Rebate Model Pilot Can Boost 340B’s Mission, Reduce Costs

122 C Street N.W., Suite 700, Washington, DC 20001
September 8, 2025

U.S. Department of Health and Human Services
Health Resources and Services Administration
Office of Pharmacy Affairs
Attn: Chantelle Britton, Director

Posted on regulations.gov and sent via email: 340Bpricing@HRSA.gov

Re: HHS Docket No. HRSA-2025-14619, 340B Program Notice: Application Process for the 340B Rebate Model Pilot Program

On behalf of National Taxpayers Union (NTU), the nation’s oldest taxpayer advocacy organization, we write with brief remarks on HRSA 2025-14619, which seeks comments on “a 340B Rebate Model Pilot Program as a voluntary mechanism for qualifying drug manufacturers to effectuate the 340B ceiling price on select drugs to all covered entities,” as well as “comments on the structure and application process of the 340B Rebate Model Pilot Program.”

Introduction

NTU is the nation’s oldest taxpayer advocacy organization, founded in 1969 to achieve favorable policy outcomes for taxpayers with Congress and the executive branch. Our experts and advocates engage federal policymakers on important matters affecting taxpayers in a variety of settings, including tax administration, trade, health care, and product regulation. All these matters intersect and provide NTU with an opportunity to offer its views today.

For most of NTU’s 55-year history, our team has analyzed and provided commentary on important questions surrounding the fiscal impact of federal legislation and regulations on the health care space. We have noted with great concern the decades-long cost spiral in federal health care programs, which has seemed to defy attempts at reducing or at least controlling the burden on current and future taxpayers. According to the Congressional Budget Office, between Fiscal Years 2024 and 2054 the share of federal noninterest outlays consumed by major health care programs is projected to rise from 28% to 39%. By contrast, Social Security, another cost driver in the budget, will see its share of non-interest outlays increase from 26 to 28%.¹ Even with the passage of the One Big Beautiful Bill Act, which NTU strongly supported, outlays for the federal share of the Medicaid program are projected to increase between Fiscal Years 2025 and 2034 by 31%. It should be noted that without the reforms contained in OBBBA, federal Medicaid outlays would have risen at roughly double that rate.²

To NTU, it is abundantly clear that innovative approaches to reducing health care costs must continue to be explored and implemented, to reorient this unsustainable trajectory toward a more realistic and affordable direction. We believe that thoughtful deployment of prescription drugs (both branded and generic/biosimilar) in more settings, as longer-term alternatives to costlier treatments, can be a vital part of this necessary exercise. Taxpayers, therefore, have a significant stake in how federal and state governments approach prescription drug development, deployment, and payment. The federal government either directly purchases prescription drugs or subsidizes prescription drug coverage for tens of millions of Americans through the Medicare and Medicaid programs. Regulations on both health insurance plans and manufacturers impact when drugs are available to the majority of Americans with private coverage and how much those products will cost. Trade policies can impact not only the supply but also the price of innovative cures and generics alike, for better or worse. Finally, undertakings such as the 340B Drug Pricing Program have taken prescription drug markets in often-unexpected directions.

For all these reasons, NTU appreciates HRSA’s willingness to test new approaches to meeting 340B’s mission in a more transparent, efficient, and effective manner. While we believe that HRSA 2025-14619 could succeed as one such approach, as with many pilot programs, it will require careful planning, nimble implementation, and diligent oversight.

Comments

Taxpayers Can Benefit from Testing 340B Rebate Concepts

As of this date, most comment filers regarding HRSA-2025-14619 represent Covered Entities (CEs) that currently benefit from 340B, along with a few representing other interests in the health care sector. Yet, it is vital to consider 340B’s impact on taxpayers, and how HRSA-2025-14619 could serve to benefit this often-overlooked constituency,

While 340B is regarded as primarily a price discount program for Medicaid providers, the program’s breadth and depth is much greater. Medicare Part B and Part D, for example, are not direct participants in 340B, nor do they partake in the discount process. Nonetheless, covered entities can, under certain circumstances, bill Part B and Part D for specified drugs at the lower 340B price and in turn get reimbursed from Medicare at the Average Sales Price plus 6% (thereby pocketing a not-inconsiderable profit). It is notable that attempts during the first Trump Administration in 2018 to ratchet down the ASP plus 6% formula to a more reasonable rate were met with lawsuits and a 2022 Supreme Court ruling that struck down the proposed reform. As a result, the Center for Medicare and Medicaid Services decided to provide $10.6 billion in lump sum payments to 340B CEs “that [were] paid less due to the now-invalidated policy.”³ Taxpayers were the unfortunate guarantors of this windfall.

Nowhere is 340B’s adverse impact on taxpayers more acutely felt than at the state level, a fact NTU has uniquely highlighted. Former Wisconsin State Senator Leah Vukmir, NTU’s Senior Vice President of State Affairs, has crisscrossed the country to defend taxpayers against state legislation that would force manufacturers to offer 340B prices to contract pharmacies of CEs— thereby exacerbating the well-known, longstanding problem of CEs pocketing large differentials between 340B discounts and what they actually charge patients and providers. This pernicious fiscal effect seeps not just into state-level Medicaid systems, but also health insurance plans for state and local government employees that are often heavily taxpayer-subsidized.

