Jackson Hammond, Senior Policy Analyst at Paragon Health Institute, said on May 13 that policymakers should reform the federal 340B drug discount program by ending its spread-based profit mechanism. Hammond said this mechanism allows covered entities to buy drugs at discounted prices and receive higher reimbursements, contributing to program growth, consolidation incentives, higher costs, and limited transparency.
“The distortionary spread-based pricing of the 340B Program is a major driver of consolidation, cost, and price growth in our health care system,” Hammond said in comments published by Paragon. “By ending 340B’s spread-based profit mechanism, they can help lower costs for patients and taxpayers while helping struggling hospitals and the vulnerable patients they serve.”
The debate comes as the 340B program continues to expand rapidly within the prescription drug market. Covered entities purchased $81.4 billion in outpatient drugs through the program in calendar year 2024, according to the Health Resources and Services Administration, intensifying scrutiny over eligibility rules, reimbursement practices, transparency, and whether savings directly benefit patients.
The 340B program requires drug manufacturers to provide discounted outpatient drugs to eligible safety-net hospitals and clinics. Congress created the program to help providers serving low-income and uninsured patients stretch limited healthcare resources. However, hospitals and clinics are not required to pass discounts directly to patients or use savings for specific services.
Researchers and healthcare policy analysts have increasingly questioned whether the program’s financial benefits consistently translate into measurable patient outcomes. Commentary published in JAMA Health Forum has highlighted concerns about limited transparency, rapid program growth, expansion of contract pharmacy arrangements, and uncertainty over how savings are ultimately used.
Hospitals participating in 340B receive an estimated average discount of at least 22.5 percent off average sales price for drugs paid under Medicare's outpatient prospective payment system. When reimbursement is not tied directly to acquisition discounts, this gap can create incentives for hospitals to increase their use of higher-priced drugs within the program volume according to MedPAC.
At an October 2025 Senate Health Education Labor & Pensions Committee hearing, Chairman Bill Cassidy said the program had "ballooned with limited oversight," raising questions about how revenue is used and whether it benefits low-income patients directly. Cassidy also pointed out concerns involving contract pharmacies, hospital consolidation trends linked with higher healthcare costs, duplicate discounts issues, and weak transparency requirements.
Paragon Health Institute describes itself as a non-partisan, not-for-profit policy research institute focused on reforming government and empowering patients. Jackson Hammond is listed as a Senior Policy Analyst on Paragon’s team, and Paragon’s health policy work includes research and commentary on Medicare, Medicaid, private health, public health, and state reform.
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