Abby Burns (00:42):
From Advisory Board, we are bringing you Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. I'm Abby Burns. Last year I had more than 50 conversations with health system executives to understand their path to growth. In those conversations, one federal program came up time and time again. The drug purchasing program known as 340B. Strategy and finance leaders said that they rely on 340B to make a margin. They used words like critical and lifeline. They said that without it, they simply wouldn't be able to offer certain services. But 340B has also come under criticism as it's grown over the years. The number of hospitals participating has increased by about 340% over the past two decades. Some stakeholders don't think the program is fair or that it's being used as it was originally intended. 340B is showing up in state and federal legislative agendas and proposed changes to the program could be a big deal for hospitals and health systems that have become reliant on these discounts.

(01:45):
I have a few goals for our conversation today, to become more conversant in Understanding 340B, to get a pulse on the current state of the program and some of the controversy around it, and to get a read on the proposed changes that are on the table and what they would mean for health systems. To do this, I'm talking with Advisory Board pharmacy experts, Gina Lohr, and Chloe Bakst. Gina, Chloe, welcome back to Radio Advisory.

Gina Lohr (02:09):
Thanks, Abby.

Chloe Bakst (02:11):
Glad to be back.

Abby Burns (02:16):
This conversation has been a long time coming. I think it was last August we started talking about bringing a conversation about 340B to Radio Advisory. So I'm so glad you're both here this morning.

Chloe Bakst (02:28):
Yeah, totally. It feels a little surprising we haven't talked about 340B on the podcast before.

Abby Burns (02:34):
Well, let me tell you why I have felt so strongly that we need to have this conversation. I will be the first one to admit that I skated by for a long time as someone who recognized 340B by name, but could not for the life of me explain what it actually was and why it mattered. But then when I was involved in Advisory Board's health system growth research last year, 340B came up in every single conversation. And that told me, okay, not only is it time for me to get smart on this, but I'm probably not the only one that could stand to be better informed about a program that, as it turns out, is pretty existentially important to hospitals in this country. So eight months or so later, here we are. We have a lot to cover in a short amount of time. So let's just dive right in with what is perhaps the most important question. Gina, what is the 340B program?

Gina Lohr (03:31):
I will try to keep this at a high level because it could get really nuanced really quick, but basically it's a program that Congress created back in 1992 to provide discounts on outpatient drugs for nonprofit hospitals and other types of healthcare organizations. In the 340B lingo, they're called covered entities, which to be a covered entity you need to qualify in one way or another. This is where it can get really nuanced. But at a high level, I will say, by demonstrating that you care for a certain share of low income or uninsured patients.

Abby Burns (04:11):
And they're purchasing those drugs that you mentioned at a discounted rate. Right? I think is a pretty steep discount.

Gina Lohr (04:17):
Yeah. HRSA, which is the federal agency that historically has overseen the 340B program, estimates that drugs are purchased at a discount of somewhere between 25% and 50%.

Chloe Bakst (04:29):
I think to sort of summarize what Gina said is that the purpose of this 340B program is that it lets participating hospitals or covered entities get these discounted drugs and use the savings to stretch whatever resources that they have to serve more patients and provide comprehensive services.

Abby Burns (04:50):
Okay. So Congress established this program with the objective of making it more affordable for health systems to provide drugs for patients. In this case, by saying that pharmaceutical companies need to offer a discounted price on outpatient drugs to hospitals that serve a disproportionate share of Medicaid or uninsured patients.

Gina Lohr (05:12):
One of the interesting things I think about the 340B programs that is overlooked, this is not federal government money. This is funded basically by pharma. It's basically a transfer of funds from pharmaceutical manufacturers to covered entities.

Abby Burns (05:28):
Does pharma push back on this program? Okay. They're both laughing at me in this moment.

Gina Lohr (05:35):
So to be blunt, pharma is really rather angry about this. They feel like they shouldn't be the ones necessarily subsidizing hospitals for their care and that it's kind of unfair that Congress has said just across the board, you have to provide these discounts if you want to participate in the Medicare program.

Abby Burns (05:57):
So if pharma is pretty opposed to the 340B program, how is it that it has withstood 33 years of existence?

Gina Lohr (06:06):
Part of the strength in 340B, it is super vital for hospitals and health systems, as you mentioned, Abby, earlier, so many hospitals rely on 340B to make ends meet, make their budgets work. And if you think about that, then there's something like well over 2000 hospitals across the US that participate in 340B. There are large institutions in almost every congressional district. And so, 340B, while it has certainly been controversial and come under some attack, also has enjoyed some pretty strong support from federal lawmakers over time.