Senator Vukmir’s warnings earlier this year in comments to Tennessee’s Governor provide a vivid illustration of the risks to state taxpayers from 340B expansion:

The 340B program has expanded significantly over the years with little transparency or accountability, allowing entities that receive discounted drugs from manufacturers to profit from the price difference—rather than passing those savings on to patients.

Instead of primarily benefiting low-income communities, there has been a proliferation of 340B pharmacies in wealthier neighborhoods, often affiliated with for-profit Pharmacy Benefit Managers (PBMs) and chain drugstores. A 2024 Pioneer Institute Report found 46% of 340B pharmacies supposedly serving the poor are in affluent neighborhoods in Tennessee.

I urge you to carefully scrutinize the potential financial implications of SB 1414 for Tennessee’s state-funded healthcare programs. Three separate fiscal notes issued on SB 1414 provide contradictory assessments of the bill’s financial implications. It is my humble opinion that many serious questions have not been asked, and a more thorough investigation of this policy’s impact on your state budget must take place. Depending on the fiscal note, SB 1414 could cost the state between $7.4 million and $29.8 million. The latest fiscal note claims the bill’s impact on the state is “not significant” and then proceeds to report the bill will result in increased expenditures to the State Group Insurance Program. These are glaring inconsistencies that must be addressed before moving forward.

Lessons can be learned from other states that have introduced similar 340B legislation. A recent fiscal analysis in Utah found that a 10% increase in drugs purchased through 340B would result in a loss of nearly $2 million in drug rebates—a cost that ultimately falls on taxpayers. 

In North Carolina, state health plan patients covered under 340B contracts are being charged significantly higher prices, with copays based on inflated list prices rather than the discounted acquisition costs. A recent report from North Carolina State Treasurer Dale Folwell found that hospitals in the 340B program were overcharging cancer patients at rates averaging five times the cost of the actual drugs—a burden borne not just by patients but by taxpayers as well. The North Carolina State Health Plan now faces an unfunded healthcare liability of $32 billion.

Similar concerns have been raised in Minnesota, where a 2023 report from the Minnesota Department of Health revealed that 340B hospitals generated at least $630 million in net revenue—likely only half of the true amount—with the state’s largest 340B hospitals benefiting the most.⁴

Whether at the federal, state, or local level, a fundamental flaw of many benefit programs is persistent: various categorical and other loosely defined coverage provisions allow recipients to obtain their largesse upfront, leaving government oversight entities to police payment systems after the money has left taxpayer-funded coffers. This arrangement, often described as “pay and chase,” is a major contributor to some of the worst improper payment rates at all levels of government.

Major examples of pay and chase are legion in Medicare and Medicaid, leading to results that leave taxpayers with massive bills for improper payments:

• In Fiscal Year 2024, the Government Accountability Office (GAO) identified a total of at least $162 billion of improper payments—a conservative estimate since some entities and programs do not track improper payments.
• Roughly 84% of the improper payments represent overpayments, many of which are losses that taxpayers cannot easily recover without time-consuming and costly audits, benefit reviews, and even civil actions.
• More than half of the improper payments for Fiscal Year 2024 come from Medicare ($54.3 billion) and Medicaid ($51.1 billion).⁵

As GAO has pointed out, “[w]hile program managers should prioritize prepayment controls, postpayment controls, such as recovery audits, are also important. However, the “pay and chase model,” where efforts are made to identify and recover improper payments after they are made, can be difficult and expensive.”⁶

While not strictly “pay and chase,” 340B shares some traits with the wasteful programs that wholly embrace this scheme. The covered entity designation involves a vetting process that can offer some level of protection against improper payments (sometimes but not always fraudulent), but the system affords less such protection when day-to-day claims are involved. In 2018⁷ and again in 2020,⁸ GAO noted the problem of duplicate discounts, whereby manufacturers end up providing the same medication at a 340B markdown price as well as a Medicaid rebate. The proliferation of contract pharmacies participating in 340B, which increased 20-fold over the space of nine years (2010–2019) due to relaxed restrictions in the Patient Protection and Affordable Care, created numerous points of entry where duplicate discounts could occur. Worse, as GAO and others⁹ have pointed out, federal oversight has been especially deficient, with GAO noting in 2018 that “HRSA had not issued guidance as to how covered entities should prevent duplicate discounts in Medicaid managed care and thus, did not include reviews of covered entities’ processes to prevent duplicate discounts for drugs dispensed through Medicaid managed care in its audits of the entities.”

A subsequent 2023 GAO investigation¹⁰ into a COVID-era program granting fast-track exceptions to Disproportionate Share Hospital eligibility requirements for hospitals to more quickly and fully participate as 340B covered entities indicated some progress—from HRSA, the hospitals themselves, and state officials in attempting to identify duplicate discounts. As of mid-2022, GAO reported, HRSA had audited just under half of the excepted hospitals (25 out of 53 total) in this exception carve-out program, noting that:

[T]he agency issued a total of 19 findings related to noncompliance for 14 of these hospitals as a result of these audits. Five of the hospitals had more than one finding of noncompliance. The most common finding among the excepted hospitals that were audited related to the potential for duplicate discounts . . .

