Sally Pipes, CEO of the Pacific Research Institute, expressed concerns regarding President Trump's proposed most favored nation (MFN) policy on Medicaid drug pricing. She said that it would worsen existing issues within the 340B drug discount program, potentially leading to increased market distortions and a reduction in pharmaceutical innovation.
"This isn't reform. It's a gimmick," said Pipes. "Facing this math, some manufacturers may choose to exit the Medicaid and Medicare markets altogether. Hospitals are already leveraging 340B's perverse incentives to enrich themselves at ordinary Americans' expense."
According to Forbes, the 340B drug discount program was initially designed to assist low-income and rural patients. However, it has reportedly evolved into a profit center for large hospital systems, which often resell discounted drugs at full price without passing savings to patients. Proposed Medicaid reforms like the MFN policy could deepen 340B discounts, amplifying losses for drug manufacturers and encouraging price hikes in the private market. This situation may further distort incentives, enrich hospitals, and undermine access and innovation without benefiting the vulnerable populations the program was intended to serve.
A 2024 report by the Alliance for Integrity and Reform of 340B (AIR340B) indicates that 85% of disproportionate share hospitals earned more from 340B revenues than they spent on charity care. In 2022, these hospitals reported $44.1 billion in revenue derived from 340B pricing while providing only $18.5 billion in charity care. The report argues that the absence of a mandate to pass drug savings on to patients allows hospitals to profit from the program.
Discounted drug purchases under the 340B program grew by 22.3% year-over-year, reaching $53.7 billion in 2022, according to Fierce Healthcare. This growth rate significantly exceeds the pace of increase in national drug expenditures, suggesting that hospital incentives rather than growing patient needs are driving usage. These findings have led to renewed scrutiny over whether large hospital systems are manipulating the 340B program for financial gain.
Pipes has served as President and CEO of the Pacific Research Institute since 1991. She is also known as the Thomas W. Smith Fellow in Health Care Policy at PRI, where she advocates for free-market solutions to healthcare challenges.
