At $43.9 billion per year (and growing), the 340B Drug Discount Program is now the second largest federal prescription drug program after Medicare.² The 340B program, meant to be an incidental “fix” to a Medicaid rebate issue, now is larger than the entire Medicaid rebate program.² 340B will likely be the largest federal drug program by 2026.⁶

Prior to 2004, hospitals represented less than 10% of covered entity sites (including child sites); by 2020 they made up just over 60% of covered entity sites.⁷

Hospital systems are using 'arbitrage' for financial gain by acquiring outpatient clinics that provide drug-intensive healthcare services, like cancer treatment, and converting to 340B.

This financial-growth strategy gives them access to low 340B pricing on medicines, even as government and private insurers reimburse these covered entities for those medicines at different rates.⁷ Exploiting this arbitrage by marking up drug costs, hospitals (and hospital-owned clinics) pocket the resulting financial windfall, with little transparency into how these gains are used.

As of July 2022, nearly 32,000 pharmacy locations were contract pharmacies–more than 50% of the entire U.S. pharmacy industry.^{5, 9}

PBMs’ and retail pharmacy chains’ size and power accelerated program growth, extracted the benefit of 340B discounts from the health system and enabled them to pocket funds meant to help support certain safety-net hospitals and covered entities.³ In fact, 340B profits for providers and their contract pharmacies have increased twelvefold since 2013.¹⁰

Hospitals and covered entities are under no obligation to disclose how their financial gains from 340B discounts are being used and whether patients are benefiting from the discounts. Right now, $44 billion in healthcare resources are funneled into what’s essentially a black box of financial gamesmanship and a windfall for large hospitals, for-profit retail pharmacy chains and PBMs.¹

Lack of transparency also results in duplicate discounts and diversion, which are specifically prohibited by the 340B statute.¹¹

Janssen supports the original intent of the 340B program. Congress created a balanced program designed to allow manufacturers to restore the discounts that they had traditionally provided to safety net providers, before enactment of the Medicaid Drug Rebate Program, while protecting against duplicate discounts and diversion.

As the program has grown exponentially in recent years, we believe steps must be taken to ensure that duplicate discounts and diversion are limited. More broadly, we think that reform of the program should require that the benefit of discounts be made directly available to patients at the pharmacy counter. We will continue to advocate for a 340B program that truly benefits patients and prevents for-profit intermediaries from seizing discounts meant for patients and that reduces resources available for investments into future innovation.

A lack of transparency in the program limits stakeholders’ ability to monitor the program for diversion and duplicate discounts, which are illegal. We believe that this greater transparency will make the program more sustainable.