Our review of HRSA documentation found that the 14 hospitals for which HRSA had audit findings all submitted corrective action plans to address these findings, as required by HRSA. However, as we previously reported, HRSA does not require all covered entities (including all hospitals) to provide evidence of successful implementation of the corrective actions prior to GAO-23-106095 340B Drug Discount Program closing audits and instead relies on the entities to self-attest that the audit findings have been addressed. Of the 25 hospitals that were audited, HRSA also issued a total of 39 areas for improvement for 22 of the hospitals. Areas for improvement are based on a covered entity’s failure to follow best practices that may reflect applicable guidance, but not statutory requirements and do not require corrective action plans.

On its own, the proposed pilot cannot rectify all these oversight shortcomings. More codification from Congress and HRSA of how and when audits should be conducted, and the obligations of covered entities to implement remedies, is vital to taxpayers. Statutory and regulatory responses are also needed to get a handle on the involvement of contract pharmacies in this process.

Yet, the 340B pilot can have a salutary impact on both imperatives, by offering the opportunity to determine whether a system that provides timely rebates will allow for better cost control. With so many contract pharmacies and covered entities operating in a regulatory environment that leaves HRSA at an oversight disadvantage among continuing program growth, it is wise for HRSA to test methods of discount processing that will provide more near-term, near real-time data on program integrity that 340B does not currently foster.

HRSA Has Several “Head Starts” on the Pilot

Those reading these comments are aware of the controversies over rebate-style models of 340B that have found their way to court. At least four major pharmaceutical firms—Sanofi, Bristol Myers Squibb, Eli Lilly, and Novartis—launched lawsuits last year against the government when HRSA refused to recognize 340B payment models each company had developed to provide discounts on certain drugs in the form of rebates or credits rather than immediate point-of-sale payments. Other companies such as J&J have created such models as well, effectively in direct response to billions in 340B discounts they have provided without the benefit of sufficient transparency or strong program integrity.¹¹

Sanofi’s model, which sought to furnish credits rather than cash rebates involving providers on 340B-eligible drugs, was apparently the first to receive a ruling in May of 2025. The U.S. District Court for the District of Columbia blocked the company from implementing its own attempt at getting 340B obligations under control.

Yet, this was hardly the end of the discussion over company-created 340B rebate models. The Court said that, while Sanofi could not “go it alone” by instituting its model, and HRSA “did not act contrary to law by requiring the plaintiffs to obtain approval before implementing their proposed rebate models,” the government erred by failing to provide “adequate justification for its decision.”¹² This partial win for Sanofi signals to others in the 340B space that HRSA’s regulatory authority in this area is clear, but not absolute in the sense that the government can nix rebate proposals arbitrarily or without reason.

With at least half a dozen painstakingly designed rebate-style models in existence, backed by specialty medical payment platforms that, in some cases, assert rebate processing speeds of a week for many claims, it can hardly be said that the designs or concepts discussed in HRSA 2025-14619 are completely alien to the 340B infrastructure.

Numerous critical comments regarding HRSA 2025-14619 have been filed, primarily by 340B covered entities, hospitals, and third party administrators variously arguing that even short turnarounds in rebate processing could endanger the finances of some discount recipients, and rely on overbroad or flawed readings of the 1992 340B statute. Yet, the beneficiary industry was the very same interest complaining as the court proceedings unfolded that Sanofi’s and others’ models were untested, that only the government had the authority to stop or start them, or, alternatively, that a strict reading of 340B statutes suggested rebate plans were unconstitutional. Again, a judge agreed to the primacy of HRSA’s authority, but also affirmed HRSA’s obligations to conduct thoughtful analysis of the models.

A pilot, launched by HRSA under proper transparency and a stringent application process, should be precisely the type of experiment that 340B beneficiary entities would want, because it will quickly expose any burdens or failures of the pilot under controlled conditions. And, as noted below, other tools and safeguards can be employed to ensure that all stakeholders can observe and participate in an incremental evaluation process with a reasonable degree of comfort.

Operational and Logistical Aspects of the Pilot Can be Drawn from Successes—and Failures—Elsewhere in Government

Although NTU does not profess absolute expertise in the intricacies of 340B discounts and their associated transactions, we have witnessed programmatic approaches to administration of government programs that range from the promising to the problematic. In light of HRSA-2025-14619’s call for additional information and views on “additional flexibilities to maximize efficiency and efficacy for participating manufacturers,” “additional safeguards to mitigate adverse, unintended impacts for covered entities,” “additional data or reporting elements that should be required,” or “potential implementation issues not yet sufficiently accounted for in the pilot design (e.g., logistical or administrative burdens),” we humbly offer the following suggestions.

