lawsuit against the HHS to prevent the order from taking effect. Although the December 2020 lawsuit was dismissed, the AAMC and the other hospital associations have continued to participate as amici in cases filed against the HHS by drug manufacturers.

Latest Updates: The AAMC and four other hospital associations submitted four amicus briefs in support of the HHS enforcement actions against pharmaceutical companies that withhold 340B discounts by restricting covered entities’ use of community pharmacy arrangements:

1. Eli Lilly and Co. v. Becerra (PDF, filed in the U.S. Court of Appeals for the 7th Circuit).
2. AstraZeneca Pharmaceuticals LP v. HHS ( PDF, filed in the U.S. Court of Appeals for the 3rd Circuit).
3. Novartis Pharmaceuticals Corp. v. Johnson; United Therapeutic Corp. v. Johnson (PDF, filed in the U.S. Court of Appeals for the District of Columbia Circuit).
4. Sanofi-Aventis U.S. LLC v. HHS; Novo Nordisk Inc. v. HHS (PDF, filed in the U.S. Court of Appeals for the 3rd Circuit).
   July 1, 2022