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.

HRSA Tightens STI Clinic 340B Rules Amid Industry Lawsuit

The Health Resources and Services Administration (HRSA) proposed sweeping documentation requirements for sexually transmitted infection (STI) clinics in the 340B Drug Pricing Program on August 7, 2025, responding to pharmaceutical industry litigation that challenges how these safety-net providers qualify for discounted medications. The proposed changes would require STI and tuberculosis (TB) grantees to provide formal grant documentation during registration and recertification, marking a significant shift from current self-attestation practices as drugmakers intensify legal challenges to the program's scope.

The timing of these changes is significant. Congenital syphilis cases reached 3,882 in 2023 - the highest level since 1994 - while pharmaceutical companies Amgen, Eli Lilly, and UCB pursue litigation arguing that many STI clinics receiving only "in-kind" support like condoms and educational materials rather than direct cash grants should be ineligible for the program. The proposed documentation requirements emerge as HRSA faces pressure to tighten program oversight while maintaining access to discounted medications for safety-net providers serving communities most affected by rising STI rates.

Legal Pressure Drives Regulatory Response

The pharmaceutical industry's legal challenge against STI clinic 340B eligibility intensified in December 2024 when Amgen, Eli Lilly, and UCB filed suit against the U.S. Department of Health & Human Services (HHS), arguing that many STI clinics improperly qualify for the program. The manufacturers contend that clinics use 340B drugs for non-STI conditions, engage in prohibited drug diversion, and that entities receiving only "in-kind" contributions like condoms and educational materials rather than cash grants lack the statutory requirement of receiving federal "funds."

The lawsuit targets the ambiguity in Section 318 of the Public Health Service Act, which authorizes STI prevention funding but lacks clear definition of qualifying support. Most Section 318 grants involve state health departments distributing in-kind resources rather than direct cash transfers. The companies specifically challenge Nevada-based Sagebrush Health Services, where discounts totaled $27 million since 2022 across the three manufacturers. They allege Sagebrush subdivisions "use 340B drugs for purposes other than STI prevention and treatment" and "engage in diversion" by reselling discounted drugs improperly.

When Chief Judge James E. Boasberg refused to dismiss the claims on August 4, 2025, the litigation gained momentum. The manufacturers seek court declarations invalidating all 340B registrations for subgrantees using discounted drugs for non-STI purposes or receiving only in-kind support, potentially eliminating hundreds of safety-net providers from the program.

This threatens numerous county health departments and Ryan White HIV/AIDS Program participants that have operated under in-kind funding arrangements for decades. Provider advocates emphasize these grants are essential for clinic operations, enabling them to leverage limited federal resources into comprehensive sexual health services through 340B savings.

Documentation Requirements Target Program Integrity

HRSA's August 7, 2025, Federal Register notice proposes fundamental changes to how STI and tuberculosis grantees demonstrate 340B eligibility, requiring supporting documentation for the first time during initial registration and recertification processes. The new requirements mandate that entities provide federal grant notices of award identifying the grantor, grant number, funding period, and recipient information. At the same time, subgrantees must submit executed written subrecipient agreements detailing names, addresses, grant numbers, and specific terms of support.

This represents a significant departure from the current system, where STI and TB grantees could register based solely on self-attestation of their grant status. HRSA estimates the documentation requirements will increase registration burden from 1.0 to 1.25 hours per entity, affecting 341 STI/TB clinic registrations annually and 6,412 entities during annual recertification cycles.

Kalvin Pugh, CANN's Director of State Policy, 340B, views the proposed changes as progress toward needed reform. "This notice of recertification is additional momentum in the calls for greater transparency and accountability needed in the 340B Drug Pricing program to ensure it serves communities as it was intended, which are often the same communities that face disproportionate rates of STIs," Pugh said. "It will be a delicate balancing act to ensure that organizations are in compliance with 340B's intent, while ensuring that access to these vital treatments is not interrupted."

Public Health Stakes During STI Crisis

The timing of these regulatory changes coincides with an unprecedented public health crisis that has reached epidemic levels in states like Mississippi. The state now has STI rates of approximately 1,200 per 100,000 residents, ranking third nationally for syphilis cases, fifth for gonorrhea, and second for chlamydia. Mississippi's congenital syphilis crisis exemplifies the national emergency, with cases spiking 1,000% from just 10 cases in 2016 to 110 cases in 2022. Nationally, congenital syphilis cases have increased by 340% from 2019 to 2023, with the Centers for infection Control and Prevention emphasizing that 90% of these cases could have been prevented with timely testing and treatment.

The epidemic disproportionately affects communities of color, with rising rates particularly concentrated among people aged 14-24. STI clinics participating in 340B use program savings to provide free or reduced-cost treatments for uninsured patients, fund wraparound services including transportation and case management, and support community outreach and testing initiatives. Dr. Kayla Stover, professor and vice chair of pharmacy practice at The University of Mississippi, highlighted syphilis's particularly insidious nature, noting that "each of those stages has symptoms that could be mistaken for something else," earning it the designation as "The Great Imitator."

