The debate between large hospital systems and pharmaceutical manufacturers over 340B reform is both timely and important. Put plainly, manufacturers’ core interest is to constrain the size of the program and target disproportionate share hospitals, which receive 80% of 340B savings. Neither group has proven to be an effective steward of 340B.
From the perspective of safety net providers and the vulnerable patients they serve, this is a clear case where, when elephants fight, it is the grass that suffers. Without thoughtful reforms, the clinics doing the hardest work with the fewest resources risk becoming collateral damage. We are grateful for the opportunity to share perspectives that seek to restore 340B to its original purpose.
Some of the program’s fiercest critics (including PhRMA) agree that grantees are the “good guys” of 340B, embodying the original intent of the 340B program. We do not work directly with DSH and rural hospitals, and thus do not offer a deeply informed perspective on their use of 340B. However, we are seeing firsthand how manufacturer restrictions, hospital system behaviors, and PBM steerage of prescriptions, siphon 340B savings away from Covered Entities — with clear impacts on grantees. Our recommendations are therefore focused on protecting the 340B Covered Entity types we serve. They are also nuanced, because broad reforms often disproportionately harm small clinics and community-based organizations who lack the political representation of larger systems. We additionally offer recommendations to tighten key loopholes, enhance program integrity, reduce complexity, and maximize savings for their intended beneficiaries.
Summary of Recommendations:
- Protect and expand 340B eligibility for Section 318, Ryan White, and Section 330 Grantees.
- PBM reform will drive 340B reform: Remove barriers for 340B entities to access their 340B savings.
- Implement size-appropriate transparency & reporting.
- Provide HRSA the enforcement authority to make determinations to enforce and drive program integrity and close key loopholes and exploitations of the program.
1. Protect and expand 340B eligibility for Section 318, Ryan White, and Section 330 Grantees
- Preserve in-kind grants for Section 318 STD Clinics. STD clinics provide the broadest set of care services for STD impacted and adjacent populations, including but not limited to HIV. While “preserving in-kind funding for 340B eligibility” seems a relatively innocuous topic, it is incredibly important for how STD control programs practically operate across America. Most Section 318 STD grants are awarded to state and county health departments, and then implemented through in-kind distributions of test kits, condoms, educational and capacity building resources through local community providers. These community providers ensure adequate screening, testing, reporting, and comprehensive care provision for STD control in their respective communities.
In-kind grants enable participation in the 340B program, allowing clinics to sustain operations and patient services. Especially for STD clinics, maintaining their 340B eligibility status via in-kind grants are existential: every $1 of in-kind support for an STD Clinic through their health department partners force multiplies through the 340B program to support 80% - 90% of their operating budgets via the 340B program. From our perspective, we care less about the size of the in-kind grant award versus the general availability and number of the grant statuses awarded, as these grants allow these entities to participate in the 340B program and sustain patient services through these funds, that ultimately stretch scarce federal dollars per the original intent of the program.
- Expand the 340B eligibility for Ryan White grantees to include broader STD & care services, such as PrEP, PEP, syphilis & STI, and viral hepatitis prevention & treatment, reflecting the modern public health landscape. This is especially timely as HHS consolidates STD, substance use disorder, and HIV care & prevention programs into a more streamlined, coordinated, and effective agency. Without such reform, Ryan White grantees perform the hardest part of the patient journey - identifying and having a patient willing to engage in care, only to then be referred out to a larger hospital system that then captures the 340B savings for that patient, due to due limitations of the Ryan White program.
- A real life example that highlights this gap: Today, for discordant couples (where one partner is HIV positive and the other is HIV negative), Ryan White clinics can treat the HIV+ partner but are restricted from using 340B savings to support PrEP for the HIV- partner. This misalignment harms HIV prevention efforts and contradicts public health goals of reaching 95/95/95 targets. Ryan White grantees are the most effective HIV care programs in the country. They should be allowed to not just treat, but prevent, HIV transmission to end the HIV epidemic in America. In practical terms, it makes little sense to have at-risk HIV-negative patients be turned away from care simply because of limitations to Ryan White grant definitions.
