What Economists Should Know About the 340B Drug Discounting Program

Abstract

The 340B Drug Pricing Program was instituted to bolster the health care safety net without relying on taxpayer money. It allows participating health care facilities—most of which are hospitals—to purchase drugs filled at in-house or contracted external pharmacies at discounts from manufacturers. Hospitals argue that these discounts are critical to their provision of charity care and unprofitable service lines. However, with 340B purchases now comprising over 13% of prescription drug sales, drug manufacturers argue that the program has grown beyond its original intent. These manufacturers have responded to the rapid growth in contract pharmacies by enacting restrictions on distribution that in turn led to a flurry of lawsuits and legislative activity. Given the 340B program's size, importance, and role in ongoing policy debates, it is perhaps surprising that it has received very little attention in economics journals. Our paper reviews the scholarly literature on the 340B program, with an eye for the gaps in this literature that economics research can help fill. In particular, economists’ causal inference econometric toolkit and theoretical insights can help improve our understanding of 340B's impacts and lead to more informed policy decisions.