Stop Calling 340B “Profit”: The Reality of Safety-Net Survival

Misunderstanding the Margin

The 340B Drug Pricing Program is increasingly under scrutiny, with critics alleging that nonprofit hospitals exploit the program for financial gain. Central to this argument is the notion that hospitals purchase drugs at deeply discounted rates and bill insurers at full price, thereby pocketing the difference. This critique, however, fails to grasp both the design of the program and the structural financial challenges facing safety-net providers.

340B is not about profit. It is a targeted policy mechanism that allows hospitals to remain solvent while serving populations for whom care is routinely undercompensated or uncompensated entirely.

Understanding the Financial Role of 340B

Congress created the 340B program in 1992 to enable eligible hospitals to stretch scarce resources and serve more patients. The program does not require drug manufacturers to lose money. Rather, it mandates discounts that still allow profitability—much like Medicaid or VA pricing. According to the Health Resources and Services Administration (HRSA), 340B accounted for $53.7 billion in drug purchases in 2022, which represents only about 7.2 percent of total U.S. drug spending, projected at $743 billion that year.

Importantly, this figure refers to gross purchases, not hospital savings. Covered entities receive average discounts of 25 to 50 percent, depending on the medication and market conditions. These savings are reinvested into core services that receive little or no reimbursement.

The Broader Context: Structural Underpayment and Demand

Public Reimbursement Is Consistently Inadequate

In 2021, Medicare paid hospitals an average of 84 cents for every dollar of care provided. For Medicaid, the figure was approximately 90 cents, according to the American Hospital Association (AHA). For hospitals where 60 to 80 percent of patients are publicly insured, this means persistent structural deficits.

In the same year, U.S. hospitals delivered over $42 billion in uncompensated care, including charity care and bad debt. These figures do not include the cost of underpayment from Medicaid and Medicare, which further erodes financial viability.

340B Bridges the Gap

Hospitals report that every dollar saved through 340B supports essential services, including:

• Free or deeply discounted prescriptions for uninsured patients
• Oncology infusion centers in rural or low-income areas
  Mobile clinics and community health outreach
• Financial assistance and charity care programs
• Staffing for mental health, substance use, and pediatric care

In a 2022 survey by 340B Health, 95 percent of covered entities said they use 340B savings to maintain access to services that would otherwise be financially unsustainable, such as HIV care, oncology, and behavioral health.

Margins Do Not Equal Misuse

The concept of “arbitrage” between the 340B price and insurer reimbursement is both misleading and analytically incomplete. Most hospitals that qualify for 340B are either Disproportionate Share Hospitals (DSHs), Rural Referral Centers, Sole Community Hospitals, or Critical Access Hospitals. These designations are based on the socioeconomic and clinical needs of the patient population—not on the financial strength of the institution.

In fact, more than half of all rural hospitals operate at a loss, and over 150 rural hospitals have closed since 2010. Without 340B, that number would likely be much higher.

Responsible Use and Oversight

Calls for transparency are valid. Hospitals should be expected to report how 340B savings are used. Many already do. For example:

• Trinity Health Michigan reported over $3 million in annual savings for patients on prescription medications through its 340B-funded access program.
• Grady Health System in Atlanta used 340B savings to provide nearly 900,000 low-cost prescriptions and to sustain seven neighborhood clinics.
• Our Lady of the Lake Health in Louisiana kept patient prescription costs as low as $7.77, versus the non-340B average of $78.13.

These are not anomalies. They are representative examples of how 340B fulfills its legislative purpose.

Reframing the Narrative

When critics suggest that 340B is a profit engine, they ignore both the regulatory framework and real-world hospital economics. Savings are reinvested. Services are preserved. Patients benefit.

The real threat is not hospital misuse. It is the effort by manufacturers to restrict contract pharmacy access, push rebate-based pricing schemes, and lobby for program limits that would strip 340B’s financial engine while leaving safety-net hospitals to fend for themselves.

Conclusion

Hospitals participating in the 340B Drug Pricing Program are not exploiting a loophole. They are using a legally established tool to stabilize operations in the face of relentless financial pressure.

Before labeling 340B margins as profit, we must ask: Who benefits when that narrative takes hold? The answer is not the patient. It is the manufacturers who seek to limit accountability and maximize pricing power.

The 340B program remains one of the few levers available to hospitals that serve the most complex, under-resourced, and vulnerable populations in the country. Weakening it in response to flawed analysis would not only be shortsighted—it would be dangerous.