Deja Abdul-Haqq, director of the nonprofit My Brother's Keeper, pointed to systemic barriers in accessing prevention tools, observing that "the information regarding the solution to these issues usually gets to the Black communities late." She emphasized the potential of newer prevention medications like Doxy-PEP, noting that congenital syphilis cases could be dramatically reduced if "all of these mothers that were exposed to syphilis during sex would have gotten Doxy-PEP within 72 hours."

The potential loss of 340B eligibility for STI clinics would eliminate crucial cost savings precisely when public health officials are combating rising syphilis rates among pregnant people and working to prevent a resurgence of HIV transmission through expanded PrEP access programs.

Balancing Oversight and Access

HRSA's proposed documentation requirements represent a measured response to legitimate program integrity concerns while attempting to preserve essential safety-net access during a critical public health crisis. The enhanced oversight measures address years of Government Accountability Office (GAO) criticism and pharmaceutical industry pressure, acknowledging that some level of increased administrative burden is justified to ensure program resources reach genuinely eligible entities.

However, the broader legal challenges to STI clinic participation could force closures of safety-net providers precisely when public health needs demand expanded access to prevention and treatment services. Office of Pharmacy Affairs (OPA) Director Chantelle Britton acknowledged the ongoing uncertainty in July 2025, telling conference attendees to "stay tuned as these cases work through the courts."

The controversy over in-kind versus cash grant funding exposes fundamental ambiguities in the 340B statute that courts alone cannot resolve. The public comment period extends through October 6, 2025, giving stakeholders an opportunity to weigh in on how these changes will affect program operations and patient access. Whether the 340B program can continue stretching scarce federal resources while ensuring pharmaceutical manufacturers provide required discounts to genuine safety-net providers will depend on how policymakers resolve these competing demands during a worsening STI epidemic affecting the communities these clinics serve.

The Necessity of Patient-Centered 340B Reform

On the issue of any health policy discussion, many, powerful stakeholders are inserting their priorities and interests, working to be the “most favored” entity group in any final outcome. For the Affordable Care Act (ACA), some fights were seen between providers that asserted some feigned “moral” objection to any given type of care, others included insurance companies fighting to get a bigger piece of the subsidy pie or establishing themselves as “managed care organizations” to take over management of Medicaid programs. To this day, Judge Reed O’Connor has ruled on the ACA more than any other federal judge outside of the Supreme Court. But repeatedly, despite the political stump speeches and the claims of high ethical priorities from other stakeholders, actual patients do not tend to dominate in terms of who benefits most when health policies are enacted or when reforms are needed. The 340B Drug Discount Program is no different. In fact, serving the intent of the program is at the center of the patient-centered reform movement.

Often these fights happen without sufficient focus on how they impact patients. Providers, particularly provider administrators, and payers (public and private) are well-funded enough to out-shout patients and then claim some paternalistic insight as to what will “really” benefit patients. Having someone speak for us is not where we end up being the “winning” stakeholder. It’s part of why patient self-determination is at the core of The Denver Principles. And, again, 340B is no different in this regard.

Bad actors in this space continue to tout prioritizing patients while doing…not that.

For a recent example in a long line of examples, Allina Health System was routinely denying care to patients, despite being designated a “non-profit” health organization. Indeed, in that specific health system, not only were patients denied care for having a balance or struggling with paying medical bills, as evidenced by the system’s less than half of one percent charity care rate indicates patients weren’t being made aware of the system’s own financial assistance policy even when facing collections.

Collections…

Hospital-related collections are the driving factor for health-related GoFundMe and other, similar crowd sourcing, mutual aid sites. A pregnancy complication. A non-life-threatening injury, like a broken arm or a potentially terminal one, like a cancer diagnosis. Regardless of the particular causes, patients needing care and not being able to afford it is the throne in the side of millions of Americans. Medical debt touches more families than even student debt, with one estimate showing at least 11 million owing more than $2,000 in medical debt and at least 3 million owing more than $10,000. And unlike student loans, medical care is an absolute necessity of life.

We need to be clear, some 75% of adults with medical debt owe that debt to hospitals. It isn’t “mom and pop” providers (though hospitals are buying them out at an alarming rate) or your local community clinic. The vast majority of “medical debt” is really just hospital debt. And that medical debt – it’s not evenly distributed. An Urban Institute analysis from 2022 found Black Americans experienced medical debt at a higher rate and higher amount than their white peers. But looking at Bon Secours, an entity that took these vital dollars from Black communities and reinvested them in wealthier, whiter communities, we can’t be terribly surprised to see this data on debt and predatory practices are tinged with racist impact.

We’ll gently remind our readers that equity-minded persons and entities prioritize “impact over intent” is a very real thing.

These things are so sufficiently related that the Los Angeles County Department of Public Health issued a report suggesting the most efficient way to handle the medical debt crisis was for hospitals and mega-providers to pony up and actually meet their charitable service obligations. Meeting those charitable missions thereby reduces medical debt, addresses at least one aspect driving health disparities (financial toxicity), and ensures those program revenues are being geographically oriented to serve the most medically marginalized populations in this country. That includes incentives to address hospital and pharmacy deserts, whereby the experience of patient communities has been pilfering followed by abandonment.

Here’s a simple fact: reforming 340B to better meet the intent of the program does not pose a threat to those entities already meaningfully serving the intent of the program – serving patient needs.