What Economists Should Know about the 340B Drug Discounting Program

The 340B Drug Pricing Program was instituted to bolster the non-profit health care safety net without relying on taxpayer money. It allows participating health care facilities, called covered entities, to purchase drugs filled at in-house or contracted external pharmacies at discounts from manufacturers. Covered entities, most of which are hospitals, argue that discounts from the program are critical to their ability to provide charity care and unprofitable lines of service. At the same time, with 340B purchases now comprising over 13% of prescription drug sales, drug manufacturers argue that the program has grown beyond its original intent and led to important revenue losses. These manufacturers have responded to the rapid growth in the network of 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, which lies almost completely in public health and medical journals, with an eye for the gaps in this literature that economics research can help fill. In particular, economists’ causal inference econometric toolkit and theoretical understanding of the role of government intervention can help improve our understanding of 340B’s impacts and lead to more informed policy decisions.