What is the 340B Drug Pricing Program?
A federal program that requires participating drug manufacturers to sell outpatient drugs at a discount to eligible safety-net healthcare providers. Written for someone who has never encountered it before.
At a glance
- 01Created
- 1992
- 02Statute
- Section 340B, PHS Act
- 03Administered by
- HRSA / OPA
- 042025 purchases
- $100B+
The short version
The 340B Drug Pricing Program was created by Congress in 1992. It requires drug manufacturers that want their products covered by Medicaid to also sell outpatient drugs at a reduced price to certain healthcare organizations that serve vulnerable populations.
Those organizations are called covered entities. They include public and non-profit hospitals that treat a high share of low-income patients, federally qualified health centers, Ryan White HIV/AIDS clinics, critical access hospitals and several other categories of federal grantee.
The mechanism is straightforward. A covered entity buys a drug at the discounted 340B price, provides it to an eligible patient, and bills the patient's insurer at the normal rate. The difference between what it paid and what it was reimbursed stays with the organization.
Why the program exists at all
Safety-net providers treat a disproportionate share of uninsured and underinsured patients. They pay the same drug prices as everyone else while collecting less revenue per patient. 340B was designed to narrow that gap without appropriating new federal money — the discount is paid by manufacturers, not by the government.
How large it has become
340B purchases exceeded $100 billion in 2025, having grown at roughly 22% a year for over a decade. More than 60,000 covered entity sites are now registered. That growth is the reason the program attracts intense attention from manufacturers, Congress and researchers — and the reason compliance expectations have tightened.
How a 340B drug actually moves
01Manufacturer
Sells at the 340B ceiling price
02Wholesaler / Distributor
Applies the discount at purchase
03Covered Entity
Hospital, health center or clinic
04Contract Pharmacy
Dispenses to the patient
05Patient
Receives the prescribed drug
Supporting participants
S1
HRSA / OPA
Program oversight, audits
S2
Medicaid
Duplicate-discount prevention
S3
PBMs / Payers
Adjudicate the claim
S4
TPA / 340B Software
Administers split billing
Every arrow in this diagram carries an obligation. The discount is the easy part; proving that each dispense went to an eligible patient, that no duplicate discount occurred, and that no drug was diverted to an ineligible person is where compliance work lives.
A pricing rule with real operational obligations attached.
The discount itself is simple. What takes ongoing discipline is proving, claim by claim, that every discount was actually earned.
What every covered entity must not do
Almost every compliance failure in 340B traces back to one of these three prohibitions.
340B basics — frequently asked
01Is 340B a government subsidy?
No. No federal money changes hands. The discount is provided by drug manufacturers as a condition of having their products covered under Medicaid and Medicare Part B. It is a mandatory pricing requirement rather than an appropriation.
02How much is the 340B discount?
The 340B ceiling price is calculated from the average manufacturer price minus a unit rebate amount, using a formula set in statute. The practical discount varies substantially by drug, and is often deepest on high-cost specialty products.
03Can covered entities profit from 340B?
Covered entities retain the difference between the 340B purchase price and their reimbursement. The statute does not restrict how that difference is used, which is the central point of contention in the ongoing policy debate. The accurate framing is that savings are retained and reinvested, not that a profit is generated.
04Who oversees the program?
The Health Resources and Services Administration, through its Office of Pharmacy Affairs. HRSA maintains the covered entity database, conducts audits of covered entities and manufacturers, and issues program guidance.
05Do patients get cheaper drugs because of 340B?
Sometimes, but not automatically. Some covered entities pass discounts directly to uninsured patients through sliding-scale pricing. The statute does not require it, and practice varies considerably between entities.
06Is 340B at risk of being changed or repealed?
The program is under active scrutiny from Congress, manufacturers and researchers, with proposals ranging from narrowing the patient definition to changing the discount mechanism to a rebate model. Repeal is not a mainstream proposal; meaningful reform is a realistic possibility that covered entities should plan for.
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Next step
Understanding the program is the easy part.
Running one that survives an audit is the work. That is what we do.