Persistent growth in the 340B Drug Pricing Program is raising questions about the financial impact to patients, other stakeholders, and the healthcare system overall. To address some of these questions, Avalere analyzed how state Medicaid programs are impacted by foregone rebates when 340B covered entities carve claims out of the Medicaid program and into 340B instead. Avalere found that in 2023, states did not obtain an estimated $2 billion in Medicaid rebates for products administered in the hospital outpatient setting because of 340B. Avalere also compared cost sharing for patients who fill prescriptions through 340B covered entities that are not required to provide reduced fees.

Background

The 340B Drug Pricing Program (“340B”) requires drug manufacturers participating in Medicaid to provide discounts to certain eligible covered entities, like Disproportionate Share Hospitals (DSHs) and Rural Referral Centers (RRCs). 340B covered entity purchases totaled approximately $66.3 billion in 2023, outpacing the estimated $51 billion in net Medicaid spending on prescription drugs in the same year. DSHs account for the largest portion of 340B purchases, at nearly 80% as of 2023.

Although many 340B policy discussions have focused on DSHs, program growth has also been observed across other entity types, including RRCs, with 340B purchases increasing by over 800% between 2015 and 2023, growing from $150 million to $1.47 billion during that time.  Additionally, according to the Health Resources & Services Administration, the top-10 selling 340B drugs accounted for roughly one-third of all 340B purchases in 2023. While there is variation across individual drugs, 2023 340B purchases for these 10 drugs in total was about $3.5 billion higher than combined Parts B and D spending on these 10 drugs in 2022.

Policymakers and Congressional analysts have proposed several 340B reforms in recent years, including the 340B SUSTAIN and 340B ACCESS Acts; these have not moved past discussion draft status or bill introduction. In December 2024, the Congressional Budget Office included a policy option to address Medicare Part B reimbursement for 340B-acquired drugs in its publication, “Options for Reducing the Deficit: 2025 to 2034.” At the state level, several laws have been passed to address manufacturer program integrity, including those that require manufacturers to deliver 340B discounted products to contract pharmacies and that prohibit certain entities from requiring claims data information from covered entities or contract pharmacies.

These federal and state policy discussions have raised important questions about how 340B impacts patient cost sharing, the potential for duplicate discounts, the intersection with other private and public payers such as Medicaid, and the impact on the broader healthcare system. For example, the North Carolina State Treasurer recently released a report that highlighted substantial profits that 340B hospitals can generate on products acquired at 340B discounts, finding that patient cost sharing exceeded acquisition costs in some cases. This dynamic was also highlighted in a January 2025 New York Times article. Additionally, recent analyses and reports have found that, due to contractual limitations, employers may forgo billions in savings via manufacturer rebates and that other stakeholders can benefit financially from the program.

Impact of 340B on Mandatory Medicaid Rebates

Under federal law, manufacturers are not required to provide both a discounted 340B price and a mandatory Medicaid drug rebate for the same unit of drug. The majority of states allow 340B covered entities (specifically DSHs) to decide whether 340B claims will be carved in or carved out with respect to the Medicaid program. Claims that are carved into 340B are listed in a Medicaid Exclusion File and Medicaid programs are not supposed to claim Medicaid Drug Rebate Program rebates on drugs administered by such a hospital or filled by its pharmacies. While this discretion allows hospitals to maintain savings from 340B, it functionally means that states do not collect the mandatory Medicaid rebates for these prescriptions.

Medicaid rebates on outpatient drugs totaled approximately $54 billion in 2023, with estimates ranging  from $46 million to $6 billion per state. Avalere estimates that based on the current list of carve-in hospitals, states may have forgone approximately $2 billion in Medicaid rebates just on products administered in the hospital outpatient setting in 2023. Estimates are based on Medicare fee-for-service spending on 340B-acquired drugs and cost report data (see Methodology for details). There are likely additional rebates that Medicaid programs forgo for products distributed via 340B contract pharmacies.

In a recent KFF survey of state Medicaid directors, over half noted that the chance of a Medicaid shortfall in fiscal year 2025 was “50-50,” “likely,” or “almost certain,” despite currently stable budgets. This is a departure from 2021 and 2022, where most states did not anticipate state revenue shortfalls. The Republican-controlled 119th Congress and second Trump administration may revisit current Medicaid policy, potentially changing matching rates or other policies that may impact states’ Medicaid budgets, such as block grants.

Given the possibility of increased financial strain, state Medicaid programs may seek to understand how much their programs may be currently forgoing rebates based on the carve in status described above.

Patient Cost Sharing

Federal law provides that certain covered entities (e.g., health centers, Ryan White Program clinics), may obtain 340B eligibility on the basis of receiving federal grants or subawards under a federal grant. Many of these organizations ensure that patients receive reduced cost sharing consistent with federal sliding fee scale program requirements in the Public Health Service Act.

Most large hospitals, like DSHs, and their contract pharmacies are not subject to sliding fee scale requirements. They may purchase drugs at the same discounted 340B price as grantee covered entities, but they are not required to lower the amount they charge the patient for that medicine. To illustrate this dynamic, Avalere reviewed a variety of publicly available prescription drug sliding fee scale programs and typical insurance coverages for patients with incomes 175% of the Federal Poverty Level. Avalere assumed a single deductible of $700 with preferred brand drugs being subject to the deductible and 25% coinsurance post-deductible, which represents a typical, commonly chosen Silver Tier Exchange plan with 87% cost sharing reduction. Avalere then considered the experience of a patient prescribed a medicine with a wholesale acquisition cost of $100 on the preferred brand tier of their plan. While in their deductible phase, a patient filling their prescription at a typical DSH hospital or its contract pharmacy would pay $100 per fill until they meet their deductible. That patient would pay approximately $29 with a typical sliding fee scale.

Contextualizing the Findings

This Avalere analysis contributes to a broader body of public reports that identify ways the 340B program may have both direct and indirect impacts on multiple healthcare stakeholders, including government payers, employers, and patients. It will be important for policymakers to understand this full spectrum of considerations as they contemplate potential reforms to 340B.

Staying ahead of the latest trends and 340B policy and program developments will be critical for stakeholders looking to engage in a 340B reform conversations in 2025 and beyond. To learn more about how Avalere can support you on 340B policy and strategy, connect with us.

Methodology

To estimate forgone Medicaid rebates resulting from 340B carve-in policies, Avalere leveraged publicly available 2021 Medicare cost report data to determine total outpatient revenue. To estimate the share of outpatient revenue attributable to 340B-acquired drugs, Avalere leveraged the Addendum AAA file released as part of the Outpatient Prospective Payment System Remedy Final Rule to set a site-specific 340B share of outpatient revenue attributable to such products. Avalere estimated the share of revenue attributable to Medicaid using discharge information from the cost reports and adjusted all amounts to include patient cost-sharing liability and eliminate add-on payments. A standard 23.1% rebate was assumed for estimated Medicaid 340B acquired drugs for all sites listed on the Medicaid Exclusion File.

Funding for this research was provided by Bristol Myers Squibb; Avalere retained full editorial control.