Federal Grantee Clinics and the 340B Drug Discount Program

The 340B Drug Discount Program allows certain healthcare facilities (“covered entities”) to purchase drugs at a significant discount. Covered entities, including hospitals and federal grantee clinics (e.g., Ryan White clinics, STD clinics, federally qualified health centers), collect reimbursement from both public and private payers that often exceeds the discounted 340B price of those drugs. On average, reimbursement from Medicare Part D and commercial payers/beneficiaries (including employer-sponsored and managed Medicaid plans) is 3.7 times the discounted 340B price. In aggregate, for 340B drugs purchased by grantee clinics in 2020, the difference between reimbursement and the discounted price (“340B drug margin”) amounts to between $8 billion and $12 billion. Under the low estimate of $8 billion, reimbursement from publicly funded payers accounts for 70 percent of the 340B drug margin.

Many covered entities, including grantee clinics, dispense 340B-purchased drugs through for-profit contract pharmacies. This arrangement allows the covered entity and the for-profit pharmacy to share in the 340B drug margin. As of 2022, grantees make up over half (55 percent) of all contract pharmacy arrangements, and the number of contract pharmacy arrangements involving a grantee clinic grew 252 percent between 2017 and 2022.

Due to a historical lack of program oversight, policy reform discussions are occurring at the federal and state levels. To date, much of the reform focus has been on hospitals, with less emphasis on grantees. This report demonstrates that many growth trends and financial dynamics that have been well studied in the context of hospitals also apply to grantees. As is the case for hospitals, without greater transparency it is unclear to what extent federal grantee clinics depend on the drug margin earned from the 340B program to fund their operations, whether patients benefit from these funds, and whether this is a sustainable approach to funding these services going forward.

The study was funded by Gilead Sciences, Inc., though editorial discretion was retained by the author.