Chloe Bakst (06:46):
And to underline the point, Gina said about how important this is for health systems, Advisory Board has our annual strategic planner survey. And for 2025, we found that 79% of health systems say that 340B is important or very important for their margin. So this is not just a nice to have program. It certainly becomes something that is need to have. When I have conversations with leaders about this, they say things like, "Without 340B, we'd have to make," quote, "detrimental decisions." Or shut down key service lines like oncology, chemotherapy, things like that. So I think one of the reasons beyond the, or maybe in part inspired by Gina's point about the congressional and federal sweet spot that 340B is in, is because hospitals and health systems have really built out their services with the backbone of 340B.

Gina Lohr (07:42):
Can I give an example of the type of service that a hospital or a health system might offer?

Abby Burns (07:48):
I think it would be really helpful, Gina, so that we can wrap our hands around what it actually looks like.

Gina Lohr (07:53):
So one of the examples that I've heard many times over of how 340B revenues are used is to fund cancer program navigators within health systems within their cancer programs. And so, these are folks who come alongside people who are walking the cancer journey and helping them understand their options, making connections with the different physicians and other service providers that they might need to connect with. And if you know anyone who has walked that journey, it's really overwhelming and helpful to have someone who understands the landscape, who can help you figure out where to go. These aren't positions that are typically reimbursed directly. They come more broadly from the cancer programs budget and 340B covered entities have told us that if we didn't have 340B, we wouldn't have navigators.

Abby Burns (08:51):
In other words, they rely on the savings from discounted prices to fund the care navigator roles.

Gina Lohr (08:57):
Exactly.

Abby Burns (08:59):
I have to tell you, when I talk with leaders about 340B, I typically get one of two reactions. One, as you both have just been talking about, enormous defensiveness from health systems. And then on the other hand, frankly, some cynicism from non-health system leaders. I have heard the word boondoggle thrown around. There's a lot of controversy here that revolves around is 340B genuinely serving the purpose it was created to serve, or has it morphed into primarily being a profit scheme for hospitals and health systems? My understanding is part of this controversy, part of the spotlight is because of the sheer scale that this program has reached. Is that a fair assumption?

Chloe Bakst (09:45):
I think that that's fair. The program has certainly ballooned in recent years. Let's just think about 2018 to 2023. So that five-year period, non-340B drug sales grew about 40%. During that same time period, 340B drug sales grew about 130%.

Abby Burns (10:04):
Wow.

Chloe Bakst (10:05):
So that's more than triple that rate.

Abby Burns (10:07):
I think the number of covered entities has also expanded a fair amount since the program's inception. Is that right?

Gina Lohr (10:15):
Yeah, and the big turning point, I mean it certainly has been growth over time, but the biggest turning point was with the Affordable Care Act passage, there was two mechanisms driving the growth in covered entities. One, more types of institutions became eligible. For example, children's hospitals or standalone cancer centers suddenly became eligible to apply to become a 340B covered entity when they weren't before. Also, the expansion of Medicaid meant that more institutions were serving a larger proportion of Medicaid patients, which changed some of the ratios and calculations needed to qualify, and it made more of them sort of eligible to qualify for 340B participation.

Abby Burns (11:06):
Those both sound like access expansion. Right? That seems like 340B is serving the purpose that it was created to serve as more people gained access to Medicaid, for example, than more provider organizations met the definition that made them eligible for 340B. Why is this growth in the 340B program contributing to some of the controversy around the program?

Gina Lohr (11:29):
So I think where I see a lot of controversy come up is just asking the question, "How are hospitals and health systems, covered entities, really using this program to serve at-need populations?" or are they, in some cases, perhaps, and I'm using air quotes here, exploiting the program? Because we don't have legal precedent to say what is or is not actually in the spirit of the program. But there have been expose articles. There was one in the New York Times a couple of years ago that talked about a 340B hospital in an urban underserved area, but then that hospital sort of legally owned cancer clinics in leafy suburbs nearby that were pumping out millions of dollars of 340B drugs. And so, that raises questions. Are those entities within the spirit of the law or not? And we don't have clear answers.

Abby Burns (12:36):
Yep. I think that's a good point. The consolidation piece of all of this makes this really murky. Because whether it is health systems, purchasing physician practices or purchasing other hospitals and gaining access to 340B or becoming 340B eligible sites, I think that's maybe where the access expansion piece can get a little bit more controversial.

