Employers scrutinize nearly every aspect of their health care spending in search of savings. Yet many may be overlooking a significant expense that's hiding in plain sight: their role in financing the federal 340B Drug Pricing Program.
Congress created 340B in 1992 to help eligible nonprofit hospitals and clinics purchase outpatient medications at discounted prices, then sell those drugs to insured patients at market rates — the difference becoming spread revenue for the nonprofit. The program was designed to serve the important purpose of helping safety net providers finance charity care for those who are uninsured or underinsured.
Many assume pharmaceutical companies bear the full cost of 340B because they are providing the steep discounts. But employers and other payers are unknowingly footing the lion's share of this patient safety net cost in the form of lost drug rebates.
Employers typically negotiate rebates to reduce the net cost of prescriptions. But if one of their employees visits a 340B hospital or clinic, manufacturers won't give the discount twice — it goes to the 340B provider while the health plan pays full price.
A recent IQVIA study commissioned by the Diabetes Leadership Council showed that in 2025, employers and commercial insurers lost $4.8 billion in drug rebates from diabetes patients because claims were filed through 340B providers. IQVIA's analysis showed that in 2025, the total spread revenue from commercially insured diabetes patients was $7.1 billion. Employers and commercial insurers, therefore, paid a whopping 68% of the 340B spread. The remaining 32% was paid by drug manufacturers who provide a steeper discount to 340B providers than the commercial insurance market.
This example is specific to patients living with diabetes, not the entire patient population. But it's a reasonable illustration of how much of the 340B program cost employers and commercial insurers may be absorbing.
The 340B program is growing exponentially, which means employer and commercial insurer "donations" are rising rapidly without oversight or transparency. Federal data show discounted 340B drug purchases rising from $53.7 billion in 2022 to $100 billion in 2025. The number of covered entities grew from 1,000 in 1992 to more than 53,000 in 2023, with hospitals accounting for 87% of the volume.
Contract pharmacy arrangements have further expanded 340B's reach, increasing from 1,740 in 2010 to nearly 240,000 today. These contract pharmacies and other third parties work with 340B hospitals to identify as many eligible claims as possible. They are usually paid a percentage of each transaction versus a flat dispensing fee, giving them a strong incentive to find all eligible claims and steer health care providers to more expensive medications. The largest five chain pharmacies account for roughly 77% of these relationships.
It is important to note that there is no formal definition of a 340B eligible patient, meaning as an extreme example, a patient born at a 340B hospital could potentially be claimed as a 340B patient today despite not having been to that hospital since they were born.
None of this is to say that 340B should be eliminated or that it doesn't do good for patients. The intent of the 340B program — to provide a health care safety net for the poor and most vulnerable among us — is both noble and essential. The recent cuts to Medicaid and the elimination of subsidies in the ACA marketplace are projected to increase the uninsured population in the U.S. by over 50%. More than 40% of U.S. adults report some form of medical debt, contributing to a national burden estimated at more than $200 billion.
This safety net is needed now more than ever — but we need clarity and transparency in the program to ensure funds are being used wisely and benefiting the patients it was designed to serve. Right now, we have neither.
As 340B has grown, data has not shown a corresponding increase in charity care or provided a clear picture of how 340B-generated spread revenue is used to benefit patients. Small and medium nonprofit hospitals both report spending more on charity care than similarly sized for-profit hospitals. However, large nonprofit hospitals — the biggest beneficiaries of 340B — report lower charity care spending than their for-profit counterparts, despite receiving billions of dollars in spread revenue.
If employers are helping to finance billions of dollars in our nation's health care safety net, they deserve to know it. They need to join the chorus of advocates demanding accountability for these funds. No one can afford to continue blindly writing blank checks into a system that is driving up health care costs and premiums for everyone.