Measure paperwork burdens consistently and accurately. Although the medical world is no stranger to electronic transaction processing and recordkeeping, the same can be said for the tax world in which NTU often deeply participates as a policy advocate. As part of our mission, we have devoted a great deal of effort toward exploring the compliance burdens of various government regulations, chiefly those resulting from tax laws. Since 1999, NTU’s research arm (NTUF) has published an annual report on the time, material, and other costs to the public and private sectors associated with administration of the complex tax system.¹³ However, we have also provided analysis and commentary on regulatory burdens in other areas, including rulemakings issued by the Federal Trade Commission, the Department of Energy, the Surface Transportation Board, and the Federal Housing Finance Agency, to name a few.¹⁴

In our experience, these rulemakings, guidance documents, and pilot programs have diverse intentions and mechanics, but can reflect common drawbacks:

• Whether they are initially the product of robust stakeholder input or not, they tend to lack ongoing input to help improve their effectiveness over time.
• Paperwork burden and information collection estimates concentrate on the design of products such as forms or payment platforms, without also devoting attention to recordkeeping requirements, training, and legitimate private sector concerns over exposure to new enforcement actions.
• Implementation periods and learning curves vary from sector to sector and often among regulated businesses and individuals that appear to be similarly situated to regulators but actually are quite different.

HRSA can at least minimize these problems by adapting solutions that have proven useful to other agencies, or at least instructive to agencies whose processes are evolving. This is especially true for tools employed in the tax realm, where regulations, notices, guidance, and other pronouncements rival or exceed those confronted by stakeholders in the health care industry. While CMS and HRSA already have several advisory panels (e.g., the Pharmaceutical and Therapeutics Committee) and other consultation processes at its disposal closely resembling several of the following suggested remedies, we nonetheless believe these are useful starting points:

• Adequate implementation periods, which can be further adjusted as feedback informs the pace of change, should be provided. While seemingly simplistic, the element of time not only affords the private sector adequate planning to institute new systems, but it also allows the public sector to discover and address the “unknowns” while the process is underway rather than attempt to “de-bug” a process that has been hastily completed. HRSA 2025-14619 is ahead of this curve by being informed with several models that could prove adaptable to a limited-duration pilot, so we are confident that the government is at least beginning its planning in the right temporal direction.
• Successful projects proposing major changes can still start from a common and familiar knowledge base. In the case of HRSA 2025-14619, that knowledge base already exists to some degree for actors in the 340B universe. If CMS is to learn the most from the pilot proposed here, it must ensure that the most widely understood procedures those actors now use are initially promulgated.
• Mechanisms are available to provide more regular feedback from stakeholders. One technique that NTU would recommend for HRSA’s study is the Internal Revenue Service’s “Job Aid” concept. While they can vary in their composition and operation, Job Aids are generally initiated by the IRS for either members of its own staff or the practitioner community as “how-to” guides for ensuring best practices in carrying out the intent of tax regulations. In HRSA’s case, well-designed pilots for 340B rebates might be net labor-savers when all the value of time spent by providers, covered entities, manufacturers, and regulators themselves is taken into account. The key here is to realistically appraise that value based on the specialties involved. For example, those who would most often come into contact with the pilots’ operations on a daily basis may require a sophisticated knowledge of complex 340B law that exceeds the normal requirements that a health insurance claims clerk might face. HRSA needs an accurate view into how these professions are compensated to determine labor costs or savings to the whole private sector of the pilots.

Increase Confidence among All Actors by Utilizing Collaborative Processes. In other areas of policy, the development of administrative technologies (e.g., digital currency) must “catch up” to regulators’ ambitions, or those ambitions must be scaled back to reality. In the case of HRSA 2025-14619, the development gap may be more easily bridged. One commenter to HRSA 2025-14619, RxParadigm, calls for a platform for the pilots, and notes it has an adaptable solution that all participants in the pilots could use. RxParadigm strongly recommends “the adoption of a centralized clearinghouse platform, supported exclusively by manufacturers, as the most efficient and equitable safeguard against “unintended financial and administrative strain on covered entities,” along with addressing “stakeholder costs, operational burdens, wholesaler standards, and transition gaps.”¹⁵

This is not to tout RxParadigm as the only solution-provider in HRSA 2025-14619. Other technology providers exist, among them Kalderos (a litigant in the lawsuit mentioned earlier), Craneware Group, and Bluesight, to name a few.

NTU believes the operational success of the pilots would be enhanced if covered entities could utilize either a single platform or platforms that can easily link to each other. To avoid antitrust and data-sharing/data-security complications, HRSA will need to exercise consistent oversight on this part of the pilot.

How could rules for manufacturer-funded pilots be comprehensively and fairly drawn in such a multivariate ecosphere of 340B actors? There are interesting models outside the health care system that HRSA may wish to consider. For example, Manufacturer-Requested Risk Evaluations (MRREs) of chemicals falling under Environmental Protection Agency (EPA) jurisdiction can be successful public-private partnerships in which regulated entities pay for expedited data collection and review of substances. Built through Democratic and Republican presidential administrations and Congresses, the MRRE concept has embodied a non-adversarial approach between government and industry on the principles of sound science, cost-benefit analysis, and solution-focused engineering. 

Under the first Trump Administration, one successful example was the patiently negotiated MRRE for D4, after the silicones industry formulated—in collaboration with EPA—a carefully overseen environmental monitoring program for numerous sites. The data generated from this program—at full expense of the industry—provided the basis for the MRRE and afforded EPA the information it said it needed for a sound scientific evaluation.¹⁶

Also instructive are two other user-funded policy models that are quite different from each other but nonetheless share common characteristics: air traffic control (ATC) and recycling. In the former, industrialized nations around the world have successfully transitioned to an ATC policy that left the public sector as the safety regulator and the private sector (usually in the form of a stakeholder-funded cooperative) as the service provider. This allowed for rapid innovation in ATC technology while preserving the public interest in safe flying.