Chloe Bakst (12:56):
If we're talking about controversial growth in the 340B program, I feel like we have to talk about contract pharmacies because that's certainly something that I hear in my conversations.

Abby Burns (13:06):
Yes. This is something that, Chloe, I have been hearing about as well. Can you explain what contract pharmacies are and how they contribute to the growth of 340B?

Chloe Bakst (13:15):
Totally. So contract pharmacy arrangements occur when you have a 340B covered entity, so hospital, federally qualified health center, et cetera, and they contract with an external pharmacy. So that could be anything, your local CVS, whatever pharmacy to dispense the drug to 340B eligible patients, so to that hospital's patients, so they can go to that CVS in exchange for a fee. These arrangements have existed for a long time, but they really ballooned in the last decade or so. We went from having around a thousand of them in 2010 to over 33,000 in 2023.

Abby Burns (13:53):
Wow.z

Gina Lohr (13:53):
This was also a change that came from the ACA because prior to that time, a covered entity was allowed to have one contract pharmacy. So that they would have a mechanism to give their patients access to 340B drugs if they didn't have their own retail pharmacy. But then the ACA allowed them to have an indefinite number of contract pharmacies.

Abby Burns (14:18):
Yeah. That ballooned the footprint. So just to put a fine point of this, we're talking about CVS being the pharmacy where drugs that are purchased at 340B prices are administered?

Gina Lohr (14:28):
Are dispensed.

Abby Burns (14:30):
Are dispensed?

Gina Lohr (14:31):
Yes.

Abby Burns (14:31):
Who takes issue with that and why?

Chloe Bakst (14:34):
Pharma companies have a lot of frustration with contract pharmacy arrangements, and a lot of that frustration comes from this idea of duplicate discounts. So if you are a pharmaceutical manufacturer participating in 340B, the program should protect you from having to pay both a 340B discount on the purchase price of the drug and a discount rebate after the drug is already purchased. So you shouldn't have to do both. And when a drug is dispensed at a contract pharmacy, pharmaceutical manufacturers have claimed that it's more likely or perhaps it's more difficult to know whether or not they are providing those duplicate discounts.

Abby Burns (15:17):
I'm curious about other stakeholders perspectives here. I get why health systems are so defensive of the program. I get why pharma companies are so frustrated. I'm wondering what employers, health plans, and even PDMs themselves think about the 340B program in its current state.

Chloe Bakst (15:36):
So I just talked a bit about those duplicate discounts. So this idea that if you're a manufacturer, you don't have to give rebates if you're already providing that 340B discount. So if you're a PBM, it's a little frustrating because you like those rebates, but PBMs also have a lot of contract pharmacy arrangements with their specialty pharmacies that are kind of under the umbrella of that organization so they can get access to the 340B discounts via those contract pharmacies, which means you lose it from your PBM, you gain it at your specialty pharmacy. For the biggest PBMs, that is just sort of moving money around for different parts of the business, it's not that detrimental.

Abby Burns (16:17):
Right. Because they play in multiple parts of the value chain, they will end up getting the discount at one place or another. Gina, what about employers or plan sponsors?

Gina Lohr (16:28):
For a long time, employers, plan sponsors, were fairly oblivious to the 340B program, but as drug costs have risen and they have started digging in there and saying, "How do we really get our hands around managing drug costs better?" They have realized that 340B is a contributing factor to their drug costs because of how it digs into their drug rebates. So what Chloe said earlier, they will not get a rebate check from their PBM for drugs that were dispensed through a 340B eligible pharmacy. And so, for some who maybe are located right next to a big 340B eligible academic medical center where patients go for really high cost drugs, suddenly that has a big impact for them.

Abby Burns (17:25):
What you're describing is essentially a zero-sum game, where hospitals and covered entities get the savings and therefore nobody else does.

Chloe Bakst (17:34):
And I would add the purpose of the 340B program isn't to pass on savings to anyone but the hospitals or the health systems that are covered. Right? It's not a program for patients to get access to the savings or for health plans to get access to the savings. It's for the covered entities.

Gina Lohr (17:51):
Yeah. That's a misconception that I often hear. I'll see big headlines saying, "The covered entities aren't sharing discounts with the patients." And in my mind I say, "That's not how the program was written. It wasn't designed to share discounts with the patients." Some organizations do have programs where they provide discounted drugs to patients through 340B in certain circumstances, and certainly almost all covered entities that I've spoken with, they use that to help offset charity care that they're providing, but it's not designed so that those savings go straight to the patients.