- For FQHCs, it is not simply about protecting 340B eligibility — it is about ensuring the program works as intended to directly benefit underserved patients. Clarify that the Executive Order for at-cost insulin and injectable epinephrine applies to patients eligible under an FQHC’s sliding fee scale program. Most FQHCs already administer deeply discounted drug access through their sliding fee scale structures, which are mandatory for all Section 330 and based on FPL Guidelines. Merging the intent of President Trump’s Lowering Drug Prices by Once Again Putting Americans First Executive Order with FQHC sliding fee scales would allow clinics to directly subsidize eligible patients’ cost-sharing and out-of-pocket expenses — fully documented within their required sliding fee policies. This would strengthen the impact of 340B savings in a scalable and accountable way for vulnerable patients. It would also close a critical loophole by ensuring that 340B savings remain within the Covered Entity and patient ecosystem, rather than being shifted inadvertently to MCOs as it may be currently interpreted.
2. PBM reform will drive 340B reform: Remove barriers for 340B entities to access their 340B savings.
- Anti-competitive PBM practices drive contract pharmacy proliferation. As it stands today, contract pharmacies and TPAs are capturing a significant share of the 340B revenue stream, at the expense of both covered entities and patients. What is less understood and documented, however, is the percentage of contract pharmacies that are owned big box retailers and PBMs (i.e. CVS, Walgreens, Accredo Pharmacy (owned by ExpressScripts), Optum and Genoa (owned by UnitedHealthGroup)). When looking at covered entities who manage 100+ contract pharmacy relationships, our data shows that an overwhelming majority of the contract pharmacies fall into the category of big-box retailer or PBM owned. As a specific example, an STD clinic in Massachusetts that manages 132 contract pharmacy relationships - 125 of 132, or a whopping 94.7% of the contract pharmacies are PBM-owned or big-box retailers. As drug manufacturers have contended, explosive growth in contract pharmacy use has led to greater 340B sales via contract pharmacies than via traditional in-house pharmacy settings, diverging from the original intent of the 340B program. This requires further deep-dive into the relationship between PBM practices and the proliferation of contract pharmacies and TPAs.
- It is well known in the 340B industry that CVS Health, Optum and Walgreens charge complex and rising fees to covered entities. These fees include dispensing fees, administrative fees, and per-claim TPAs costs—many of which increase automatically each year. Covered entities report these rising costs strain financial resources and reduce the ability to deliver care, because they are stripped of their 340B revenue.
- Combine all this with common PBM practices of limiting options for patients, steering patients to their own pharmacies, and using take-it-or-leave-it contracts, and you will get closer to the truth of the needed PBM reform that will in turn directly impact 340B reform. It has been well documented in recent years that community pharmacies are being “crushed” by these PBM practices, and it should not be lost on anyone that these same community pharmacies include in-house entity-owned pharmacies of covered entities.
- So what does all this mean in practical terms? Simply put, when a covered entity (in this case an STD clinic) uses their resources to find, test and treat patients in their local communities for diseases like HIV and Hepatitis C, the PBMs are forcing the eventual prescriptions that are written to be routed to their own specialty pharmacies (at an alarming rate), known as “network restrictions" or "network lockouts.” As a result, these covered entities have no other choice but to enter into a contract pharmacy relationship in order to capture at least a portion of 340B revenue, less the fees charged by PBM-owned pharmacies in “take it or leave it” dispensing and TPA fee arrangements. Bottom line - patients should be able to fill prescriptions at the pharmacy that works best for them, not forced to the one owned by the PBM.
- Remove PBM barriers and exploitation of 340B. While PBMs’ role is less in the spotlight in 340B, they are the single largest day-to-day barrier to healthcare access for our most vulnerable populations, and vertically owned PBMs and their specialty & mail order pharmacies create the most friction, with often catastrophic impacts on the patients we serve. We’ve attached a quote from one of our clients (the CEO of an STD clinic in Oklahoma City) that encapsulates the real world impact of PBM steerage to their own pharmacies. While PBM reform is a much larger topic, we cannot emphasize enough that PBM reform is critical to remove access barriers for patients and safety net providers that rely on 340B program savings.
