Hospitals, Drugmakers, and U.S. Government Continue Battle Over 340B Program

A federal judge handed down a decision this week in a lawsuit involving the 340B prescription drug discount program as hospitals, physicians, and drug manufacturers continue to battle over how the program should be run.

“The 340B program is definitely getting squeezed in various ways, and 340B entities are having some success in preventing the squeeze,” said Sven Collins, partner at the Hooper Lundy & Bookman law firm in Denver. “They’re trying to make the program work according to how it’s written in the statute, which is trying to provide discounted drugs for safety-net hospitals … And drug manufacturers are trying to throw wrenches in the works.”

Under the 340B program, hospitals, health centers, and other entities that serve a disproportionate share of low-income patients can save an average of 25% to 50% on what they might otherwise pay for covered outpatient drugs, according to the Health Resources and Services Administration (HRSA). The discounts allow covered entities “to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services by lowering drug costs for providers and allowing them to pass along these savings to their patients and maintain and expand other healthcare services.”

One issue with the law — which was addressed in the lawsuit, known as Albany Med Health System v. Kennedy — has to do with the various off-campus locations, or “child sites,” at which 340B hospitals dispense their drugs. HRSA currently requires hospitals to register each child site; HRSA has to approve each registration, “and [the hospitals] alleged it could [take] as much as 2 years” to do that, Collins said in a phone interview. “So that would mean that for 2 years, a part of the hospital that was supposed to be able to dispense 340B drugs at discounted prices would not be able to do it, which is a huge cost.”

But Judge Amit Mehta of the U.S. District Court for the District of Columbia on Tuesday ruled in favor of the hospital, writing that “the registration requirement conflicts with the text of the 340B statute and therefore is contrary to law.” The verdict, which could still be appealed, is a big win for 340B hospitals, said Collins, who represents hospitals appealing Medicare reimbursement policies. “It’s a well-reasoned and well-grounded opinion in the law. So I don’t want to predict, but I think that hospitals would have a fair shot of prevailing on an appeal.”

In another development affecting the program, two drug companies that provide the discounts to the hospitals — Eli Lilly and Novo Nordisk — have asked hospitals to provide them with claims data for all of their companies’ hospital-dispensed drugs — whether given to inpatients or outpatients — in order to get the 340B discount. Unsurprisingly, the affected hospitals are not happy with that idea. The two companies’ proposals “would illegally withhold access to 340B discounts for covered entities and add significant new administrative costs that will divert resources away from patient care,” Rob Nelb, MPH, director of policy at America’s Essential Hospitals, a trade group for safety-net hospitals, said in an email. “HRSA needs to stop these manufacturer abuses of the 340B program before they continue to spread.”

Maureen Testoni, president and CEO of 340B Health, a group that represents 1,600 hospitals and health systems in the 340B program, agreed. “[HRSA] has been asked by us and by other associations to … really question the companies,” she said in a phone interview. “But they have been silent, and so I’m very concerned that they are not planning to do anything to stop this.”

Asked for a comment, HRSA said it “is currently reviewing the policy. The agency remains committed to ensuring compliance with statutory eligibility requirements, strengthening program oversight, and enhancing enforcement to protect the integrity of the 340B program.”

Another side to the payment issue is how much hospitals are getting paid by the Medicare program for the drugs that they get a 340B discount to buy. CMS attempted to lower the Medicare reimbursement rate back in 2020 based on some data it gathered which showed that, conservatively, hospitals received an average discount of 34.7%, explained Ted Okun, executive director of the Community Oncology Alliance, which represents outpatient oncology practices. That effort sparked a legal battle that went all the way to the Supreme Court, which ruled in 2022 that CMS could not lower the rate because it had not collected the required survey data from the hospitals.

But then, “in a [new] proposed rule, CMS said, ‘We intend to collect drug survey data’ and it’s very clear where they’re going next, which is using the survey data to create a lower reimbursement rate,” Okun said in an interview. “But the hospitals have written a letter back saying that there’s nowhere in the [340B] law that mandates” the hospitals to give the data. He added that 340B hospitals “make well over 50% discounts on drugs, it’s a huge revenue/profit source for them.”

The reimbursement system hurts patients, he argued, because “when a patient is getting that drug at a 340B hospital, they’re not getting the discount and hospitals are not required to give any type of a discount.” But he added, “We’re not against 340B, but these huge discounts should go to helping patients in need and not funneled into CEO bonuses and buildings.”

But Testoni, of 340B Health, said the CMS final rule — issued on Nov. 25, 2025 — was unclear regarding whether hospitals had to respond to the survey. “In the final rule, they said they couldn’t find enforcement or penalty provisions [in the 340B statute], but that they view this as required,” she said, adding that CMS also said that hospitals who didn’t respond would be presumed to have lower costs and would be “put into a bundle-type payment as opposed to a drug-by-drug payment. And so it basically is a lower amount of reimbursement.”

The survey also is incredibly detailed and has parts that are confusing, she added. For example, although the 340B program only applies to outpatient drugs, “there are areas of the hospital where you treat both inpatients and outpatients … and the survey didn’t appear to really account for that.”