Abby Burns (19:42):
One more stakeholder that we haven't named here is government, but I know that 340B is on the radar at both the federal and state level. And from everything we've talked about so far, we know that meaningful change to 340B could have a really large impact on hospitals and health systems, right? If they rely on 340B for their margin.

Gina Lohr (20:04):
At the federal level, any movement would be a big deal. We have seen the federal government before look at 340B savings and say, "We would like a share of that, please." There was a period of time when they lowered the Medicare reimbursement rate for provider administered drugs at 340B hospitals in order to take part in some of that savings. But there's also, I think, at the federal level, are all of these questions about the purpose of the program, the growth of the program, who qualifies for the program, and how those savings should be used. Congress has had lots of conversations over time about whether they need to refine the language that defines the program, and frankly, it's really hard to talk about how likely or not likely it is to have some sort of changes to the federal statute defining the program because you do have very strong interests on both sides pushing against each other.

Abby Burns (21:12):
I think that's especially true since HRSA administers the program and HRSA was just moved into the administration for Healthy America, the new division that's part of the HHS restructure. One of advisory board's messages this year has been, "It's important to pay attention to what happens with policy, including health policy, at the state level." What state level actions either are we seeing or can we anticipate when it comes to 340B?

Chloe Bakst (21:39):
Yeah, there's a lot less ambiguity in the state side of things, and I think what's happening in the federal government, that's not totally surprising. We've seen states take a pretty hands-on role in the drug policy world in the last couple of years. If we're thinking about PPM regulation, states definitely led the way there with transparency laws and reporting laws. And that kind of gave the groundwork for the federal government to think about what legislation they may or may not pass.

(22:10):
For states and 340B, what we're starting to see, about three states with more pending, have passed 340B reporting requirements. So this is to kind of unlock the black box of how much 340B savings health systems are accruing and how they're using those savings. Right now, the way the program is written, as we've said, there's no requirement for 340B covered entities to track or report their savings. States are looking to change that, and that's something that I'm watching and expect to see more states embracing, and we're already seeing it being debated in state houses across the country.

Abby Burns (22:52):
One of the things that you both mentioned earlier as well is the issue of contract pharmacies. Are manufacturers required to give discounts when drugs are dispensed at contract pharmacies? Is that at play at all in the state legislation?

Chloe Bakst (23:05):
Yes. So just some quick background there. When manufacturers first came out and said, "Hey, we're no longer going to offer discounts to contract pharmacies." HRSA said, "Nope, that's not cool. You have to do that." Manufacturers sued HRSA. Courts decided in favor of the manufacturers. HRSA can't say that manufacturers have to give their discounts to contract pharmacies.

Abby Burns (23:28):
Okay.

Chloe Bakst (23:29):
And so, what the states have been doing in response to that is passing their own laws saying, "Actually, if you are a manufacturer and you're working in our state, you have to provide 340B discounts to contract pharmacies." Manufacturers have challenged those laws in court, and generally so far, the courts have decided in favor of the states. So what's interesting about 340B is that a lot of what's going to be decided in terms of how it's operating in the future will come down to state laws and court challenges.

Abby Burns (24:01):
And so far, the precedent is that state courts are essentially ruling in favor of contract pharmacies not compromising the covered entity's ability to get the 340B discount?

Chloe Bakst (24:14):
Generally for what we've seen so far, yes.

Abby Burns (24:17):
As we come to a close, I want to try and distill for our listeners a couple of things. One, what's the bottom line when it comes to how to think about the state of 340B in 2025? Two, what does that mean for our listeners? And three, for health system leaders in particular, you laid out a few changes that may be coming down the pike. What do they need to do to put their systems in the best position? I know that's a lot. Chloe, where would you start?

Chloe Bakst (24:49):
I'm thinking about what you said at the beginning of this conversation, Abby, about how you recognize 340B by name, but you maybe didn't know the importance of the program or the nitty-gritty of it. And I think that's a position a lot of our listeners of this episode are probably going to be in as well. And I think the bottom line is that that time for knowing it's important, but not knowing really why or its impact, is over. Taking it for granted is over. It's important for healthcare leaders to know how this program works.

Abby Burns (25:20):
Gina, what should health system leaders do to position their systems for success moving forward?

