Expanding the 340B Program Allows PBMs to Steal from Patients in Need

Hospitals and clinics in the 340B program often use pharmacy benefit manager (PBM) affiliated or owned contract pharmacies to dispense discounted drugs. The 340B program was designed to help patients in need but PBMs have been taking advantage of a lack of transparency in the program to siphon money away from patients and into their pockets.

The California State Legislature is considering AB 1460, a bill that would shield 340B covered entities - like large hospital and clinic systems - from scrutiny, allowing middlemen to continue profiting from discounted 340B medications without ensuring that savings benefit vulnerable patients. By protecting 340B-covered entities’ ability to use contract pharmacies, this bill would indirectly fatten the pockets of PBMs.

Supporters say contract pharmacies expand access by letting hospitals and clinics reach more patients, but in reality, the 340B landscape is dominated by PBM middlemen, with nearly 70% of 340B contract pharmacies across the nation either owned by or affiliated with PBMs. Since 2010, contract pharmacy arrangements have surged over 5,000%, yet in California only 15% are in low-income areas and less than 9% in rural communities, with almost 7,000 arrangements involving out-of-state pharmacies.

Major California providers have capitalized on this system. For example, Family Health Centers of San Diego, despite failing a federal audit and losing some contract pharmacies, still maintains thousands of such relationships, overwhelmingly with large PBM-owned chains. The clinic has profited immensely from these arrangements, reporting over $30 million in annual revenue in 2023 alone. And, due to a lack of transparency, we don’t know how much PBM-owned pharmacy chains are profiting off these arrangements.

To ensure the 340B program truly benefits patients, not PBMs and corporations, we need real accountability and transparency. Bills like the California AB 1460 only add to the problem.

340B expansion without necessary guardrails risks turning the program into a handout for corporate middlemen like PBMs. It’s time to refocus 340B on delivering affordable medicines to those who need them most.

Learn more about the PBM issue and legislative solutions here.