How the 340B drug pricing program works

On April 1, 2026, 15,249 hospitals and clinics were registered in the federal 340B Drug Pricing Program, along with 49,214 associated sites, the Health Resources and Services Administration (HRSA) said in a Federal Register notice published Aug. 3¹. In 2025, those providers bought $100 billion worth of medicines at discounted 340B prices, by the agency's count.

In 2022 the figure was $53.7 billion. The program dates to 1992 and still rests on a short statute, but the money now running through it has made it one of the most argued-over pieces of US drug policy. Drugmakers, covered entities, federal regulators and several states have been in court since 2020 over where 340B drugs may be dispensed and whether discounts can be paid as after-the-fact rebates.

Most of that fight is invisible at the pharmacy counter, where a 340B fill looks like any other. This explainer covers how the discount is calculated, who qualifies, what the contract pharmacy and rebate disputes are about, and what the program does and does not do for the price a patient pays.

How the 340B ceiling price is calculated

Section 340B of the Public Health Service Act was created by the Veterans Health Care Act of 1992. It requires manufacturers whose drugs are covered by Medicaid and Medicare Part B to sign an agreement with the federal health department and to sell covered outpatient drugs to eligible providers at or below a ceiling price. The statute, codified at 42 U.S.C. 256b⁴, defines that ceiling as the drug's average manufacturer price (AMP) in the preceding calendar quarter, "reduced by the rebate percentage," meaning the Medicaid rebate expressed as a share of AMP.

That ties 340B prices to the Medicaid rebate formula. For generics, which Medicaid law calls noninnovator multiple source drugs, the basic rebate has been 13 percent of AMP for rebate periods after Dec. 31, 2009, under section 1927(c) of the Social Security Act⁵. The 340B ceiling on a generic therefore sits at least 13 percent below the average price the manufacturer collects from wholesalers and retail pharmacies. Brand-name drugs start from a minimum Medicaid rebate of 23.1 percent of AMP under the same section, before other add-ons, so their 340B discounts start deeper.

Manufacturers report pricing data each quarter to the Centers for Medicare & Medicaid Services, and HRSA calculates the ceiling prices, according to the August 2026 notice¹. For more on how AMP relates to the other benchmarks in the drug trade, see our guide to WAC, AWP, NADAC and ASP and our explainer on how Medicaid pays for generics.

Who qualifies, and how big the program has become

Eligible providers, known as covered entities, are listed in the statute. They include federally qualified health centers, Ryan White HIV/AIDS clinics and other federal grantees, and several types of hospitals, starting with disproportionate share hospitals that serve many low-income patients. The Affordable Care Act added five hospital categories in 2010: children's hospitals, rural referral centers, critical access hospitals, cancer hospitals and sole community hospitals, HRSA noted¹.

Two rules bind every covered entity. It may not resell or transfer a 340B drug to someone who is not its patient, which the law treats as diversion. And it may not get a 340B discount on a unit that also generates a Medicaid rebate, a so-called duplicate discount.

Purchases have grown quickly. The table below uses the yearly totals HRSA cited in its August 2026 notice, all measured at the discounted 340B price.

Participation has grown too. In a report released Nov. 17, 2025, the Government Accountability Office found that the number of covered entity sites more than doubled between 2013 and 2023⁶. GAO said HRSA had carried out five of its 20 earlier recommendations, including auditing 200 covered entities a year, and that weaknesses remained in how the agency closes audits, checks for duplicate discounts and confirms hospital eligibility. HRSA disagreed with six of the open recommendations and told GAO it lacks some enforcement authority.

The fight over contract pharmacies

Many clinics do not run their own pharmacy, so they contract with outside pharmacies to dispense 340B drugs to their patients. HRSA guidance from 1996 allowed one contract pharmacy per covered entity; guidance in 2010 allowed as many as an entity wanted, the August 2026 notice recounts¹. The standard approach, HRSA says, is a replenishment model. Pharmacies dispense from ordinary stock, software later identifies which fills went to eligible patients, and the covered entity then orders matching quantities at the 340B price to restock the shelf.

