The hospital lobby has shown its cards. In December, the American Hospital Association and several safety-net systems filed a lawsuit against the Trump administration in an effort to block a one-year pilot program created by the Health Resources and Services Administration to test reforms to the 340B drug discount program. They are not afraid that the pilot will fail. They are terrified that it will succeed and expose how much they rake in from a program that was supposed to serve vulnerable patients.
Hospital executives are in a full-blown panic to kill even a temporary attempt to collect data on an alternative method to implement the program. They know the test would expose how they’ve stealthily transformed a well-intentioned discount program into a multibillion-dollar racket. A transparent analysis would lay bare a business model built more on government-mandated margins than on patient care.
The 340B program began with a noble purpose: helping a small number of hospitals continue to provide access to certain prescription drugs for low-income patients. That mission has long since been corrupted. After the Affordable Care Act drastically expanded 340B eligibility in 2010, the program mutated into a lucrative revenue stream for hospitals and pharmacy chains and ballooned in size.
According to the Congressional Budget Office, spending on 340B drugs jumped from $6.6 billion in 2010 to more than $81 billion in 2024. The largest tax-exempt hospitals, not community clinics, reaped the rewards. A Senate HELP Committee report found that the Cleveland Clinic alone pocketed nearly a billion dollars in 340B revenue in just three years.
The scheme is simple enough. Hospitals buy drugs at steeply discounted rates mandated by the government, then bill patients and insurers at full price. That spread produces extraordinary profit with virtually no accountability. It incentivizes hospitals to prescribe more drugs and the most expensive ones. Analyses show 340B facilities use fewer generics and biosimilars, driving up costs across the system. Every stakeholder, from taxpayers to insured families, pays more while hospitals quietly pocket the revenue. The Trump administration’s pilot stands to expose the grift in detail.
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The gaming doesn’t stop there. Some large hospital systems have figured out how to rebrand urban hospitals as “rural” facilities to qualify for government cash reimbursements intended for rural clinics. More significantly, they gain easier access to the lucrative 340B program. Then, they maximize returns on their 340B status by acquiring clinics, particularly cancer treatment centers in wealthy areas, to increase the volume of drugs prescribed and maximize the spread paid by well-heeled, well-insured patients, while neglecting care in areas the program was intended to serve. Having wriggled through so many regulatory loopholes, it’s no wonder the industry is fighting any attempt to expose the details of the program, which is virtually unknown to patients.
The Trump administration’s pilot program is a modest attempt to restore sanity to a program that is being exploited. It covers a narrow slice of drugs and lasts only one year. Its goal is to study how 340B pricing interacts with reimbursement mechanisms and to test whether data-driven accountability could reduce costs—what should be a popular move in the current climate of affordability consciousness.
The administration is already pursuing lower healthcare prices through Medicare drug negotiations and a most-favored-nation policy to ensure Americans do not pay more than patients abroad for prescription drugs. The study is just another in a series of measures to lower costs for patients.
Hospitals claim that even a short pilot will cripple services and harm patients. The facts tell a different story. The program’s limited scope would barely register financially for major systems. The real threat is reputational.
Once the full extent of the program is exposed, hospital executives will be hard-pressed to plead hardship in Washington. That is the reckoning they are desperate to avoid.
Healthcare prices have far outpaced the rate of inflation for years, and the partisan divide on how to confront this challenge has made reform nearly impossible. Yet the administration’s willingness to test new models represents the first meaningful challenge to the status quo that has privileged hospitals for decades. Congress, for its part, is also scrutinizing how hospitals exploit their tax-exempt status. The HRSA pilot is another step toward daylight.
The 340B program has become just another way hospitals exploit the opaqueness of our healthcare system to their benefit, not the patient’s. The administration should press forward, confident that accountability is the key to real healthcare reform and affordability. Like so many of the president’s programs, they’ll have to fight through injunctions issued by activist judges. This sort of legal obstructionism is just an indicator the president’s team is on target...and should keep up the fire.
Joe Grogan is a Nonresident Senior Scholar at the USC Schaeffer Institute and served as director of the White House Domestic Policy Council under President Donald J. Trump.
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