With recycling, deposit return systems (DRS) have been proposed in several states whereby consumers would pay a deposit fee when purchasing beverage containers from commonly recycled materials such as plastic, aluminum, or glass. Consumers would then return the containers to the place of purchase and receive their full refund. The program would be managed and paid for by a private sector entity, therefore not adding to the state’s budget. The private sector entity would provide oversight to ensure the program operates properly and efficiently.¹⁷

All three of these approaches require considerable aplomb in not only estimating overhead costs but also properly apportioning them. HRSA could benefit from examining their implementation.

A counter-example for HRSA to study in implementing 340 rebate pilots exists with demonstration project authority under the Centers for Medicare and Medicaid Innovation (CMMI). In the past, NTU and its research arm, National Taxpayers Union Foundation, have criticized CMMI’s approaches to many demonstration projects because of (as one of our analysts put it) the “circularity” of the premise that Congress’s budget scorekeeping agency “‘expects’ CMMI to achieve savings because CMMI will ‘achieve savings.’”¹⁸

In a 2022 Policy Paper, NTU outlined some principles that CMMI demonstration projects could follow to achieve more helpful results.

• Limit the duration of CMMI demonstrations to as few as two years;
• Narrowly define, in the general criteria for CMMI phase 1 testing, “deficits of care,” “poor clinical outcomes,” and “potentially avoidable expenditures”;
• Require HHS to project that a model will, at minimum, be budget neutral before proceeding with phase 1 testing;
• Require public reporting on CMMI models within a specified period, rather than just in a “timely fashion”; and
• Require the CMS Actuary to certify net spending reductions, rather than mere budget neutrality, to approve phase 2 expansion.¹⁹

Again, NTU does not enthusiastically endorse all of these courses of action for HRSA 2025-14619 because the proposal for pilots is, in some respects, actually better designed than many of CMMI’s demonstration projects. Rather, we offer these observations as cautions against modifications to HRSA 2025-14619 that could take the proposal into unhelpful directions.

Yet another important safeguard that could be provided alongside the basic provisions of HRSA 2025-14619 is a robust Alternative Dispute Resolution (ADR) process specifically designed for the pilots. Doing so could provide a means to more quickly allow covered entities and manufacturers to settle claims when there are problems receiving payments owing to disputes over qualifications or timeliness of payment. This could also help to settle claims when there are problems of assigning administrative responsibilities between covered entities and manufacturers. Two potential ideas from other agencies include tax dispute resolution (still nascent at the Internal Revenue Service) and the experience of the Surface Transportation Board in employing ADR to resolve rate controversies between providers and customers in freight rail. As with CMMI, these and other agencies’ experiences provide practices worth emulating, and avoiding.²⁰

One concept NTU strongly urges HRSA to embrace in designing final rules for, and implementing the operation of, 340B rebate pilots is the “regulatory sandbox,” pioneered in the financial and technology policy spaces internationally and at the U.S. state levels.

As Ryan Nabil, the Director of Technology Policy and Senior Fellow for NTU’s research arm (NTU Foundation) wrote prior to coming to our organization:

‘[R]regulatory sandbox’ programs allow companies to test innovative products and services under a modified and frequently lightened regulatory framework for a limited period. These programs allow companies to test new financial products and enable regulators to become more familiar with technological innovation and its impact on businesses. By allowing regulators to evaluate how different rules impact businesses, sandbox programs can provide crucial information to help regulators craft business- and innovation-friendly rules.²¹

Recently, NTU Foundation proposed this framework to the Internal Revenue Service for developing tax regulations governing cryptocurrency. NTU Foundation Attorney Lindsey Carpenter explained how it would function in comments to the IRS:

Under this sandbox method, the IRS would recruit cryptocurrency experts from outside the IRS. These experts should represent all areas of cryptocurrency: Regulatory, taxation, trading platforms, cybersecurity, investors, brokers, sellers, etc. Then, in a controlled environment, the IRS should foster allowing for the free flow of ideas about cryptocurrency and how to properly tax such.²²

As far as HRSA-2025-14619 is concerned, the regulatory sandbox seems uniquely suited to quickly adjusting data collection needs as well as feedback loops from covered entities. A sandbox could also help to design a reporting and processing platform for efficient, secure, and speedy operations.

On the topic of collaboration, NTU also recommends that HRSA consult closely with the Inspector General (IG) for HHS as well as CMS, to ensure that the pilots are transparently overseen and that data flows as quickly and copiously as possible. In particular, the IG’s real-time involvement in oversight could allow quick course corrections to ensure that the intent of HRSA 2025-14619 is fulfilled while the pilots are underway.

Finally, one commenter suggested allowing for-profit hospitals to participate in the pilot.²³ While the hospital sector, particularly university systems, has, in our experience, been among the most strident defenders of the anti-taxpayer 340B status quo, it would make sense to gather results from this cross-section of the 340B covered entity population. Doing so could test a proposition that for-profit hospitals are better stewards of 340B resources than non-profit facilities, perhaps owing to financial controls that already exist that can more readily accommodate rebates.

