CBO Data Proves Hospital Systems Exploit 340B Drug Program for Billions

The Congressional Budget Office has delivered a damning federal validation of what CANN and other patient advocates have been arguing for years: the 340B Drug Pricing Program has become a $44 billion hospital exploitation scheme. The September 9 report confirms that large health systems are systematically gaming the program to capture massive profits while reducing charity care and consolidating away from the vulnerable communities they claim to serve.

The CBO's findings demolish the hospital industry's primary defense of 340B expansion: that growth reflects rising drug costs rather than system manipulation. The program expanded 565% from $6.6 billion in 2010 to $43.9 billion in 2021, with federal economists confirming that two-thirds of this growth stems from covered entity and third-party behaviors, not pharmaceutical price inflation. As CANN CEO Jen Laws noted, "It is a HELL of a thing that CBO found program growth is driven more by how hospitals and middlemen game the system than by the 'rising drug costs' hospitals always blame."

The implications extend far beyond 340B reform to fundamental questions about healthcare market structure and the accountability of tax-exempt institutions capturing billions in public benefits as “profit” while abandoning charity care and drowning patients in medical debt in the process.

How Hospitals Weaponize 340B for Anti-Competitive Consolidation

The CBO analysis reveals the precise mechanisms through which hospitals transform 340B discounts into acquisition capital. Hospital outpatient departments and satellite clinics control 87% of total 340B spending, providing massive cash flows that traditional community providers cannot match when competing for physician practices or specialty services.

Cancer drugs represent 41% of all 340B spending at approximately $18 billion annually, creating particularly lucrative acquisition targets. When hospitals acquire independent oncology practices, they can immediately capture 340B discounts on existing patient treatments while expanding their geographic footprint. This explains why 70.1% of buyer hospitals in mergers and acquisitions from 2016-2024 were 340B covered entities, compared to just 59.9% of hospitals nationally.

The regulatory framework enables this exploitation through geographic eligibility rules that allow hospitals to extend 340B benefits to satellite facilities serving affluent populations, provided they maintain connection to a qualifying parent institution. Off-site outpatient clinics participating in 340B exploded from 6,100 in 2013 to 27,700 by 2021, with many located in wealthy suburbs far from the low-income communities that justify program participation.

Contract pharmacy arrangements provide additional consolidation leverage, growing 2,400% from approximately 1,000 locations in 2010 to 32,069 by 2025. Hospitals negotiate exclusive arrangements with pharmacy chains, effectively controlling medication access across entire markets while extracting profits from every prescription filled by their "340B-eligible" patients, regardless of the patient's income or insurance status.

Laws captured the patient harm precisely: "hospital systems are exploiting cancer patients to drive revenue that would otherwise be considered 'profit' and further anti-competitive behaviors to the detriment of patient access." The mechanism creates a feedback loop where 340B profits fund acquisitions that eliminate competition, enabling hospitals to raise prices and reduce services while maintaining program eligibility despite providing declining levels of actual charity care.

The Charity Care Shell Game Exposes Regulatory Failure

Hospital claims about using 340B savings to support vulnerable populations collapse under scrutiny of actual charity care data. The Government Accountability Office's 2018 report documented that 340B hospitals experienced "steady decline in both charity care and uncompensated care" during the period of explosive program growth, revealing a fundamental disconnect between rhetoric and practice.

The regulatory structure enables this deception through definitional ambiguity. Hospitals routinely conflate charity care, which involves writing off debt with no patient obligation, with uncompensated care, which includes bad debt that hospitals aggressively collect through lawsuits and wage garnishments. As CANN has emphasized, "charity care is care provided at no cost or debt to the patient. Moving forward, we must not confuse, conflate, or combine generalized uncompensated care with charity care."

Johns Hopkins Hospital demonstrates how prestigious 340B institutions exploit this definitional confusion. The hospital filed more than 2,400 lawsuits against patients since 2009, with cases increasing from 20 in 2009 to 535 in 2016. Despite obtaining wage garnishments in more than 400 cases for a median amount of only $1,438, Johns Hopkins simultaneously received $36 million more in state charity care support than it actually provided.

This pattern reflects systematic regulatory failure rather than isolated incidents. A 2018 GAO survey found that 57% of 340B hospitals do not provide discounted drug prices to low-income, uninsured people at their contract pharmacies. The Health Resources and Services Administration (HRSA) lacks enforcement mechanisms to ensure program benefits reach intended populations, creating an accountability vacuum that hospitals exploit with impunity.