In summer 2020, some manufacturers began restricting 340B pricing for drugs shipped to contract pharmacies, generally limiting each covered entity to one, according to a May 2024 Congressional Research Service legal sidebar⁷. CRS counted at least 20 manufacturers with such policies. The manufacturers said the limits were needed to stop duplicate discounts and diversion. Covered entities said they were paying more for those drugs and losing the savings the program was meant to provide.

HRSA sent violation letters in 2021. Manufacturers sued, and the federal appeals court for the Third Circuit ruled in their favor, finding that "[n]o . . . language in Section 340B requires delivery to an unlimited number of contract pharmacies," as CRS quoted the decision⁷. States took the other side. Arkansas passed a 2021 law barring manufacturers from interfering with contract pharmacy arrangements, and the Eighth Circuit upheld it, finding that the federal statute does not preempt state rules on pharmacy distribution. On March 27, 2024, West Virginia became the third state to enact such protections, CRS reported, and more states were weighing similar bills.

Rebates instead of upfront discounts

A newer dispute is over timing. Under a rebate model, a covered entity pays the regular commercial price first and then claims the difference back from the manufacturer after showing the drug went to an eligible patient. Several manufacturers proposed this in 2024, and some told HRSA they would start without approval. A federal district court in Washington ruled in May 2025 that HRSA can require pre-approval, and the D.C. Circuit affirmed on July 21, 2026, according to HRSA¹.

HRSA then built its own version. An Aug. 1, 2025, notice² invited makers of drugs with Medicare negotiated prices for 2026 to join a voluntary rebate pilot. HRSA approved eight applications on Oct. 30, 2025. Groups representing covered entities sued in federal court in Maine, which granted a preliminary injunction on Dec. 29, 2025. HHS dropped its appeal, and on Feb. 10, 2026, the court vacated the pilot.

HRSA tried again. It asked for public comment on Feb. 17, 2026³, and on Aug. 3, 2026, published a revised pilot covering drugs with Medicare negotiated prices for 2026 and 2027. Manufacturer plans were due Aug. 24, the start date is Jan. 1, 2027, and plans must pay or deny each rebate within 10 calendar days of a complete claim. As of October 2026, HRSA's program page⁸ said 10 manufacturers' plans had been approved. The link to Medicare is direct. Under section 1193(d) of the Social Security Act, which HRSA's notice¹ cites, a manufacturer does not owe both a Medicare negotiated price and a 340B discount on the same unit, and the list of selected drugs and negotiated prices¹¹ is posted by CMS.

What 340B does and does not do at the counter

The statute caps what a covered entity pays a manufacturer. It does not set what a patient pays the pharmacy. Covered entities earn what CRS calls "340B savings" by buying drugs at the discounted price and being reimbursed by insurers at ordinary rates. An insured patient's copay is set by the health plan. Under the replenishment model HRSA describes, a fill is classified as 340B only after it has been dispensed, so nothing about the purchase at the counter changes. Our explainer on how pharmacies get paid walks through the claim itself.

Health centers are the main place where the discount can reach patients directly. Under HRSA's health center rules, centers must offer a sliding fee discount program⁹ with a full discount (or a nominal charge) for patients at or below the federal poverty guidelines and partial discounts up to twice that level. Whether pharmacy services are covered depends on the services in each center's approved scope. Our guide to patient assistance programs, Extra Help and 340B compares these routes.

For someone who gets care at a health center, useful questions for the clinic or its pharmacist include whether the center has an in-house or contract pharmacy, whether the sliding fee applies to prescriptions, and what the cash price would be for a given generic. Our script for talking to your pharmacist covers how to ask, and the pharmacy finder lists pharmacies by ZIP code.

What comes next

Two dates are close. The revised rebate pilot is set to start Jan. 1, 2027. And CMS has opened a Medicare Part D claims data repository¹⁰ where covered entities may voluntarily report which Part D claims were 340B, data CMS is collecting to judge whether those units can be excluded from Medicare inflation rebate counts; the first submission, covering claims from Jan. 1 through Sept. 30, 2026, is due Dec. 31, 2026.