The Pilot Can and Should Be Able to Inform 340B Modernization Efforts Currently Underway in the Legislative Branch

In the current and previous Congresses, lawmakers have introduced legislation that would make major changes to the 340B program. For example, HR 4581 (119^th Congress), sponsored by Rep. Matsui (D-HI) (and a Senate companion sponsored by Senator Welch, (D-VT)) “requires drug manufacturers to offer drug discount pricing pursuant to an agreement [under 340B rules] with respect to drugs purchased by a covered entity regardless of the manner or location in which the drug is dispensed,” effectively codifying that contract pharmacies are to be treated like any other intermediary in the 340B program.²⁴ HR 8574 (118^th Congress), sponsored by Rep. Buchson (R-IN), would make a number of changes to 340B, including clearer definitions of what constitutes a 340B patient, guardrails on how contract pharmacies may participate, more robust and transparent data collection on how 340B operates, improvements to qualifications for 340B hospitals, and more complete program integrity authority.²⁵

While HRSA 2025-14619 is necessarily far more limited in scope and duration than either of these bills, the pilots established here could still provide useful data that will give a better view into some of the more persistent issues surrounding 340B that this legislation intends to address—especially HR 8574, but even HR 4581 as well. These include:

• Whether contract pharmacies are more or less susceptible to erroneous or duplicative claims;
• Whether the rebate models are sufficiently responsive to provide payments within or near replenishment windows;
• Whether the rebate concept adversely affects the operations of DSH facilities or places particular burdens on rural establishments;
• Whether manufacturer-funded rebate platforms add to or subtract from administrative overhead costs compared to current procedure, for either manufacturers or covered entities.
• Whether the 340B program’s original purpose of providing discounted medications to those in need is more efficiently and effectively served under a rebate-driven model, given the finite resources available in the public and private sectors;
• And, most importantly from NTU’s perspective, whether taxpayers experience a calculable net gain (or at least fewer losses) from the pilots compared to the status quo.

At this point NTU wishes to make clear its longstanding position on 340B reforms. In 2020, NTU responded to a request from the Senate Health, Education, Labor, and Pensions (HELP) Committee on 340B reforms with the following summary of recommendations to support:

• A temporary moratorium on new 340B enrollees while Congress, GAO, and the HHS IG conduct oversight of program deficiencies;
• Changes to the 340B statute that clarify the definition of a “340B patient;”
• A re-evaluation of whether DSH hospitals should participate in 340B based on DSH status alone;
• Enhancements to HRSA’s regulatory, enforcement, and data collection capabilities so that the agency can better monitor hospital eligibility, duplicate discounts, and more;
• Targeted additional resources to HRSA to enable it to fully oversee the 340B program, monitor compliance, and enforce sanctions on entities that break the rules;
• Additional reporting from 340B entities to HHS, to clarify who benefits from the program, at what level, and how those trends change over time; and
• A careful study of how large, national contract pharmacies may or may not benefit from the 340B program.²⁶

Accordingly, NTU generally opposes bills such as HR 4581, and supports many of the concepts in bills such as HR 8574. Yet, there are additional proposals outside the specific 340B space that could benefit from the “discovery process” of HRSA 2025-14619. Recently, HR 1771, the Improper Payments Transparency Act, was introduced to require more thorough, accurate, and timely reporting of improper payments across federal agencies. HRSA 2025-14619 could test concepts for reimbursement and payment controls that could have value throughout the federal government—concepts that could facilitate implementation of HR 1771 should it be enacted.²⁷ And increasingly, the 340B program is inextricably wrapped into the operations of numerous large Pharmacy Benefit Managers, entities that have raised a separate-but-related set of policy questions.²⁸

Nearly five years since NTU weighed in with its 340B recommendations, much additional work remains. Yet another years-long investigation launched under the auspices of HELP and released just a few months ago provided a decidedly mixed picture of 340B oversight, noting that, while some hospital systems utilized the discounts as intended, others diverted 340B funds into capital and other projects. Furthermore, contract pharmacies have in some cases increasingly resorted to a plethora of fees to charge covered entities for their services, Cumbersome inventory and replenishment models increase the chances of non-340B drugs intermixing with 340B-eligible medications, while other porous rules can allow covered entities and third-party administrators to “harvest claims.”²⁹

While the details surrounding 340B program costs can vary due to insufficient data collection, the bottom line to taxpayers is clear—higher federal budget deficits, and, in some cases, higher state budget shortfalls. As Dan Crippen, former Director of the Congressional Budget Office (CBO) put it in a report last year:

Even at current levels, the 340B Program results in a large transfer of taxable income to non-profit entities. As a result, last year alone, federal and state tax revenues were reduced by as much as $17B [billion]. Other spillover effects of the discounts reduce revenue even more. The subsidies to covered entities also contribute to an increase in government spending on other health programs, including Medicare Part D . . .

Unlike many other off-budget programs, the indirect impacts of the 340B Program on the federal budget and the deficit have not been documented. The effects of the 340B Program, however, are nonetheless contributing to the federal deficit. Any legislation that has an impact on the budget, now or in the future, is implicitly included in current budget baselines, including CBO’s baseline. Accordingly, any legislated reduction in 340B subsidies would result in a decrease in the federal deficit. Any increase in the subsidies would increase the federal deficit.³⁰

HRSA 2025-14619 cannot serve as a replacement or surrogate for larger policy agendas surrounding 340B; however, it can and should serve to provide vital empirical evidence that can better inform regulatory and legislative paths forward on the future of 340B for all stakeholders.