Gina Lohr (25:26):
So something that we've seen some health systems do, but I really think that it needs to be more widespread, is to keep your eye on the dollars and tracking to be able to support a more detailed story about how much money are you making from 340B and how are you using those dollars to benefit the community. I think for some health systems right now, 340B is a little bit more of a slush fund to make sure that they can balance the budget. But as there's more scrutiny, that use case isn't going to hold up very well. I think to make a compelling case to stakeholders about why it's important is to be able to communicate exactly how that program is providing benefit.

(26:16):
And I also think that, as with so many areas of uncertainty right now in the current climate, it is important to start scenario planning for a world in which the 340B program changes. Having sort of a detailed accounting of how those funds are being used is a great first step toward that. But also thinking about what is your exposure if the program changes, if the contract pharmacies go away, if the discount model changes. And that's an area where I think it's really important for executives within covered entities within health systems to be partnering closely with the pharmacy team that oversees the 340B program to think through those eventualities.

Chloe Bakst (27:05):
Yeah, not everybody needs to be a 340B expert, but you should probably have a conversation or two with your 340B expert.

Abby Burns (27:12):
Well, Gina, Chloe, thank you for coming on Radio Advisory.

Chloe Bakst (27:17):
Thanks for having me.

Gina Lohr (27:18):
Thanks, Abby.

Abby Burns (27:23):
At the beginning of this episode, I said I had three goals. To become more conversant in understanding 340B. To get a pulse on the current state of the program and some of the controversy around it. And to get a read on what the proposed changes that are on the table would mean for health systems. I think we were able to accomplish all three. I also recognize that this program is so big, complex, and important that we couldn't possibly cover everything. So if you want to learn more about 340B, I encourage you to check out the episodes of Relentless Health Value from friend of the podcast, Stacey Richter, where she unpacks the 340B program in particular. And take a look at some of Advisory Board's 340B resources on advisory.com. Because remember, as always, we're here to help.

Rae Woods (28:11):
Here's what our advisory board research team is watching this week. If I am honest. Just a few hours after we recorded this episode, President Trump released an executive order focused on drug pricing. Now, the EO covers a variety of topics, Medicare drug price negotiation, drug importation, PBM and broker transparency, site control payment reform, and of course, 340B. Now, this was neither unexpected nor expected. Of course, we know that the Trump Administration has had his eye on drug prices and that Trump is continuing to use executive orders to push his agenda forward. But it's important to remember that executive orders play a somewhat unique role in terms of federal policy. Trump can ask cabinet secretaries to start research or propose rules, but the orders themselves don't operate as written law. So I want to focus our attention and yours less on the exact text of the order and more on what the requests themselves signal about this administration's drug policy agenda.

(29:16):
First, Trump is picking up right where he left off in 2020 when it comes to drug policy. Remember, in his first term, the Trump Administration attempted to cut Medicare drug reimbursements for 340B hospitals. Now, after a series of lawsuits, the Supreme Court ultimately determined that those cuts weren't lawful because the administration didn't complete a survey of hospital drug acquisition costs. This EO directs HHS to complete such a survey, which means there is a pretty high probability that drug reimbursement cuts are on the horizon. That could have a big impact on 340B covered entities, and it may signal to other federal lawmakers that 340B changes are on the table. In fact, the Senate Health Committee just last week released a report on the 340B program, including recommendations for potential reforms related to transparency and program oversight.

(30:10):
Beyond 340B, we're also seeing Trump continue to focus on elements of drug policy that he has long expressed interest in, like PBM and now broker transparency and drug importation. But here's what surprised me. It seems that the Trump administration is going to move forward with Medicare drug negotiations. The executive order introduces some small tweaks to the Biden Administration's plan, namely pushing back the timeline on when small molecule, think pills and ointments, are eligible for negotiation, and looking into ways to improve the program's transparency, plus assessing its impact on pharmaceutical innovation. But for a long time, we didn't actually know if drug negotiations would move forward at all, and now we can say with relative confidence that they're on the table. For health leaders, this executive order is less a call to immediate action, and more so a reminder that this administration is invested in upending the pharmaceutical value chain. We'll continue to keep you updated as more policies are proposed.

Abby Burns (31:36):
New episodes drop every Tuesday. If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts, and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Abby Burns, as well as Rae Woods, Chloe Bakst, and Atticus Raash. The episode was edited by Katy Anderson with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Leanne Elston and Erin Collins.