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340B Drug Pricing Program

A federal program requiring drug manufacturers to sell outpatient drugs at significant discounts (25-50% off) to eligible hospitals and clinics serving low-income patients.

How It Works

The 340B Drug Pricing Program was created by Section 340B of the Public Health Service Act (added by the Veterans Health Care Act of 1992) and is administered by HRSA's Office of Pharmacy Affairs. Manufacturers must offer 340B ceiling prices as a condition of having their drugs covered by Medicaid and Medicare Part B, a powerful compliance lever. 340B ceiling prices are set by statutory formula based on Average Manufacturer Price (AMP) minus a unit rebate amount (URA), with the URA calculated from "best price" plus inflation adjustments, typically yielding 25-50% off commercial WAC for brands and substantially more for some generics. The 340B program generated roughly $50 billion in ceiling price savings in 2023 per HRSA data, with 340B drug purchases exceeding $54 billion in 2023 (representing about 10% of total U.S. drug purchases). Eligible covered entities include Federally Qualified Health Centers (FQHCs), Disproportionate Share Hospitals (DSH) with DSH adjustment percentages above 11.75%, critical access hospitals, children's hospitals, free-standing cancer hospitals, and Ryan White AIDS program grantees. Covered entities can use 340B savings for any purpose within their charitable mission (not required to pass through to patients), which has generated extensive litigation and policy debate. Since 2020, multiple manufacturers (Eli Lilly, Sanofi, Novo Nordisk, AstraZeneca, others) have restricted 340B pricing on drugs dispensed through contract pharmacies, triggering HRSA enforcement, manufacturer lawsuits (Third Circuit ruled for manufacturers in 2024), and ongoing congressional legislation. The 340B Ceiling Price database became public in 2019, providing greater transparency on specific drug pricing.

Related Terms

  • 340B Ceiling Price, The maximum price a drug manufacturer can charge a 340B-eligible covered entity for a covered outpatient drug, calculated by statutory formula based on AMP and best price rebates.
  • Out-of-Pocket Cost, The amount a patient pays directly for a prescription drug, including copays, coinsurance, and deductible payments.
  • Patient Assistance Program (PAP), A manufacturer-sponsored program that provides free or discounted drugs to patients who meet income and insurance eligibility requirements.

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About This Definition

This definition is part of the DrugPrice Drug Pricing Glossary, 49 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.

this entity is one of the U.S. Medicare prescription-drug pricing concepts that recurs across this site. The definition above is the technical answer; the paragraphs below add the practical context for how the concept connects to the CMS Medicare Part D Drug Spending data data behind every per-entity page on the site.

In the CMS Medicare Part D Drug Spending data data, this concept shapes one or more of the fields that drive the per-entity grades and rankings on this site. The methodology page describes which fields feed into which output; this glossary entry documents the underlying term.

Source: CMS Medicare Part D Spending, 2026.