HRSA's 340B Pilot Tests What Already Works While Ignoring What Doesn't
On July 31, 2025, the Health Resources and Services Administration (HRSA) announced a voluntary 340B Rebate Model Pilot Program. Starting January 1, 2026, the pilot could apply to 10 drugs subject to Medicare price negotiation, allowing manufacturers to provide post-purchase rebates instead of upfront discounts. To be fair, in terms of actual financial impact for covered entities this may end up being a distinction without a difference because of the draft guidance offered by the Centers for Medicare and Medicaid Services (CMS) in June 2025 regarding “retrospective” payment processes. While HRSA Administrator Tom Engels framed this as addressing "concerns we have received from both covered entities and manufacturers," the pilot creates statutory violations that threaten program integrity and neglects the fact that the model has already been proven in AIDS Drug Assistance Programs (ADAPs).
The timing and design of this pilot raise fundamental questions about HRSA's priorities. Instead of addressing well-documented concerns regarding 340B program exploitation by large hospital systems at the expense of market competition and patient benefit, the agency is testing a model that already functions successfully elsewhere, while potentially accommodating institutional resistance to transparency and accountability.
The ADAP Gold Standard: Proof Already Exists
The most compelling argument against this pilot lies in its redundancy. ADAPs, administered in every U.S. state and territory, have operated successfully under rebate models for nearly the entire history of the 340B program. These programs demonstrate that rebate mechanisms can be effective, transparent, and fully compliant with statutory protections while enhancing program integrity and protecting patient access.
ADAPs represent the gold standard of 340B implementation, proving that rebate systems can safeguard against duplicate discounts and maintain access without upfront pricing. These programs show that prospective discounts are not the only viable approach to ensuring people living with HIV and other patients, especially those with chronic, complex, or disabling health conditions, receive necessary medications at affordable prices.
The success of ADAP rebate models over decades makes HRSA's pilot approach particularly puzzling and, frankly, wasteful. Rather than conducting an unnecessary pilot, the agency could focus resources on codifying a permanent rebate-based structure informed by ADAP experience for medications subject to the 340B program. The evidence base for rebate models already exists and has been tested at scale across every state and territory.
Voluntary Participation: Ensuring Failure
The pilot's voluntary nature for covered entities virtually guarantees inadequate data collection. Given widespread complaints from covered entities about rebate models, maintaining current distribution mechanisms while making rebate engagement optional will likely lead to minimal participation, as covered entities object to a rebate model. This voluntary structure benefits hospital systems' interests while undermining the pilot's evaluative potential.
Without mandatory participation, particularly among large covered entities serving substantial patient populations, the pilot cannot correctly evaluate the rebate model's impact on administrative burden and processes. The voluntary design ensures the pilot will be unable to test the viability of rebate models as scalable solutions, effectively wasting resources while providing political cover for maintaining the status quo - all while not delivering data on exactly “how” patients are served.
As ever, the casual observer on this issue cannot be surprised that the model lacks any requirement for covered entities to disclose details on 340B revenue use, completely obscuring the necessary distinctions between patient interests and covered entity interests served by the program.
Hospital Resistance: Cash Flow or Compliance?
The opposition to rebate models from large hospital systems reveals more about their operational priorities than legitimate patient access concerns. 340B Health, a special interest group representing safety-net hospitals, claims that rebate models would force disproportionate share hospitals to front an average of more than $72 million while waiting for rebates, "straining their ability to deliver critical care services." It’s worth noting that the proposed rebate model requires manufacturers to fulfill rebate claims within 10 days for medications subject to Medicare drug price negotiation and, under the draft guidance offered by CMS in June, these same manufacturers would be allowed a retrospective payment window of 14 days under Medicare claims. There is not a world of difference here, despite the clamoring of objectors.
Additionally, the framing from certain covered entities obscures the reality that these entities operate with substantial revenues, often far exceeding the entire federal awards provided to all state ADAPs combined. The concerns about transitioning from discount to rebate reflect, at most, a change in cash flow timing, not in total financial benefit.
More fundamentally, legitimate covered entities should have no substantive concerns with rebate models. If covered entities are not exploiting the program, the same dollars are simply moving later in the claims process - not being withheld or denied arbitrarily. Hospital systems arguing that oversight, transparency, or delayed benefit somehow threatens access are effectively admitting that their financial benefit may not align with actual patient care delivery or statutory obligations that prohibit duplicate discounts.
