The pharmaceuticals lobby shored up its campaign against increasing use of the 340B Drug Discount Program with a new analysis estimating its broader use pulled $6.5 billion in rebates away from the Medicaid program in 2024.
The tally comes from a Berkeley Research Group (BRG) research brief (PDF) funded by the Pharmaceutical Research and Manufacturers of America (PhRMA).
It stems from laws that prevent drug manufacturers from having to pay rebates under the Medicaid Drug Rebate Program for covered outpatient treatments dispensed to a Medicaid beneficiary when already providing a discount on the purchase price through 340B.
Though direct fee-for-service models offset the missing rebate through lower reimbursements to dispensing pharmacies, managed care plans and pharmacies negotiate their own reimbursement rates that “typically exceeds the discounted 340B price, with the difference accruing to covered entities and contract pharmacies in the form of drug margin,” BRG wrote in its report.
In a prior analysis (PDF) incorporating claims data, government data and drug pricing information, BRG estimated the 340B program would grow to $78 billion of discounted sales, or $187 billion of gross sales, in 2024. Combining that with an analysis of states’ Medicaid rebate policies brought the consulting firm to its $6.5 billion tally of ineligible rebate funds.
From that $6.5 billion, $4.2 billion of missed managed care plan rebates is borne by the federal government and $2.3 billion is shouldered by state governments.
For the latter, the loss in rebate revenue reached $265 million in Pennsylvania, $238 million in Illinois and $190 million in Massachusetts. Eleven states did not appear to incur costs due to the 340B program because their Medicaid programs are structured to prohibit dispensing 340B drugs to Medicaid beneficiaries.
These reductions in rebate revenue from managed care beneficiaries receiving 340B drugs represent “a substantial federal and state budgetary impact,” BRG wrote in the report.
Of note, BRG’s analysis assumes that managed care plans do not reduce their reimbursements for 340B drugs, a statutory requirement in some states. This translates the lost rebates one-to-one to increased net costs of prescription drug coverage for federal and state governments—a potential inflation of the missed funds.
On the other hand, BRG wrote that researchers have suggested other means through which the 340B program may be driving higher Medicaid spending, such as shifting care toward higher-cost settings.
PhRMA, in a blog post sharing BRG’s analysis, described the $6.5 billion as “a hidden tax on patients, taxpayers and employers” that will rise “as more tax-exempt hospitals exploit the 340B program as a profit center.”
BRG and PhRMA’s report is the latest salvo in their bid to persuade policymakers that the decades-old drug subsidy program is in need of reform—and notably comes at a time when Republicans are broadcasting their desire to eliminate “fraud, waste and abuse” within the Medicaid program.
More than 60,000 total covered entities were participating as of February 2025, with much of that participation growing during the last several years. Hospitals, for their part, say the discounts are necessary to finance uncompensated care.
Though direct policy action on the program has yet to come, Senate Health, Education, Labor and Pensions Committee Chairman Bill Cassidy, M.D., R-Louisiana, in April published an investigation his team conducted into the program backing “much-needed” legislative reforms around transparency and oversight. That report and its findings were celebrated by PhRMA but earned a more guarded response from hospital groups.
Meanwhile, the lobbying groups are awaiting an update from the Health Resources and Services Administration (HRSA) on whether drugmakers will be permitted to swap out upfront discounts for after-the-fact rebates. Such policies were blocked by the prior administration, which said that the manufacturers would require authorization from the Secretary of Health and Human Services before implementation.
Following a wave of lawsuits from the drugmakers, federal judges—to the cheers of hospitals—affirmed the requirement for the secretary’s signoff. That decision is set to come down from HRSA via new guidance that has been under review by the Office of Management and Budget since the beginning of June, according to a government website.