The policy implications prove profound. Medical debt grew from $81 billion in 2016 to $140 billion in 2019 during massive 340B expansion, precisely when enhanced hospital resources should have reduced financial barriers to care. A Pioneer Institute study found Massachusetts General Hospital's charity care dropped from 3.8% to 1% of patient revenue between 2013 and 2020, even as 340B profits increased substantially.

State Legislation Creates Compliance Theater That Benefits Hospitals

The proliferation of conflicting state 340B laws represents a masterclass in regulatory capture. Seven states enacted contract pharmacy protection laws in 2025 alone, joining eight states with similar 2024 legislation. These laws create administrative complexity that large hospital systems navigate easily while imposing crushing compliance burdens on community health centers and rural clinics.

The policy design reveals sophisticated lobbying influence. Hospital-backed legislation focuses on procedural requirements and reporting obligations that sound patient-protective but actually entrench existing power structures. Meanwhile, substantive reforms addressing charity care requirements, geographic restrictions, or patient benefit mandates remain absent from most state proposals.

One rural federally qualified health center reported 60% erosion in 340B savings resulting in a loss of $531,720 per year, forcing closure of oral health centers serving low-income patients. Large hospital systems with dedicated compliance departments experience no similar hardships, instead benefiting from reduced competition as smaller providers struggle with regulatory complexity.

Federal courts have begun recognizing this manipulation. West Virginia's S.B. 325 was blocked in December 2024when Judge Thomas E. Johnston ruled it "stands as an obstacle to achieving the federal objective of preventing fraud in the 340B Program." The emerging circuit split creates additional uncertainty that benefits well-resourced hospitals while harming smaller safety-net providers unable to navigate conflicting legal requirements.

Even supportive officials recognize the limitations. Utah Governor Spencer Cox allowed his state's legislation to become law without signature, explicitly stating the bill "does not go far enough to ensure cost savings experienced by 340B covered entities are passed onto patients." This acknowledgment exposes the fundamental inadequacy of state-level approaches to addressing federal program failures.

ACCESS Act Addresses Root Causes, Not Just Symptoms

The recently reintroduced 340B ACCESS Act represents the first comprehensive federal response to CBO-confirmed abuses. As CANN stated in its press release, "The 340B ACCESS Act is an excellent starting place to reform the 340B program. The legislation, in deep alignment with currently proposed federal rules, puts patients in the driver's seat for the first time since the program was established in 1992."

The legislation addresses structural incentives that enable hospital exploitation through hospital transparency requirements and administrative fee limits that target the accountability vacuum in current regulations. The bill's provisions for "reducing patient out-of-pocket costs through sliding fee scale drug discounts" directly address the patient access barriers created by current hospital practices.

Crucially, the ACCESS Act would "ensure PBMs appropriately reimburse on 340B drugs" and limit "third-party administrator fees," addressing the middleman extraction that enables massive profit-taking from vulnerable patient populations. The legislation also addresses gaps in the Ryan White Program's 318 grants that created the issues highlighted in the Sagebrush lawsuit, where manufacturers challenge STI clinic eligibility for 340B participation.

The legislation is far from perfect, including a six-month limitation on telehealth provisions that may harm people seeking outpatient methadone services and legitimate PrEP clinics. However, as CANN's Kalvin Pugh noted, "The 340B ACCESS Act is a critical start to putting patient need over hospital greed and finally bringing the program back to its original intent”

Federal Action Required to Restore Program Integrity

The CBO report eliminates any remaining doubt about 340B's transformation from safety-net support to hospital profit extraction scheme. The data confirms what patient advocates have documented: hospitals systematically reduce charity care while using 340B revenue to finance anti-competitive consolidation that harms the communities supposedly being served.

State legislative responses have failed because they address symptoms rather than causes. The ACCESS Act offers comprehensive federal reform that could restore program integrity by ensuring 340B savings benefit patients rather than hospital shareholders. Without such intervention, the program will continue enriching hospital systems while people living with HIV lose access to Ryan White clinics, cancer patients face treatment delays due to provider consolidation, and rural communities watch their last remaining healthcare options disappear despite billions in program funding ostensibly flowing to support them.

The choice facing policymakers is clear: prioritize patient need over hospital greed through meaningful federal reform, or continue enabling a system that betrays every principle underlying the 340B program's original mission.