The intensity of hospital opposition raises important questions about program integrity. The pushback from certain covered entities, in the absence of evidence that legitimate claims would be denied, suggests potential concerns about whether current claims could withstand scrutiny under heightened transparency requirements.
Statutory Violations by Design
The pilot's most egregious flaw lies in its explicit violation of federal law. While applying only to Medicare-negotiated drugs, the pilot excludes Medicaid duplicate discount protections under the rebates section. This represents a fundamental violation of the 340B statute, which requires an explicit prohibition on duplicate discounts across other programs.
This design flaw is not merely technical. Preventing manufacturers from identifying duplicate Medicaid rebates not only conflicts with the law but invites large-scale exploitation of federal and state resources - the very issue that has generated many existing concerns about the 340B program. The pilot essentially directs regulatory loopholes that undermine program integrity rather than strengthening it.
The exclusion of Medicaid duplicate discount prevention represents a concerning (and quite possibly illegal) accommodation to covered entities that should welcome, rather than resist, measures preventing duplicate discounts.
Accommodation Over Accountability
The pilot's design reveals a troubling pattern of accommodating institutional resistance rather than enforcing program integrity. Hospital systems have consistently opposed measures that increase transparency or accountability in 340B operations. The American Hospital Association expressed concern that the pilot "authorizes a significant departure from how the 340B program has successfully operated for decades and sets a dangerous precedent." But duplicating the proven model offered by ADAPs is certainly not a “departure”, rather it’s an explicit effort to return the program to its original intent using best practices already known to the ecosystem.
However, the 340B program's current operation has generated widespread concerns about exploitation by large hospital systems that capture savings without demonstrable patient benefit. The program was designed to help safety-net providers stretch scarce resources to serve vulnerable populations, not to generate revenue streams for large hospital systems.
Covered entities that operate in good faith should welcome clarity, transparency, and compliance for the benefit of the patients they serve. Those who object to the mere possibility of statutory enforcement only reinforce concerns about potential misuse of program benefits intended for vulnerable patients.
It’s Time For Comprehensive Reform
Rather than conducting an unnecessary pilot that accommodates hospital resistance, HRSA should focus on building a permanent, comprehensive rebate framework that reflects real-world success, centers patient access and affordability, and enforces statutory accountability across all payers.
This framework should draw from the ADAP experience, which has demonstrated that rebate models can and do work effectively when implemented adequately with statutory clarity and with the explicit purpose and result of meeting patient needs. The pilot's current design - voluntary participation, statutory violations, and accommodation of institutional resistance - suggests HRSA is willing to waste valuable resources and time rather than accept and adopt the obvious answer before it.
While this is a good step, in the right direction, it is simply not enough to deliver on the promises of the program’s intent - promises patients deserve to see fulfilled.
Comprehensive reform remains essential. Such reforms should focus on improving patient access while enforcing the transparency and accountability that large hospital systems have consistently resisted. When institutional behavior persistently resists oversight designed to protect vulnerable populations, the solution is increased accountability, not accommodation through poorly designed policies that weaken statutory protections.
How the IRA's Price Controls Could Backfire on Patients
For millions of Americans, health insurance offers a false promise. Despite paying premiums, deductibles, and copays, many still find themselves struggling to afford essential healthcare. In fact, a recent survey found that a staggering 43% of adults with employer-sponsored insurance—often considered the gold standard of coverage—find healthcare difficult to afford. This affordability crisis is poised to worsen, as the latest National Health Expenditure projections from the Centers for Medicare & Medicaid Services (CMS) reveal a troubling trend: while government spending on prescription drugs is projected to decrease, patient out-of-pocket costs are expected to rise. The projections forecast an 8.9% increase in hospital expenditures, coupled with a 1.4% decrease in retail prescription drug spending. This shift, driven in part by the Inflation Reduction Act's (IRA) price control provisions, threatens to undermine the law's intended goal of affordable healthcare and exacerbate existing health inequities. While the IRA aims to lower drug costs, its focus on price controls, rather than comprehensive patient protection mechanisms, is creating misaligned incentives that could backfire on the very people it aims to help.
