State Legislative Actions and the Federal 340B Drug Pricing Program

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Key Takeaways

Background

According to the Health Resources and Services Administration, the federal 340B Drug Pricing Program requires manufacturers participating in the Medicaid Drug Rebate Program and Medicare Part B to sell all outpatient prescription drugs to covered entities at an up-front discount, or ceiling price. Outlined in federal law, the ceiling price is tied to the Medicaid Best Price, allowing covered entities to receive discounts from drug manufacturers estimated between 20% and 50% off list prices.

Covered Entities

Covered entities, also known as CEs, are organizations eligible topurchase outpatient drugs at discounted prices under the 340B program. These include:

• Federally qualified health centers.
• Ryan White HIV/AIDS Program grantees.
• Children's hospitals, critical access hospitals and disproportionate share hospitals.
• Specialized clinics, for example black lung facilities, comprehensive hemophilia diagnostic treatment centers and tuberculosis clinics.

CEs may have affiliated sites, known as child sites, that are similarly able to purchase drugs at 340B discount prices. Additionally, CEs may arrange with contract pharmacies (including retail outlets) to dispense 340B drugs on the CE's behalf.

After registering with the HRSA, covered entities must complete the agency's annual recertification processes and maintain records for HRSA audits. CEs may provide services to people across insurance payers and income levels, but they must serve 340B patients who qualify under the definition of an eligible patient and adhere to federal guidelines.

Eligible patients must have an established relationship with the CE for reasons related to receiving care, and the CE must ensure that 340B drugs are provided only to eligible patients. Diversion occurs when a covered entity provides a 340B drug to an individual who is not an eligible patient of that entity. The covered entity must have mechanisms in place to prevent diversion and maintain auditable records documenting compliance with 340B program requirements.

CEs may generate savings by charging private health insurers the drug list price rather than the lower ceiling price at which they purchase 340B drug products. CEs may then keep the difference, or spread, to invest in care and services not only for 340B program participants, but also for the larger communities the CEs serve.

Although CEs are not federally required to report how they use savings generated through the 340B program, some-such as federally qualified health centers (FQHCs)-are required to reinvest 340B revenue into care and services for the populations they serve. This can include offering free or low-cost medications to non-340B patients, subsidizing uncompensated care and funding specialty clinics for conditions such as diabetes, cancer, stroke and brain injuries.

In a scoping review published in the Journal of the American Medical Association, researchers found the 340B program has expanded health care services for patients and provided meaningful benefits for CEs and contracted pharmacies. They further determined that CEs used program revenue to expand health care services, subsidize uncompensated care, open specialty clinics and acquire physician practices, and support staff salaries.

Pharmaceutical manufacturers, meanwhile, have been concerned about the growth of the 340B program and have imposed contract pharmacy restrictions that have faced legal challenges. Evidence from the JAMA study was mixed on whether the 340B program lowered prescription drug costs. The study did not formally evaluate the quality of evidence and was limited by a lack of information that was confidential or unavailable, such as 340B program pricing and savings.

340B Spending

In a Congressional Budget Office examination of 340B drug purchases, spending in the program increased 19% annually from 2010 to 2021. HRSA data shows spending by covered entities on 340B drug purchases rose from $66.3 billion in 2023 to $81.4 billion in 2024 , an increase of more than 22%. The data further indicates 61.5% of 340B drug purchases went toward outpatient specialty drugs used in the treatment of chronic conditions like cancer and HIV.

Research has identified several key drivers of 340B spending growth, with utilization (volume) and price being significant factors.

One study examining the impact of price versus utilization on 340B program expansion from 2018 to 2024 found that utilization accounted for 79.6% of total growth. Price increases accounted for 17.3% of program growth when measured using the drug's list price. When measured using the lower 340B discount prices, the contribution of price to the program's overall growth was 2.5%. It is important to note that the study did not attempt to assess all the factors that might contribute to 340B growth or the reasons why utilization or prices may be increasing.

Other analysis points to an increase in the number of contract pharmacies participating in the program as a contributing factor. Between 2009 to 2022, the share of retail contract pharmacies with at least one CE contract rose from 1.3% to 40.9%. These pharmacies also tended to hold contracts with more than one CE, contract exclusively with safety-net providers less frequently, and operate farther from the primary CE site.

The same research showed that 71% of pharmacies in the top four national chains by volume were contract pharmacies and that contract pharmacy expansion was concentrated in affluent neighborhoods and declining in communities with lower incomes. Scholars also found that, compared to the top four chain pharmacies, independent rural pharmacies-which typically serve safety-net communities-had less 340B participation (22%) and held a disproportionately lower number of CE contracts.

