Testimony for the Record of Thomas A. Schatz

President, Council for Citizens Against Government Waste

Before the Senate Committee on Health, Education, Labor and Pensions

“The 340B Program: Examining its Growth and Impact on Patients”

October 22, 2025

Mr. Chairman and members of the committee, my name is Thomas A. Schatz, and I am the president of the Council for Citizens Against Government Waste (CAGW).  I appreciate the opportunity to provide testimony for the record regarding the 340B Drug Discount Program’s growth and impact on patients.  CCAGW is a private, nonpartisan, nonprofit organization representing more than one million members and supporters nationwide.  Founded in 1984, CCAGW is the lobbying arm of Citizens Against Government Waste CAGW), which was established to follow up on the work of the President’s Private Sector Survey on Cost Control, also known as the Grace Commission, to eliminate waste, fraud, abuse, mismanagement, and inefficiency in government.

The 340B program was created in 1992 to help federally funded clinics and hospitals that serve a large uninsured population cover the cost of drugs and provide discounts to patients.  340B requires manufacturers participating in Medicaid to sell drugs at a discount of between 20 to 50 percent to covered entities including federally funded facilities like community health centers, black lung clinics, tuberculosis clinics, and hemophilia treatment centers.  The program includes disproportionate share hospitals, which receive supplemental federal funds related to the number of low-income Medicare and Medicaid patients and uninsured indigent patients served by the facility.

Despite the intentions of the program to help patients, Congress did not provide a clear definition of a 340B patient.  The vague law and subsequently unclear regulations have allowed a broad interpretation of who is an eligible patient, permitted too many organizations to qualify for the program, and provided little control over how the drug savings can be spent.  The problems were exacerbated by the Affordable Care Act, which allowed 340B hospitals to sign agreements with an unlimited number of contract pharmacies, resulting in an exponential increase in those pharmacies participating in the program. 

In 1992, the House of Representatives passed a bill to clarify that the savings from the discounted drugs would allow the covered entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.  However, the bill was not voted on by the Senate, so there was no mandate for covered entities to pass along drug savings to their patients. 

The lack of a clear patient definition and the lack of guardrails on the use of funds have led to a massive increase in growth and spending in the 340B program.  According to the Health Resources & Services Administration (HRSA), in 2005, 340B covered entities purchased $2.4 billion in drugs, and in 2023 purchases had increased by 2,500 percent to $66.3 billion, making 340B the second largest federal prescription drug program after Medicare.  The number of unique covered entities grew from 3,600 in 2010 to nearly 42,000 by 2023 across 53,000 sites, including provider locations related to those entities.  In 2010, there were fewer than 1,300 contract pharmacies in 340B, but by mid-2025, there were 32,069, an increase of 2,367 percent.   

The abuses of the program have been highlighted in myriad reports and investigations.  A May 30, 2025, Ohio Capital Journal article revealed how hospitals including the Cleveland Clinic, which received $933.7 million in 340B drug discounts between April 2020 and June 2023, have funneled these funds into general operating budgets and executive pay.  A September 24, 2022 New York Times article about Richmond Community Hospital in Virginia, which is owned by Bon Secours, found that instead of reinvesting profits from 340B drug sales into its disproportionate share hospital and improving patient care, the revenue was invested in facilities in the city’s wealthier neighborhoods. 

 A September 9, 2025, Congressional Budget Office (CBO) report found that covered entities’ annual 340B spending is growing at an average rate of 19 percent, while spending on brand-name drugs nationwide is growing 4 percent annually.  The CBO report also found that 340B hospitals and pharmacies grow their profits by purchasing more expensive drugs, including cancer drugs and anti-infective drugs, than non-340B hospitals. 

Taxpayers and employers are the ones who must shoulder the costs of the 340B program.  According to a May 2024 Health Capital Group report, increased participation in 340B from 2014 to 2021 raised Medicaid spending by $391 per enrollee, or $32 billion annually and accounted for approximately 10 percent of total Medicaid spending.  This report also found that 340B has fueled provider consolidation, which raises prices for several healthcare services.  The 340B program also cost an estimated loss of $1.8 billion in federal and state tax revenue and increased costs by $7.8 billion for self-insured and fully insured employers and employees in 2021.  A March 2024 IQVIA report found that 340B costs employer-sponsored health plans more than $5 billion annually in forgone discounts and rebates, of which more than $1 billion falls on taxpayer-funded employee plans. 

Because Congress has not enacted reforms to the 340B program, several states have passed laws to fill the void.  However, many of these state laws, like those mandating that manufacturers make 340B discounts available to even more providers, further drive up costs.

On the other end of the spectrum, some states have increased transparency around 340B.  A November 25, 2024, Minnesota Department of Health report found that the largest hospitals, or 13 percent of all hospitals, received 80 percent of the revenue, leaving smaller hospitals to struggle.  A May 2024 North Carolina Treasurer investigation found that 340B hospitals charged cancer patients an average of 5.4 times the discounted acquisition cost that the hospitals paid for the drug, giving hospitals profits of up to $6,026 for each claim.  One of the researchers for the report said that a 340B hospital paid about $8,000 for a drug to treat melanoma and charged the state’s health plan nearly $22,000 for that drug, and that 340B hospitals get an 85 percent higher markup price than non-340B hospitals. 

Because 340B was created by federal statute, it is up to Congress to enact permanent reforms to the program.  An April 24, 2025, Senate Health, Education, Labor and Pensions Committee majority staff report on 340B outlined several issues plaguing the program and made the case for several reforms like those suggested by CCAGW, including a clear definition of a patient as an uninsured, low-income person who does not qualify for Medicare or Medicaid; providing better verification of patient eligibility when the prescription is filled, establishing a clear relationship between the patient and the covered entity, verifying that services were provided within the last 12 months, eliminating duplicate discounts by improving oversight, revising reporting requirements, and increasing transparency around how hospitals are using 340B funds. 

One federal reform that is a step in the right direction is HRSA’s 340B rebate pilot program.  This program, which CCAGW supports, would eliminate duplicate discounts by preventing manufacturers from offering Medicaid and 340B discounts on the same drug, increase the transparency of transactions and rebate timelines, and provide a better audit trail through claims-based tracking.  Patient privacy is protected through compliance with HIPAA, secure transmissions of information, and a prohibition against the use of personally identifying information.  Patient access is preserved, and the cost is paid by the manufacturers.

The 340B Drug Discount program has drifted from its original goal of helping patients receive medicines they need at an affordable price and is now used as a profit-driver for hospitals and pharmacies.  The reforms promoted by CCAGW, the Senate HELP majority staff report, and other recommendations to fix 340B and restore the program to its original intent of providing discounts on drugs to eligible patients should be adopted as soon as possible.  On behalf of the members and supporters of CCAGW, I appreciate the opportunity to submit this testimony for the record and would be pleased to answer any questions the members of the committee may have.