The IRA's Price Controls: A Double-Edged Sword
The IRA's approach to lowering drug costs centers on empowering the government to directly negotiate prices with pharmaceutical companies. This change tackles a provision in the Medicare Part D program known as the "non-interference" clause, which previously prevented the government from directly negotiating drug prices. As a Kaiser Family Foundation (KFF) issue brief explains, "The Part D non-interference clause has been a longstanding target for some policymakers because it has limited the ability of the federal government to leverage lower prices, particularly for high-priced drugs without competitors." While this "non-interference" clause has long been a target for reform, the IRA's implementation creates a ripple effect that extends beyond simply lowering the sticker price of medications. The Congressional Budget Office (CBO) estimates that these drug pricing provisions will reduce the federal deficit by $237 billion over 10 years, suggesting a significant shift in spending away from the government. However, this shift comes at a cost. The IRA's emphasis on price controls, rather than comprehensive patient protection mechanisms, disrupts existing rebate structures that have been crucial in expanding access to medications, particularly for low-income patients and those with chronic conditions.
Programs like 340B and Medicaid rely on a system of manufacturer rebates to make medications more affordable. In essence, drug companies provide rebates to these programs in exchange for having their drugs included on formularies and made available to a large pool of patients. These rebates help offset the cost of medications, allowing safety-net providers to stretch their limited resources and serve more patients. However, the IRA's price controls could disrupt this delicate balance. By directly negotiating lower prices with manufacturers, the government might inadvertently reduce the incentive for companies to offer substantial rebates to programs like 340B and Medicaid. This could lead to higher costs for these programs and ultimately limit access to medications for vulnerable populations.
This means that programs like 340B and Medicaid, which rely on manufacturer rebates to offset costs and provide affordable medications to vulnerable populations, could be significantly undermined by the IRA's price control measures.
Further complicating the issue is the potential for pharmaceutical companies to adapt to the IRA's price controls by strategically setting higher launch prices for new drugs. This tactic allows them to recoup potential losses from negotiated prices in the future, effectively shifting the cost burden onto other payers, including patients. The CBO projects that this trend of higher launch prices would disproportionately impact Medicaid spending, placing a greater strain on a program already facing significant enrollment fluctuations and budgetary pressures. The KFF brief warns that, "Drug manufacturers may respond to the inflation rebates by increasing launch prices for drugs that come to market in the future." This means that while the IRA might appear to lower drug costs in the short term, it could inadvertently fuel a long-term trend of rising prices for new medications, ultimately impacting patient affordability and access to innovative therapies.
Hospitals: Benefiting from the System While Patients Pay the Price
The CMS projections forecast an alarming 8.9% increase in hospital expenditures, raising questions about the drivers of this unsustainable growth. A closer look reveals a troubling connection between this trend and the 340B Drug Pricing Program, a federal initiative designed to help safety-net hospitals provide affordable medications to low-income patients. The CBO's analysis of 340B spending reveals an explosive 19% average annual growth from 2010 to 2021, significantly outpacing overall healthcare spending growth. This dramatic increase is largely attributed to hospitals, particularly those specializing in oncology, which are increasingly purchasing high-priced specialty drugs through the program. As the CBO presentation states, "340B facilities benefit from the program because the difference between the acquisition cost and the amount they are paid (often called the 'spread') is larger for drugs acquired through the 340B program." This suggests that hospitals are capitalizing on the 340B program's discounts to acquire expensive medications, potentially driving up their overall spending. But are these savings being passed on to patients? Evidence suggests otherwise.
This suspicion of hospitals leveraging the 340B program for profit is further reinforced by a UC Berkeley School of Public Health study which found that hospitals are charging insurers exorbitant markups for infused specialty drugs, many of which are likely acquired through 340B. The study reveals that hospitals eligible for 340B discounts charge insurers a staggering 300% more for these drugs than their acquisition costs, effectively pocketing a substantial profit margin. This practice raises serious concerns about whether the 340B program, designed to help vulnerable patients access affordable medications, is instead being exploited by hospitals to boost their bottom line. As Christopher Whaley, a co-author of the UC Berkeley study, aptly points out, "It is ironic that some hospitals earn more from administering drugs than do drug firms for developing and manufacturing those drugs. At least drug firms invest part of their revenues in innovation; hospitals invest nothing." This highlights a perverse incentive structure where hospitals benefit financially from a program intended to help patients, while those same patients are often left facing inflated prices for essential medications and crippling medical debt.