- Specific to 340B covered entities, apply “Any Willing Provider / Any Willing Pharmacy” rules so 340B Covered Entity owned pharmacies can serve their patients. Disallow PBMs to designate specialty pharmacy requirements to limit competition and force routing of prescriptions to themselves. This is a common practice where PBMs design requirements to be so burdensome and restrictive that only their affiliated pharmacies qualify, and functionally limit 340B savings that can be retained by the covered entity owned in-house pharmacies.
- Prohibit conditioning 340B access on participation in platforms like 340B ESP. Reporting & data transparency can and should be enforced, but through neutral, federally administered frameworks (ideally by HRSA), and not systems controlled by manufacturers or their funded intermediaries such as 340B ESP. We have recommendations on reporting requirements below.
3. Implement size-appropriate transparency & reporting. It is critical to recognize that the small, community-based clinics doing the real work of caring for the underserved have the least administrative capacity to shoulder new regulatory burdens. Meanwhile, large institutional players — the very actors most responsible for siphoning 340B benefits away from patients — are best equipped to absorb regulatory complexity. Thoughtful reform must ensure that accountability measures target systemic abuse without sacrificing the lifeline of care that small, independent safety-net providers deliver to America's most vulnerable populations.
- Target transparency requirements appropriately. Large health systems, which represent 80% of 340B spending, should be subject to rigorous reporting. We do not have deep expertise in health systems use of 340B savings, but do recognize this is where the greatest utilization of 340B savings occurs with the least transparency. As a reference, see UDS reporting requirements for FQHCs, and mandate this level of reporting for all covered entity types, especially larger health systems and hospitals.
- Retain eligibility without imposing burdensome new reporting requirements for grantees, and simplify reporting for small, federally funded CEs. Exempt if UDS reporting is already required. Clinics already face extensive federal oversight, including UDS reporting, which is complex, burdensome, and far from "simple." Adding more layers would disproportionately harm the very providers the program is meant to support. that would disproportionately burden smaller, rural, and community-based clinics already subject to extensive federal oversight. One approach would be to require all 340B Covered Entities to report their annualized adjudicated pharmacy revenue (source of funds), and their 340B savings. For programs with annualized adjudicated pharmacy volumes in excess of $10M, require reporting on how their 340B savings were used (use of funds). And for programs with above $50M of pharmacy revenues, require annual audited disclosures of their 340B savings use.
- Certify Third Party Administrators (TPAs) to ensure they are neutral and transparent. TPAs should be neutral and subject to certification standards to prevent conflicts of interest, particularly when PBMs or hospitals own the TPA. Beware of TPAs that are also owned by PBMs (i.e. WellPartner is the wholly owned TPA of CVS Health, and its ownership by CVS is intentionally disguised).
4. Provide HRSA the enforcement authority to make determinations to enforce and drive program integrity and close key loopholes and exploitations of the program
- Patient definition: Tighten the patient definition for 340B to ensure eligible patients hold an ongoing clinical relationship with the Covered Entity providing care, and not simply a referral network. In other words, a 3rd party should not be allowed to use the Covered Entity’s 340B status to qualify prescriptions for its own patients that do not have an ongoing and direct relationship with the CE. Empower HRSA to enforce these patient definition requirements and more broadly expand HRSA’s authority to monitor and enforce appropriate program use and use independent audits to detect and address misuse.
- Direct service and reporting requirement: Covered entities must demonstrate provision of direct patient care (not just affiliation or ownership structures) to underserved or special populations. In other words, a hospital should not be able to create an FQHC lookalike to qualify its entire patient base, and only qualify patients directly receiving clinical services through the look alike entity on a longitudinal and ongoing basis. More broadly, covered entities should report the amount of their 340B revenue, and how 340B revenue is used, through a standardized process that is required for accountability purposes across all covered entities.
On behalf of the safety net providers we work with every day, we appreciate the opportunity to provide some of these perspectives on the ground. The 340B Program remains one of the most successful examples of federal policy driving better healthcare access without taxpayer burden. We are grateful for your recognition that fixing 340B means restoring it to patients and providers it was originally intended to serve and there are no better stewards of this program than FQHCs, Ryan White, and STD Clinics. With the appropriate reforms, we believe the 340B program can be used by the Administration as a shining example of how public policy can drive immense public health benefits to millions of Americans without the need for taxpayer dollars - to the tune of $64B and counting.
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