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White Paper: The 340B Drug Purchasing Program & Per-Enrollee Medicaid Costs


New Research Finds 340B Drug Pricing Program Is A Significant Driver Of Overall Healthcare Spending


The 340B Drug Pricing Program requires drug manufacturers to provide significant discounts on outpatient prescription drugs to nonprofit hospitals and federally funded health clinics to maintain eligibility for drug coverage under Medicaid and Medicare. Provider participation in the 340B program has increased exponentially over the past 10 years. As of 2023, there are 30,000 340B hospital sites and sub-sites nationwide, compared to just over 10,000 in 2014, and 20,000 340B grantee sites.


While the 340B Drug Pricing Program is often framed as costless to taxpayers, Columbia University Adjunct Professor of Economics and Business Neal Masia, Ph.D. conducted an analysis of the program to explore the relationship the program has on overall Medicaid spending, which comprises a significant share of most state budgets.


The analysis combines annual data on state-level Medicaid spending and enrollment, the number of 340B covered entities active each year from 2014 to 2021 and controls for other drivers of state Medicaid spending at the per-enrollee level.


  • KEY FINDING: $32 Billion Increase in Overall Medicaid Spending. Medicaid spending has increased significantly for taxpayers over the last ten years driven by both enrollment increases and growth in per-enrollee spending. States have also experienced different growth rates in 340B activity. Based on the relationship between Medicaid spending and the density of 340B providers, the analysis finds that increased provider participation in the 340B program from 2014 to 2021 was associated with increased annual Medicaid spending of $391 per enrollee, totaling to over $32 billion per year in taxpayer costs. This increase suggests that 340B growth accounts for about 10% of overall Medicaid spending. Some potential causes of the increase in overall spending include 340B-driven choices around site of care delivery, choice of therapy, and provider consolidation.


  • WHAT THIS MEANS: “If the original intent of 340B was to "stretch scarce federal resources" by mandating ceiling prices, our research suggests that this intent is not being achieved and the 340B program is instead associated with significantly higher overall Medicaid spending. Medicaid is often the largest line item in a state’s budget, and health benefits for state employees and retirees also require significant taxpayer resources. For example, many states allow clinics and hospitals to earn 340B profits on Medicaid managed care patients, in effect giving the 340B entities profits that would otherwise go to taxpayers in the form of Medicaid discounts. A large portion of those profits wind up going to major for-profit pharmacy chains like CVS and Walgreens.” – Neal Masia, Ph.D. Adjunct Professor of Economics, Columbia University


This new research demonstrates the need for further research into the relationship between higher rates of 340B activity and increased overall Medicaid spending, and potential impacts on the broader commercial market.  To read the full report, click here.  


This research was supported by Eli Lilly and Gilead Sciences. Editorial control was maintained by Health Capital Group, LLC. 

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