The Affordability Crisis: A Broken Promise for Patients
This concerning trend of rising healthcare costs and shifting burdens is not limited to those reliant on safety-net programs. The Commonwealth Fund's 2023 Health Care Affordability Survey paints a bleak picture of the widespread affordability crisis facing Americans across all insurance types. The survey found that 43% of adults with employer coverage find healthcare difficult to afford, shattering the illusion that employer-sponsored insurance guarantees financial protection. These findings challenge the fundamental assumption that health insurance in the United States equates to affordable access to care. As the survey report states, "While having health insurance is always better than not having it, the survey findings challenge the implicit assumption that health insurance in the United States buys affordable access to care." This sentiment is echoed by millions of Americans who, despite having insurance, are forced to make difficult choices between their health and their financial well-being.
Even the IRA's lauded out-of-pocket (OOP) cap on Part D drug costs, while offering some relief, fails to address the root causes of this affordability crisis. An analysis by Avalere reveals that even with the cap in place, a significant number of Medicare beneficiaries will continue to face high healthcare costs, particularly those with lower incomes or specific health conditions. The analysis projects that 182,000 beneficiaries will spend over 10% of their income on Part D drug costs in 2025, despite the OOP cap. This sobering statistic underscores the limitations of focusing solely on OOP costs without addressing the underlying drivers of high drug prices and healthcare spending. As the Avalere analysis cautions, "High OOP costs are expected to result in many enrollees still facing affordability challenges in 2025." The findings from both the Avalere analysis and the Commonwealth Fund survey highlight a critical gap in the IRA's approach: it fails to adequately protect the most vulnerable patients from the financial burden of healthcare.
A Call for Patient-Centered Solutions
The CMS projections, alongside independent analyses of the pharmaceutical market and patient affordability, paint a clear picture: the current trajectory of US healthcare spending is unsustainable and inequitable. The IRA's price control provisions, while well-intentioned, risk exacerbating the affordability crisis by disrupting existing rebate structures, incentivizing higher launch prices for new drugs, and shifting costs onto patients. This shift is further compounded by unchecked hospital spending, particularly on high-priced specialty medications acquired through the 340B program. The result is a system where hospitals and pharmaceutical companies benefit, while patients—especially those with lower incomes or chronic conditions—are left struggling to afford essential care.
To be sure, the IRA includes provisions aimed at directly helping patients, such as the out-of-pocket cap on Part D drug costs and the expansion of subsidies for marketplace plans. These are positive steps towards easing the financial burden of healthcare for many Americans. However, the law's broader focus on price controls, without sufficient attention to patient protection mechanisms and the potential for unintended consequences, threatens to undermine these gains and create new challenges for those who rely on safety-net programs like 340B and Medicaid.
It's time for a fundamental shift in our approach to healthcare reform. Policymakers must move beyond a narrow focus on price controls and embrace a patient-centered approach that prioritizes affordability, access, and equity. This requires a multi-pronged strategy that includes:
Reassessing the IRA's reliance on price controls: Instead of simply dictating prices, policymakers should explore alternative approaches that strengthen patient protections, preserve rebate structures that support broader access, and address the potential for cost-shifting onto patients.
Tackling hospital pricing practices: Increased transparency and accountability in hospital pricing, particularly for inpatient medications, is necessary to ensure that safety-net programs like 340B are truly benefiting patients and not being exploited for profit.
Investing in alternative care models: Promoting value-based care and investing in primary and preventive care can reduce reliance on expensive hospital stays, improve health outcomes, and make healthcare more affordable for everyone.
The promise of affordable, accessible healthcare for all Americans remains unfulfilled. We must demand a healthcare system that puts patients first, not profits. Only then can we ensure that everyone has the opportunity to live a healthy and fulfilling life, regardless of their income or health status.
Equity in Access: Hospital Price Transparency, Medical Debt, and 340B
As part of Community Access National Network’s (CANN) 2021 blog series, A Patient’s Guide to 340B, we published a piece detailing how the decline in charity care impacts patients after seeing a provider with a particular focus on practices around debt collection and medical debt. Since then, the Biden Administration issued a directive through federal agencies for credit reporting agencies to stop reporting medical debt on consumer credit reports. The idea was an effort to reduce the impact of medical debt in other areas of patients’ lives, like securing housing or employment. Emergencies and even routine care, say a pregnancy, can after all affect a person’s financial status for years after the fact and with the ballooning nature of medical debt affecting millions of Americans, something needed to be done to better protect patients. The Affordable Care Act (ACA), in general, sought to address the financial concerns of patients, particularly with regard to avoiding necessary care for fear of the financial repercussions. These moves by President Obama’s Democratic successor were relatively predictable.
