The 340B program
340B is one of the largest and most fought-over programs in US drug pricing — and one almost no one outside the industry has heard of. It turns a drug discount into a funding stream for safety-net care, which is both its purpose and its controversy.
The basic deal
Created in 1992, 340B requires drug manufacturers to sell outpatient drugs at a deep discount to “covered entities” — safety-net hospitals and clinics that serve large numbers of low-income and uninsured patients. The hook is the same as Medicaid's: to have its drugs covered by Medicaid at all, a manufacturer must also offer 340B pricing. Participation isn't really optional.
Where the price comes from
The 340B ceiling price is built from the same confidential figures behind Medicaid rebates — AMP minus the Medicaid rebate percentage. In practice it lands well below what other purchasers pay, and for some drugs it approaches pennies.
How a discount funds care
Here's the mechanism that makes 340B powerful — and contested. A covered entity buys a drug at the deep 340B price, then dispenses it to an insured patient and gets reimbursed at the normal rate. The entity keeps the spread between the two. That margin is meant to “stretch scarce federal resources” — funding services the hospital couldn't otherwise afford. Crucially, the discount is tied to the entity's eligibility, not the individual patient's income.
Why it exploded
340B purchases have grown into a $100+ billion program, making it one of the biggest forces in the drug market. Two drivers: more hospitals qualifying, and the rise of contract pharmacies — retail pharmacies that dispense 340B drugs on a covered entity's behalf, multiplying each entity's reach far beyond its own walls.
The fights
- Do the savings reach patients? Critics argue the margin often funds hospital operations broadly rather than lowering costs for the low-income patients the program names.
- Contract pharmacy limits: manufacturers have moved to restrict 340B pricing through contract pharmacies, triggering lawsuits and state-law fights that are still unresolved.
- Duplicate discounts: a manufacturer can't be forced to give both a 340B discount and a Medicaid rebate on the same unit — untangling which is which is a persistent administrative headache.
Why it matters here
340B sits on top of the same pricing machinery as everything else on this site — AMP, Best Price, and the Medicaid rebate — and it quietly shapes which drugs hospitals favor and how much of the market moves at deep discounts invisible to public benchmarks like NADAC.