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July 15, 2026

How the 340B Program Is Driving Hospital Consolidation, Increasing Health Care Costs, and Reducing Patient Access

After years of congressional investigations, watchdog reports, and growing media attention focused on the 340B Drug Pricing Program, a buzz of activity has begun on Capitol Hill. In recent weeks, lawmakers in both the House and Senate have introduced proposals to reform the controversial program, including Senate HELP Committee Chairman Bill Cassidy's comprehensive discussion draft.

As Congress begins weighing competing approaches to reform, policymakers have an expanding body of evidence documenting how the 340B program has evolved over the past three decades. Among the most significant is an April report from the Paragon Health Institute examining how the financial incentives embedded in the program have contributed to hospital consolidation, higher health care costs, and reduced access to independent community-based care.

In his paper, The Hospital Cost Crisis: How Government Policies Drive Consolidation, Undermine Competition, and Fuel Soaring Prices, health policy scholar John R. Graham examines the government policies that have fueled the rapid consolidation of America's hospital industry. The report identifies the 340B Drug Pricing Program as one of the policies that has unintentionally encouraged hospitals to acquire physician practices, specialty clinics, infusion centers, and other outpatient providers by creating powerful financial incentives tied to discounted prescription drugs.

According to the report, every acquisition expands a hospital system's ability to purchase drugs through the 340B program while continuing to receive reimbursement based on substantially higher commercial rates. Those incentives reward growth through acquisition rather than improving value or expanding patient access. Over time, they have helped reshape the health care marketplace, leaving fewer independent physician practices and concentrating more care within large hospital systems.

The consequences extend well beyond ownership changes.

As independent physician practices disappear, patients increasingly lose access to lower-cost community providers. Care shifts into hospital-owned outpatient departments where the same services often cost significantly more than they do in physician offices. Rural communities can be especially vulnerable as independent practices struggle to compete with large regional systems, leaving patients with fewer local options and longer travel distances for care.

The report also documents the extraordinary growth of the 340B program. What Congress created in 1992 as a targeted safety-net program has expanded into one of the nation's largest federal drug discount programs. Yet despite that growth, there is still no comprehensive public accounting of how much revenue participating hospitals generate through 340B or how those dollars directly benefit the low-income and uninsured patients the program was designed to serve.

Paragon concludes that these incentives affect the entire health care system. Hospital consolidation increases commercial health care prices, raises employer health benefit costs, increases Medicare and Medicaid spending, and contributes to higher insurance premiums and out-of-pocket expenses for American families. The report argues that these costs are not incidental—they are a predictable consequence of policies that reward consolidation and higher-cost sites of care.

For taxpayers, the implications are significant.

Federal and state governments subsidize the 340B program while also paying many of the downstream costs created by hospital consolidation and higher reimbursement rates. Employers face rising health care costs. Families pay more for coverage. State Medicaid programs absorb higher expenditures. Medicare spending increases as care migrates into more expensive hospital-owned settings. In short, taxpayers and patients increasingly bear the financial consequences of a program that operates with limited transparency and accountability.

The debate now underway in Congress is about more than drug discounts. It is about whether federal policy should continue creating incentives that increase health care costs, accelerate hospital consolidation, and reduce access to affordable community-based care.

The Paragon Health Institute's report adds an important voice to that debate. As lawmakers consider competing proposals to modernize the 340B program, its findings provide valuable context for understanding why reform has become a bipartisan issue and why greater transparency, accountability, and patient-centered policies are essential to restoring the program's original mission.

The Hidden Cost of 340B: How States Are Losing Billions Meant for Medicaid

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A new analysis from Third Way, authored by Gaby Hartney and David Kendall, shines a spotlight on an often-overlooked consequence of the federal 340B Drug Pricing Program: billions of dollars in lost Medicaid savings that could otherwise help states preserve health care services. We encourage readers to review the original memo, "How to Reduce Medicaid Cuts Using the 340B Drug Pricing Program," for a detailed explanation of the issue.

For years, the debate over 340B has focused primarily on hospitals and pharmaceutical manufacturers. But another stakeholder is quietly paying the price: state Medicaid programs—and ultimately taxpayers.

According to Third Way's analysis, the interaction between the 340B Drug Pricing Program and Medicaid Managed Care has created a financial loophole that allows hospitals to retain the benefit of deeply discounted drug purchases while preventing state Medicaid programs from receiving the manufacturer rebates they would otherwise be entitled to under federal law. Because Medicaid cannot receive both a 340B discount and a Medicaid rebate on the same prescription, hospitals' use of 340B drugs for many Medicaid managed care patients effectively shifts billions of dollars away from state Medicaid programs.

Third Way estimates these lost rebates cost Medicaid between $2 billion and $6 billion every year. Those are resources that could otherwise help states maintain eligibility, preserve benefits, strengthen provider networks, or reduce pressure on already strained state budgets.

Why This Matters

The original purpose of the 340B program was straightforward: help true safety-net providers stretch scarce resources to serve vulnerable patients.

Over time, however, the program has expanded dramatically. Today it has become one of the largest federal drug pricing programs in the country, while oversight and transparency have struggled to keep pace. As participation has grown, so too has the financial impact on Medicaid programs that lose access to statutory drug rebates when certain prescriptions flow through the 340B system instead.

For states already facing difficult Medicaid budget decisions, those lost rebates are not theoretical—they represent real dollars that could fund patient care.

A Reform Opportunity

Rather than reducing services for Medicaid beneficiaries, Third Way argues policymakers should first examine whether existing Medicaid dollars are being used as efficiently as possible.

The memo outlines two potential reforms:

Require Medicaid-covered drugs to be purchased outside the 340B program so states can receive the rebates Congress intended.
Alternatively, modify reimbursement through a rebate-based approach that preserves appropriate 340B support while allowing Medicaid programs to recover at least part of the rebates currently being lost.

Importantly, the authors also note that Congress could tailor reforms to protect rural hospitals and other essential safety-net providers while addressing the largest sources of unnecessary Medicaid spending.

Transparency Benefits Everyone

Regardless of where policymakers stand on broader 340B reform, one principle should command broad bipartisan support: transparency.

State officials should know how much Medicaid is paying, how much hospitals are receiving through 340B, and whether those dollars are improving care for low-income patients. Taxpayers deserve confidence that public resources are being used to strengthen the safety net—not simply creating financial windfalls without meaningful accountability.