Federal 340B Reform: Why Accountability Matters for Texas Employers and Patients

Reforming the federal program would deliver for patients, but the onus is on Washington to restore accountability and protect patients, employers, and taxpayers alike.

The federal 340B program was created to help safety‑net providers purchase outpatient drugs at a discount and expand care for underserved communities. Conservatives have long supported such targeted programs when they are transparent, accountable, and focused on results. Today, however, the 340B program no longer meets that standard. Instead, it has grown into a massive federal subsidy that raises costs for employers, fuels consolidation, and operates with little oversight which creates real consequences for Texas workers, businesses, and taxpayers.

According to the Congressional Budget Office (CBO), spending on drugs purchased through the 340B program rose sharply from $6.6 billion in 2010 to $43.9 billion in 2021, making it one of the largest federal drug pricing programs in the country. More recent data from the federal government shows that the program in recent years has continued its explosive growth, with that $43.9 billion figure rising to $81.4 billion in 2024. CBO found that 87 percent of 340B drug spending occurs in hospital outpatient departments and off‑site clinics, with cancer drugs alone accounting for 41 percent of all purchases—nearly three times more than any other drug class. Importantly, the agency concluded that the program encourages behavior that increases overall health care spending, including hospital‑clinic integration and the use of higher‑priced drugs.

Those national trends have direct implications for Texas. State‑specific data from IQVIA estimate that the 340B program currently costs Texas employers and workers approximately $353 million per year, largely due to lost drug rebates that would otherwise be used to lower premiums or expand coverage. If Texas were to adopt state mandates expanding contract pharmacy use, those costs would rise to $431 million annually, with no requirement or assurance that patients would directly benefit. In other words, expanding contract pharmacy mandates would increase costs by $78 million each year.

Texas’s economy depends heavily on employer‑sponsored insurance, particularly among small‑ and mid‑sized businesses. When hospitals purchase drugs at steep 340B discounts but bill insurers at full price, employer health plans are forced to absorb the difference. That cost is ultimately passed on to Texas workers through higher premiums, higher out‑of‑pocket costs, and slower wage growth. IQVIA’s 2024 analysis shows that drug costs for self‑insured employers are 4.2 percent higher due to the 340B program, translating into billions of dollars in additional costs nationwide.

From a conservative standpoint, the problem is not the concept of a safety net—it is the absence of guardrails. CBO’s September 2025 report, the first comprehensive federal analysis of the 340B program, found that a major driver of the program’s growth is hospital consolidation and the acquisition of off‑site clinics, not increased care for low‑income patients. Once hospitals qualify for 340B, they are incentivized to expand their footprint and contract pharmacy networks to maximize revenue, often far from underserved communities. Yet there is still no federal requirement that 340B savings be passed on to patients at the pharmacy counter.

This lack of accountability is inconsistent with fiscal responsibility. Despite its size, 340B remains largely a black box. The CBO confirmed that the program encourages the prescription of more, and more expensive, drugs and tends to increase overall federal spending. Employers and taxpayers are left subsidizing a system that was never designed to operate at this scale.

Meaningful federal reform should focus on restoring transparency and aligning incentives with patient benefit. One promising option is transitioning to a rebate‑based model that modernizes how 340B discounts are delivered. By providing discounts after the point of sale, a rebate approach can create a clearer audit trail, reduce opportunities for abuse, and ensure discounts are accurately accounted for while still fulfilling the program’s original purpose.

The case for reform is even stronger with the introduction of Medicare’s Maximum Fair Price (MFP), a central component of the Biden Administration’s Inflation Reduction Act. As federal drug‑pricing policies begin to intersect, safeguards are needed to prevent duplicate discounts on the same drugs. Without a mechanism—such as a rebate model—to reconcile transactions, overlapping discounts could distort markets, increase costs elsewhere in the system, and threaten access to future treatments. A properly designed rebate approach helps mitigate these risks while preserving support for true safety‑net providers.

A rebate‑based approach also offers a constructive path forward by bringing greater transparency and predictability to the 340B program. By separating eligibility from point‑of‑sale pricing, a rebate model would allow policymakers to better track where discounts flow, ensure they are aligned with patient need, and reduce incentives for consolidation driven by arbitrage rather than care delivery. For employers and taxpayers, this structure helps restore market discipline by minimizing cost‑shifting and improving accountability, while still preserving meaningful support for providers that truly serve vulnerable populations. In short, a rebate model strengthens the safety net by making it more targeted, measurable, and sustainable.

Federal 340B program reform is not about dismantling the safety net; it is about preserving and strengthening it. By restoring guardrails, protecting employers, and rejecting patchwork state solutions, Congress can realign the program with its original mission. In 2025, Texas lawmakers showed leadership by rejecting a state-level effort to expand the program, recognizing that the onus is on Washington to deliver reforms that protect patients, employers, and taxpayers alike.