America’s Flourishing Pharmaceutical Environment Has Been Polluted with Toxic Policy, and This Pilot Must Serve as One of Many Necessary Clean-up Efforts

For taxpayers, it is a sad irony that the parameters in HRSA 2025-14619 are being drawn from the Inflation Reduction Act’s (IRA) prescription drug negotiation provisions, among the most deleterious price control policies ever enacted. To minimize this fruit-of-the-poisoned-tree problem, a wider range of drugs should be permitted under the pilot, including generics. Since HRSA 2025-14619 notes that the Office of Pharmacy Affairs “may consider expanding the rebate pilot to other drugs purchased under the 340B Program,” NTU would urge expedited consideration of this option as the pilots get underway. The regulatory sandbox concept described above could support this expansion.

But the larger policy context raised by the IRA should not be ignored either. Both innovator drugs and generics in the United States face tremendous policy obstacles, such as coercive Inflation Reduction Act prescription drug price negotiations, Most Favored Nation reference pricing, and the threat of Section 232 tariffs.³¹ We hasten to add that these problems afflict many parts of the pharmaceutical sector, including generics that operate on a very thin margin and are greatly affected by harsh trade policies. Even 340B’s flaws have led generics with little choice but to respond by limiting losses in their operations.³² In this environment, clearing regulatory red tape from contradictory government edicts is more imperative than ever. Because of these policies, the great American national security advantage of health innovation and access is being badly weakened. The pilots under HRSA-2025-14619 could point to ways to restore that key balance, which exists only in the United States today.

NTU is not alone in this assessment. Our organization is a founding member of the Coalition Against Socialized Medicine (CASM), which also submitted comments in relation to HRSA-2025-14619. CASM’s conclusion bears repeating here:

The rebate model . . . aligns with how drugs are priced in nearly every other federal program. It leverages existing provider workflows. It introduces compliance as a natural feature of operations, not an afterthought. And it does all of this without limiting access or undermining the original mission of 340B. We urge HRSA to:

• Proceed confidently with this pilot;
• Expand its scope upon successful evaluation;
• Codify its features through regulation;
• Partner with other federal agencies for robust monitoring;
• And continue listening to stakeholders across the spectrum.

This is what principled reform looks like: data-driven, stakeholder-informed, and mission-aligned.³³

In addition, a separate coalition of organizations and individuals (including senior advisors to the Trump Administration) have developed a policy blueprint known as “Most Favored Patient” that harnesses free-market ideas on behalf of a health care system that is “affordable, innovative, and puts patients first.” One plank of Most Favored Patient is to “require insurer-PBMs and hospitals to pass all drug rebates and discounts directly to patients, families, and those most in need”³⁴— a goal that can align with the precepts of HRSA-2025-14619.

As NTU has noted before, no other country in the world can boast of such a successful policy environment that both encourages discoveries to reach patients (nearly 90% of newly launched drugs worldwide are available here) and controls costs (over 90% of prescriptions written in the U.S. are for generics).³⁵ This strategic asset should be strengthened, not undermined.

Thank you for your consideration of these comments, and, should you have any questions on this or any other fiscal or regulatory matter before HRSA, we are at your service.

Sincerely and respectfully,

Pete Sepp, President
National Taxpayers Union

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¹  See the Congressional Budget Office report at: https://www.cbo.gov/publication/60127.

²  See early projections of OBBBA’s effects on Medicaid spending from the Economic Policy Innovation center at OBBB Myth vs. Fact: Medicaid “Cuts” Are Just Washington Math - EPIC for America.

³  For further explanation and analysis, see the CMS announcement at: Hospital Outpatient Prospective Payment System (OPPS): Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022 Final Rule (CMS 1793-F) | CMS

⁴  The full text of Senator Vukmir’s comments to the Governor are available at: 340B Expansion in Tennessee Will Exacerbate Drug Prices and Lead to Legal Challenges - Publications - National Taxpayers Union

⁵  See the GAO improper payments report at: 876591.pdf.

⁶  See GAO’s recommendations for strategies to control improper payments at: https://www.gao.gov/assets/gao-23-105876.pdf.

⁷  See the GAO report at: gao-18-480.pdf.

⁸  See the GAO report at: gao-20-212.pdf

⁹  GAO’s 2020 report helpfully provides the following background material that could inform HRSA’s pilot design: Department of Health and Human Services, Office of Inspector General, State Efforts To Exclude 340B Drugs From Medicaid Managed Care Rebates, Report Number OEI-05-14-00430 (Washington, D.C.: June 2016); National Association of Medicaid Directors, NAMD Working Paper Series, Medicaid and the 340B Program: Alignment and Modernization Opportunities, (Washington, D.C.: May 13, 2015); and Medicaid and CHIP Payment and Access Commission, Issue Brief, The 340B Drug Pricing Program and Medicaid Drug Rebate Program: How They Interact, (Washington, D.C.: May 2018).

¹⁰  See the GAO report at: gao-23-106095.pdf.