The three largest credit reporting companies, Experian, Equifax, and TransUnion, agreed in 2022 to implement these rules…sorta.
The details of those agreements and how hospitals navigate “bad debt”, or when a patient can’t afford a bill, are stickier than the rules can address without legislation. Hospitals have their own internal teams to pressure patients to pay something, even when it comes at the expense of food on their tables or paying rent, and even when those same patients are entitled to financial assistance or charity care and shouldn’t be paying anything. But once that effort fails, hospitals and other medical providers can and do “charge off” those bad debts to credit collection companies and those claims can and will continue to show up on consumer credit reports. Advocates have been pushing the Internal Revenues Service (IRS) and other agencies to do more to protect patients and consumers. All of that is part of why Representative Tlaib (D – Michigan) has introduced a bill to prohibit medically necessary care from arriving on a patient’s credit report, among other rules and limitations on how providers, credit collectors, and credit reporting entities handle medical debt.
The proposed bill, however, does not address hospital practices in running credit reports in order for patients to qualify for financial assistance – which can result in a “ding” on a patient’s credit file.
Among other efforts to reduce costs related to medical care, the Biden Administration also implemented hospital and insurer price transparency rules, with the idea that transparency might drive down costs and encourage competition regarding common medical procedures. However, there is no central database of these services hosted by the government, rather these services are posted…somewhere on hospital websites. The problem is hospitals and insurers are really, really good at abusing process and not meeting the actual intent behind these efforts. The advocacy organization Patient Rights Advocate has recently released its analysis of hospital compliance with these rules and it’s not pretty. The Centers for Medicare and Medicaid Services (CMS) hasn’t issued rules for standardizing price data and the files for these data aren’t required to be presented in a consumer-friendly fashion. Further, these rules are required to provide the list and negotiated prices relevant to a consumer and do not address considerations like rebates or their impact on accessing care, nor are these lists required to provide information on how different charity care designs might help reduce the financial burden of these services.
So other than keeping our friends in advocacy and government well-employed by analyzing thousands of lines of data, these tools are proving to be of limited use for the average consumer. And none of that addresses what happens in emergency situations, where “choice” doesn’t exist – like when you need an ambulance or when there’s one or two hospital systems in a geographic area. All the price transparency in the world won’t address consolidation in providers.
Furthermore, a lack of transparency in 340B revenues for hospitals also means a lack of transparency as to how those dollars might be used to mitigate these consumer costs and potential harms when a patient can’t pay. Similarly, with hospitals and insurers pointing fingers at labor and pharmaceutical costs as to what’s driving a crisis of unaffordable care, transparency on actual costs to provide care and treatment would allow for a more meaningful analysis of who’s really in it for the money versus serving the health needs of patients and communities.
For their part, the American Hospital Association fought the transparency rules in court and lost. Their central argument in response to the loss was that these transparency rules took away from serving patients during the height of the COVID-19 pandemics strains on hospitals – but providers don’t crunch these data, administrative personnel do.
Rules standardizing patient cost data presentation, prohibitions on utilizing 340B revenues for consolidation, and anti-competitive practices would certainly be useful for ensuring patients feel secure in accessing care they need and protecting patients from predatory practices. And that security is critically important for patients and for addressing issues around health disparities.
The reality of the matter is providers do deserve to be paid for their work and commitment to their communities and no patient is going to meaningfully argue against that. But when patients find themselves avoiding necessary care because they’re trying to save or qualify for a home or dig themselves out of debt, that’s just plain bad for those patients, their families, their dependents and care givers, the economy, and, frankly, our trust in both government and providers. Health disparities cannot be meaningfully addressed across this country without addressing the financial incentives and disincentives that drive access to care, whether it be the rural hospital crisis or medical debt.
Increasing transparency is an excellent start. Advocates and policymakers should consider to continue to explore ways to protect patient trust by way of accountability in programs and payment processes which are supposed to be about protecting patients as consumers and increasing access to care.