OPINION:
Americans are tired of Washington’s favorite con game: programs advertised as compassionate lifelines that quietly morph into cash machines for entrenched interests.
When that happens, taxpayers lose, patients lose and public trust erodes. The Trump administration’s effort to bring transparency to the 340B drug discount program is precisely the kind of reform so desperately needed for our deeply troubled health care system. First, a brief reminder of what 340B is supposed to be.
Created by Congress in 1992, the 340B Drug Pricing Program requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at steep discounts to certain “covered entities,” including hospitals and clinics that serve low-income and uninsured patients.
The idea was straightforward: Give these providers access to deeply discounted medicines so they could “stretch scarce federal resources” and serve more vulnerable patients.
Here’s how it works in practice. A hospital buys a drug at a substantial discount, sometimes 30%, 50% or more below the list price. The hospital then administers that drug to a patient and bills the patient’s insurer, or Medicaid, at or near the full reimbursement rate. The spread between the discounted acquisition cost and the reimbursement is retained by the hospital.
Critically, there is no federal requirement that the hospital pass those savings directly to the patient or report precisely how the money is used. That lack of transparency is not a minor design flaw. It is the program’s central weakness.
What began as a targeted safety net support has metastasized into a sprawling, multibillion-dollar system with minimal guardrails. Participation has exploded. Large, sophisticated hospital systems, some with gleaming campuses and healthy balance sheets, have entered the program in force. The opportunity to pay a low price for a drug and then charge Medicaid a lot more for reimbursement is simply too attractive to ignore.
Investigative reporting and congressional inquiries have uncovered troubling examples. Some 340B hospitals have spent generously on Super Bowl advertising, luxury renovations and ambitious expansion projects. Viral footage of high-end hospital facilities has raised uncomfortable questions about whether these institutions resemble the struggling safety net providers Congress had in mind.
Meanwhile, certain participating hospital systems pay executives multimillion-dollar compensation packages while reporting relatively modest levels of charity care, given their size and nonprofit status.
Because many of these hospitals are tax-exempt, taxpayers effectively underwrite this model twice: first through the 340B structure and again through forgone tax revenue.
There are also documented cases of hospitals creatively stretching eligibility rules by acquiring or affiliating with clinics in ways that allow them to qualify for rural or disproportionate-share designations. These maneuvers divert resources from genuinely struggling rural hospitals that Congress intended to protect.
Enter the rebate model.
The Trump administration’s pilot did not abolish 340B. It did not slash benefits. It proposed something far more modest and far more threatening to the status quo: shifting from a discount model in which the hospital buys a drug at a low price and then charges the government a higher amount for reimbursement to a straightforward rebate structure that would create a clearer paper trail.
Instead of opaque pricing spreads, there would be documentation showing how much in discounts was generated and where the money ultimately flowed.
Sunlight is a powerful disinfectant. That is precisely why the hospital lobby recoiled.
If 340B savings are truly being used to expand care for low-income patients, reduce out-of-pocket costs and support essential services, then transparency should be welcomed. Instead, we’ve seen lawsuits, coordinated messaging campaigns and dire warnings about supposed catastrophic consequences.
A Maine district court has temporarily enjoined the pilot, with a judge suggesting that the Department of Health and Human Services did not adequately consider impacts on safety net providers and calling the initiative “hastily assembled.”
Respectfully, that assessment overlooks a mountain of evidence documenting explosive program growth and well-documented concerns. Sen. Bill Cassidy and others have highlighted troubling patterns. Academic researchers, including scholars from Harvard, have raised serious questions about whether 340B funds are consistently reaching the patients Congress intended to help.
Basic guardrails are not radical. They are responsible governance.
The rebate model does not threaten legitimate safety net hospitals. On the contrary, it protects them. By distinguishing institutions that genuinely rely on 340B to serve vulnerable communities from those exploiting technicalities and scale advantages, transparency strengthens the program’s credibility.
It ensures that scarce resources are preserved for their intended purpose rather than fueling marketing budgets, real estate empires or executive bonuses.
The administration should refine the pilot as needed and move swiftly to reimplement it. Courts should recognize the executive branch’s authority to test reasonable reforms within existing statutory frameworks. Congress should treat the rebate model as a starting point — an invitation to modernize a program that has drifted far from its original, laudable mission.
If hospitals are confident that they serve the public good, then they should have nothing to fear from sunlight.
• Steve Forbes is chairman and editor-in-chief of Forbes Media.
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