¹¹  For a perceptive analysis of these proceedings, see: Judge shuts down drugmakers’ 340B rebate plans, for now | Healthcare Dive.

¹²  For a full copy of the opinion, involving several litigants but focused primarily on Sanofi’s model, see: Consolidated_Pls._Opinion_on_SJ_.pdf.

¹³  See, for example, https://www.ntu.org/foundation/tax-page/complexity-2023-65-billion-hours-260-billion-what-tax-complexity-costs-americans.

¹⁴  See, for example, https://www.ntu.org/publications/detail/ntu-comments-on-irs-proposed-rule-for-supervisory-approval-of-penalties; https://www.ntu.org/publications/detail/ntu-offers-comments-to-the-surface-transportation-board-on-reciprocal-switching; and https://www.ntu.org/publications/detail/ntu-comments-to-the-ftc-on-the-contact-lens-rule.

¹⁵  See this comment filing under the following identification: HRSA-2025-0001-0040.

¹⁶  For further details, see an NTU letter to EPA at: Coalition Urges Additional Effort and Clarity From the EPA - Publications - National Taxpayers Union

¹⁷  For further details, see NTU comments to the Minnesota Legislature at: Recycling-Bill-Minnesota-HF-3200-1-.pdf

¹⁸  See the 2018 National Taxpayers Union Foundation analysis from Doug Badger at: https://www.ntu.org/foundation/detail/resetting-the-scoreboard.

¹⁹  See the 2022 NTU analysis from Doug Badger, et al., at: https://www.ntu.org/publications/detail/center-for-medicare-and-medicaid-innovation-12-years-into-the-game-taxpayers-still-dont-know-the-score.

²⁰  For further details, see the NTU Foundation and NTU comments to the IRS and STB, respectively, at: Comments on IRS's Dispute Resolution Program - Foundation - National Taxpayers Union and NTU Submits Comments to the STB On Rate Relief and Market Streamlining - Publications - National Taxpayers Union.

²¹  See Mr. Nabil’s analysis from 2022 at: How Regulatory Sandbox Programs Can Promote Technological Innovation and Consumer Welfare - Competitive Enterprise Institute

²²  See Ms. Carpenter’s IRS comment filing at: NTUF's Comments On IRS Cryptocurrency Regulations - Foundation - National Taxpayers Union.

²³  See this comment filing under the following identification: HRSA-2025-0001-0033.

²⁴  See the text of the legislation at: Text - H.R.4581 - 119th Congress (2025-2026): 340B PATIENTS Act of 2025 | Congress.gov | Library of Congress

²⁵  See the text of the legislation at: Text - H.R.8574 - 118th Congress (2023-2024): 340B ACCESS Act | Congress.gov | Library of Congress

²⁶  For further details on NTU’s recommendations, see our memo to the Committee at: 340B Program Must Be Reformed to Achieve Its Intended Purpose - Publications - National Taxpayers Union.

²⁷  See the text of the legislation at: H.R.1771 - 119th Congress (2025-2026): Improper Payments Transparency Act | Congress.gov | Library of Congress.

²⁸  In 2023, Andrew Lautz of National Taxpayers Union conducted an extensive analysis of PBMs entitled, “How Pharmacy Benefit Managers Impact Taxpayers and Government Spending.” In this paper, he noted:

To the extent that the 340B Program causes manufacturers to take a loss on the sale of their products, or even significantly reduces profits available to invest in research and development (R&D), the 340B Program like MDRP [the Medicaid Drug Rebate Program] pushes the cost bubble of developing, manufacturing, and distributing drug products onto other payers and stakeholders in the health care sector. The recent explosive growth of the 340B Program, especially providers’ use of contract pharmacies, has direct financial implications for PBMs as well . . . Together, these two programs (MDRP and 340B) likely create powerful distortions in the prescription drug market that contribute to high list prices, which can adversely affect consumers and taxpayers through higher out-of-pocket costs and higher premiums.

See Mr. Lautz’s paper at: How-Pharmacy-Benefit-Managers-Impact-Taxpayers-and-Government-Spending-1-.pdf.

²⁹  For a full copy of the Senate report, see: final_340b_majority_staff_reportpdf.pdf.

³⁰  See Director Crippen’s memo on this topic at: AIR340B-CBO-Memo.pdf.

³¹  See three NTU publications related to this paragraph at: Economic, Legal, Tax, and Health Policy Experts Agree: Scrap the Punitive, Unworkable, and Indefensible Excise Tax on Prescription Drugs - Publications - National Taxpayers Union, Price Controls: How to Make Medicaid Worse Without Really Trying - Publications - National Taxpayers Union, and https://www.ntu.org/publications/detail/section-232-tariffs-on-pharmaceuticals-will-increase-costs-and-weaken-us-national-security.

³²  See, for example, details on Teva’s 2023 decision on 340B discount restrictions at: Is Teva’s Exit a Turning Point for the 340B Program? | Prescribed Perspectives.

³³  As NTU’s comment was being filed, CASM’s comment had yet to be assigned a reference number.

³⁴  See the Most Favored Patient blueprint at: Most Favored Patient.

³⁵  See NTU’s commentary at: https://www.ntu.org/publications/detail/hatch-waxman-drug-patent-law-meets-middle-age-and-taxpayers-can-celebrate.