Don’t Think 340B Is a Payer Problem? Think Again
by Angela Maas
While some people have characterized the current state of the 340B Drug Discount Program as a fight between pharma manufacturers and hospitals, payers and employers are increasingly impacted by the situation, maintained longtime industry expert Adam J. Fein, Ph.D., president of Drug Channels Institute (DCI), an HMP Global company, during a June 12 webinar on 340B. And a recent report found that commercial payers and Medicare payers essentially equally funded the bulk of covered entities’ 340B net profits in one state.
“I don’t think people fully appreciate” this dynamic, said Fein — who was moderating his next-to-last webinar for DCI before he and his wife, Paula, vice president of business development at DCI, leave the organization at the end of 2026 — but “payers are starting to notice what’s happening.”
Founded in 1992, the 340B program has evolved into “the most contentious, confusing and controversial program in the entire U.S. health care system,” he asserted. In 2013, there were 13,000 unique 340B contract pharmacy locations, and they had 32,000 relationships with 4,000 covered entities, the latter of which consist of certain types of hospitals and federal grantees. The marketplace has since undergone a huge expansion and now has 32,000 unique 340B contract pharmacies and 12,000 covered entities, with 240,000 contract pharmacy/covered entity relationships.
In 2024, covered entities made $81.4 billion in 340B-discounted drug price purchases. “There’s no other part of the U.S. healthcare system that’s grown as quickly as 340B,” Fein stated.
340B Status Is Unknown at Time of Adjudication
Due to “one of the weird aspects of 340B,” when an individual fills a prescription at a contract pharmacy and pays her share, and her employer or health plan pays its share, it is unknown at that time what the drug’s 340B status is.
“Days or weeks or months or maybe a year” later, a third-party administrator working for the covered entity can “essentially identify the prescriptions they would like to convert to 340B,” explained Fein. “And then conceptually, not literally, they will essentially say to the pharmacy, ‘Well, that reimbursement you got from the payer and patient, give it to us, and we’ll put a product back on your shelf as if the transaction never happened.’” After that, the 340B covered entity retains the difference between the reimbursement and the 340B amount, which “can be very high.”
“Money is fungible; money doesn’t know where it comes from,” noted Fein. “When a prescription after the fact becomes a 340B prescription, the employers and payers are the ones who are losing out.”
For example, he said, take the case of a specialty drug with a $5,000 reimbursement. The manufacturer is responsible for a 30% rebate, or $1,500, and the patient has a 25% coinsurance, or $1,250, leaving the commercial plan sponsor on the hook for the remainder of the drug’s cost: $2,250.
However, once a third-party administrator converts that drug to a 340B product, the manufacturer’s rebate — the payer’s discount — vanishes. So while the patient already paid her coinsurance at the point of sale, the payer now is responsible for the remainder of the cost, increasing its total due to $3,750.
“So the plan is now paying a lot for that, more than they expected in their benefits for that prescription, and the covered entity is now getting it,” noted Fein. “And one of the things that’s interesting about this is that if you talk to employers or health plans, they will often point the finger at hospitals as being a source of high costs. And now, on top of the normal costs they’re paying for hospital services, they’re now also paying this additional 340B tariff.”
Commercial, Medicare Plans Split Funding of Minn. 340B Net Profits
While the 340B program largely remains a black box in terms of visibility, some states such as Minnesota have begun asking for data from covered entities. According to a Drug Channels post from Bryce Platt, Pharm.D., director at DCI, hospitals in that state earned $1.34 billion in 340B net profits in 2024, almost doubling from $630 million the previous year. Hospitals in Minnesota were responsible for 93% of 340B purchases in the state. According to Platt, “340B has evolved from a safety-net subsidy into a major profit stream for hospital systems.”
Plan sponsors — commercial and Medicare plans — funded 81% of the Minnesota covered entities’ profits. “And the payer behind that, in almost half of the situation, was a commercial payer, an employer, a health plan,” said Fein. “And another 40% was Medicare.”
This situation “is actually probably widespread,” he contended, “and so what is happening is that one of the things driving benefit costs has been 340B contract pharmacy, and payers are just starting to wake up to this.”
Fein cited a report that estimated payers lost $6 billion in rebates in 2025 due to 340B contract pharmacies. That leads to another issue since studies have found that payers use most of their rebates to lower premiums as opposed to lowering patient prescription costs.
“So what’s happening now is fewer rebates, which means costs go up, and an impact on premiums,” he explained. “So this is all happening behind the scenes for a program that’s growing 22% per year. So when we talk about health care costs, this is like one of these fourth-dimensional chess things that’s occurring in the background, and people don’t fully grasp it.
“But a number of employers are starting to grasp it,” he continued. “And we’ve been seeing congressional testimony about this issue. So they’re starting to realize, ‘This could be a problem for us’ and asking for transparency into where the money is going.”