CMS proposes changes to curb 340B drug discount program’s costly subsidies to safety-net hospitals

Casey B. Mulligan, chief economist and chief regulatory officer at HHS, wrote an opinion piece outlining a major flaw in the 340B drug discount program. The program, created in 1992, gives steep discounts to safety‑net hospitals but Medicare and other insurers often reimburse at full price, allowing hospitals to keep the difference.

The difference, or spread, increases as drug prices rise, effectively rewarding hospitals for using higher‑cost drugs and for acquiring physician practices and infusion clinics. Patients’ treatment needs may stay the same, yet their out‑of‑pocket coinsurance can exceed what the hospital paid for the drug.

A new HHS report highlights these unintended consequences and proposes to narrow the gap between discounted purchase costs and reimbursement. The goal is to reduce the subsidy that inflates Medicare patients’ coinsurance and to align incentives more closely with patient care.

The proposed regulatory changes aim to rein in the program’s growth and protect both patients and payers from excessive costs.