340B and Medicaid

Under the 340B program, manufacturers are not required to provide a discounted 340B price and a Medicaid drug rebate for the same drug. The HRSA Office of Pharmacy Affairs tracks CEs' Medicaid billing information using the Medicaid Exclusion File, which states use to identify which CEs bill 340B drugs to Medicaid patients. To avoid manufacturers paying duplicate discounts, state Medicaid agencies exclude those drug purchases from required reporting to the Centers for Medicare & Medicaid Services, which provides a summary to manufacturers without claims-level data. An important note is that the MEF applies only to the prevention of duplicate discounts occurring under fee-for-service contracts and does not extend to managed care organizations (MCOs).

Medicaid agencies typically communicate guidance about data submission requirements directly to CEs, rather than to contracted pharmacies, which may increase the likelihood of submitting flawed data. MCOs often contract with pharmacy benefit managers, or PBMs, to administer the prescription drug benefit, complicating the ability of Medicaid agencies to track and prevent duplicate discounts. Compounding this issue, some PBMs also own and operate retail pharmacies that can be designated as contract pharmacies by a CE.

States and manufacturers have expressed shared concerns regarding the significant increase in 340B drug spending and the ability to effectively prevent duplicate discounts. Interviews with over a dozen state Medicaid agency experts revealed wide variability in the allocation of resources dedicated to managing and preventing duplicate discounts. In response, some manufacturers have shifted away from providing up-front price concessions, opting to reimburse CEs only after receiving necessary drug claims data.

State Action

The 340B Drug Pricing Program is a complex but critical resource to the safety net community. Over 70 bills addressing a wide range of 340B program modifications were introduced in 34 states in 2025.

Independent Pharmacy Protections

An emerging area of overlap between PBM and 340B reform addresses protections for independent, nonaffiliated pharmacies, including:

• Restricting PBMs from limiting patient choice to PBM-affiliated pharmacies or from limiting patient access to certain pharmacy networks.
• Mandating PBM pharmacies and nonaffiliated pharmacies receive equal reimbursement amounts.
• Establishing antidiscrimination standards against 340B contract pharmacies.

Examples of State Legislation

• Colorado's "340B Prescription Drug Program Anti-Discrimination Act" outlines several independent pharmacy protections, including prohibiting health insurers, PBMs and other third-party payers from discriminating against CEs or contract pharmacies that participate in the 340B program.
• PBMs in Indiana may not exclude a 340B CE from a PBM pharmacy network based on the CE's participation in the 340B program; the legislation also stipulates that doing so constitutes an unfair business practice.
• Under Nevada legislation, PBMs cannot restrict patient access to 340B drugs by applying additional cost-sharing measures to them.

Claims-Data Requirements

In response to manufacturers' shift away from providing up-front discounts to CEs, at least 16 states have put their own data-submission policies in place, for example:

• Stopping manufacturers from denying the sale or shipment of 340B drugs to CEs or entities authorized to purchase the drugs.
• Banning manufacturers from requiring CEs submit claims data for program compliance, unless mandated by federal law.

State Examples

• Delaware prevents manufacturers, wholesalers and distributors from limiting the sale or delivery of 340B drugs to CEs, and from requiring CEs to submit claims or utilization data as a condition for purchasing 340B drugs.
• Alongside preventing manufacturers from limiting the sale of 340B drugs to CEs, Maryland directed the state Prescription Drug Affordability Board to study the 340B program and release recommendations in 2026.
• Similarly, South Dakota prohibits manufacturers from restricting the sale or delivery of 340B drugs to CEs and from requiring CEs or pharmacies to submit claims or utilization data unless mandated by federal law. The statute also allows CEs and pharmacies to pursue civil action for violations, including damages and attorney fees.

Transparency

Policies that increase transparency have generated a significant amount of bipartisan support. Over a dozen states in the past decade have worked to shed light on the prescription drug supply chain. With increased calls for strengthening federal oversight of 340B program compliance, some states are moving forward with policy measures of their own.

State Examples

• Idaho requires CEs to annually explain how any savings acquired from participating in the 340B program were used, and if any 340B savings supported charity care, community benefits or other types of unreimbursed care.
• Minnesota was an early adopter of 340B transparency requirements, and now the state requires CEs to annually report information such as the number of 340B prescription drug claims and payments received; aggregated payments made to 340B contract pharmacies to dispense 340B drugs; and total amounts paid for 340B drug purchases.
• Washington's state Medicaid agency assesses the impact 340B providers have on the communities they serve. To comply, all CEs must complete reporting requirements every 12 months.

Conclusion

The 340B state policy landscape is evolving rapidly, and lawmakers from across the political spectrum have sought to reform program operations in their state. With the implications of 340B touching almost every aspect of the health care system-hospitals, pharmacies, PBMs, health plans and patients-state lawmakers have much to consider.