Contributed by the Vice President of Pharmacy Services Steven Miller, 340B Health

Q. How would changing the 340B drug pricing program to a rebate model affect covered entities?
At least five pharmaceutical companies are seeking to change 340B from its current model of upfront discounts to one that would use backend rebates. Such models would require affected covered entities to purchase their drugs at “commercial” prices such as wholesale acquisition cost (WAC), submit claims information to the drugmakers, and wait for the companies to go through validation processes that they control and have not fully defined before they will approve rebates under uncertain timelines.

Rebates would impose massive financial and administrative burdens on hospitals that would be expected to carry the full cost of their 340B drugs while waiting for drug companies to decide whether and when to issue rebates. The models effectively would allow drug companies to establish their own rules for 340B patient eligibility, raising the prospect that they will deny rebates for legitimate claims. Hospitals expect they would need to devote significant staff time and other resources on top of the carrying costs just to process rebate claims and challenge denials. This possibility raises concerns that hospitals would have fewer resources to devote to care and support for patients in need.

The federal government so far has rejected the drug companies’ rebate models, stating they violate 340B law because the drugmakers have not received the administration’s approval to implement them. A federal court in Washington, D.C., is considering lawsuits from the companies seeking to overturn those rejections and prevent the government from imposing any sanctions on the companies for proceeding.

Q. Where do state actions stand on the 340B contract pharmacy issue?
States continue enacting legislation to protect covered entities’ access to 340B pricing on drugs they dispense to their patients through community and specialty contract pharmacies. Prior to 2025, eight states (Arkansas, Kansas, Louisiana, Maryland, Minnesota, Mississippi, Missouri, and West Virginia) added such laws to their books. States that have enacted contract pharmacy protections for all covered entities since the beginning of this year include Nebraska, North Dakota, South Dakota, and Utah.

The pharmaceutical industry continues to challenge all the state contract pharmacy laws in federal courts, with varying results. The first federal appeals court to consider such lawsuits upheld the constitutionality of the first-in-the-nation contract pharmacy protection law in Arkansas, and the U.S. Supreme Court declined to take up the drug industry’s petition for the justices to reconsider that decision.

One lower court in West Virginia has ruled in favor of drugmakers on some of their constitutional challenges, and the state has appealed that decision to a different appellate court. Such appeals courts will be tasked with reconciling lower court decisions that conflict with each other. If several higher courts issue decisions that conflict with each other, it raises the possibility that the U.S. Supreme Court eventually could take up the issue of whether states can enact their own contract pharmacy protections.

In the meantime, numerous drug companies have suspended their restrictive contract pharmacy policies in some or all the states that have enacted bans against such restrictions. This has had the effect of restoring unlimited access to 340B pricing on drugs to covered entities and their pharmacy partners in those states.

Q. Minnesota recently became the first state to release an annual 340B report. What did the
report say?
Minnesota was the first state to enact requirements that 340B covered entities submit certain data to state health officials related to their participation in 340B. The state’s health department released its first annual report based on data in November 2024. It contained aggregated figures, broken down by covered entity type. The figures included:
• Acquisition costs for 340B drugs.
• Payments received for those drugs, by payer type.
• Payments made to 340B contract pharmacies and
third-party administrators (TPAs).

The report concludes that Minnesota covered entities received at least $630 million more for 340B drugs in 2023 than it cost to acquire them. This figure included $87 million through net payments from Minnesota’s Medicaid program and health assistance program for low-income patients who do not qualify for Medicaid. The report also found that the entities reporting data paid more than $120 million to contract pharmacies and TPAs in 2023.
However, the report does not measure 340B savings by comparing those figures to what providers would have paid to acquire the drugs at non-340B pricing. It also does not include any information about how they used the 340B savings they obtain through their in-house and contract pharmacies to provide more services and treat more patients.

The $630 million figure that the report details for 2023 is a fraction of the total amounts that Minnesota covered entities spent on delivering care. 340B Health analysis of cost reports from 2022 found that hospitals in the state incurred more than $15 billion in patient care costs. They also provided more than $770 million worth of uncompensated and unreimbursed care that year, a figure that was closer to a billion dollars when such care for Medicare enrollees was included.

Q. What is in the recent White House executive order on drug pricing that might affect 340B?
On April 15, President Trump released an executive order aimed at lowering drug prices. As part of the order, the president ordered his administration to conduct a survey of hospitals’ outpatient drug acquisition costs and propose a plan to set Medicare payments based on those costs. That order could lead to the return of Medicare pay cuts to 340B hospitals, which the U.S. Supreme Court deemed unlawful because the administration had not conducted such a survey beforehand.

The order gave the Health and Human Services (HHS) secretary six months to publish a plan for the acquisition cost survey. Following the conclusion of that survey, the secretary will consider and propose adjustments to align Medicare payments with the costs of obtaining those outpatient drugs. This could result in Medicare paying rates for 340B drugs that are as low as acquisition cost.

However, under federal “budget neutrality” rules, Medicare must use any savings on 340B drugs to raise rates for nondrug services at 340B and non-340B hospitals. That was the process the agency followed for the now-invalidated Medicare Part B cuts that were in effect from 2018 through most of 2022, when the high court ruled them to be illegal. The new executive order states that any future pay adjustments based on the acquisition cost survey would need to follow the same budget neutrality rules.

At least two other provisions in the executive order would touch on 340B. One would condition federal grants to health centers on those providers offering insulin and injectable epinephrine at the 340B price to certain patients with low incomes. Another would provide recommendations that could lead to changes in the administration of the Medicaid drug rebate program (MDRP), which is closely tied to 340B.

Q. Have there been any new 340B audit trends that you have noticed recently?
The Health Resources & Services Administration (HRSA) recently issued several final 340B audit reports that confirm hospitals risk audit findings if they fail to update their records with information from their most recent Medicare cost reports (MCRs). Several hospitals received audit findings because their information in the Office of Pharmacy Affairs Information System (OPAIS) did not match their most recently filed MCRs at the time of their audits.

The audit findings indicate that HRSA expects hospitals filing MCRs not to wait until the annual 340B recertification process to make necessary updates in OPAIS. Whenever a hospital files a new MCR, its filing date and cost reporting period — at a minimum — will change and should be updated. Other OPAIS fields that must match the most recently filed MCR include the disproportionate share (DSH) adjustment percentage for all 340B hospital types except critical access hospitals (CAHs), control type, and ownership.

Although audit report findings for OPAIS records violations do not involve repayments to drug companies, HRSA has made it clear it considers these record keeping expectations to be an important 340B data integrity issue. 340B Health recommends hospitals ensure compliance by making it a practice to update the relevant fields in OPAIS immediately after filing a new MCR.