Middling Middlemen

More 340B Ranting

Anyone who follows me knows I’m a little obsessed with an obscure drug discount program called the 340B Drug Pricing Program.

Briefly, 340B allows certain hospitals to purchase outpatient drugs at steep discounts. When those drugs are administered to patients and insurers pay the bill, hospitals are allowed to keep the spread between the deeply discounted acquisition price and the full reimbursement rate.

That spread is not trivial. In 2023 alone, it was worth over $70 billion. What began as a narrow safety net policy has become one of the largest and fastest-growing revenue streams for large hospital systems.

The program has created many problems and is helping drive up the cost of care for everyday Americans. Hospitals are not required to use 340B revenue to treat low-income patients. As a result, many do not. Instead, systems reinvest the money into acquisitions, real estate, and expansion into wealthier neighborhoods where more commercially insured patients generate more 340B spread.

The program also directly fuels consolidation. Independent physicians are excluded from the discount. A community oncologist administering expensive chemotherapy drugs pays full price. That same oncologist, once acquired by a hospital system, suddenly qualifies for massive 340B discounts on the exact same drugs. That ownership difference is enough to tilt entire markets.

This dynamic has been documented repeatedly in Senate investigations and staff reports. The result is a steady transfer of physicians, outpatient care, and market power into large hospital systems, driven not by quality or efficiency but by regulatory arbitrage. Additionally, many analyses show that 340B raises costs for everyday Americans. It raises premiums for privately insured patients, and increases the costs to taxpayers funding Medicaid and Medicare.

Recently, the Senate released a letter that targets something even more fundamental than hospital behavior: the administrator of the 340B program itself.

That administrator is Apexus.

Apexus is the federally designated 340B Prime Vendor. It is a private company contracted by the government to centralize negotiations, provide administrative support, and assist with compliance.

Here is what the Senate found:

“Last year, media reports found that Apexus generated hundreds of millions of dollars in revenue through fees it collects for almost every drug sold under the 340B Program. It also found that Apexus has expanded its business beyond its core role as the 340B prime vendor, working with covered entities to increase 340B utilization and adding additional business lines to increase its profits.”

Read that carefully. Apexus makes money per 340B drug transaction. Not per low income patient served. Not per dollar saved. Per unit sold. Worse still, it is actively helping covered entities increase utilization.

It is a structural conflict. If Apexus benefits financially from more 340B transactions, it will rationally work to increase the number of transactions. There is no built in incentive to limit the scope of the program, narrow eligibility, or restrain growth. That incentive structure explains the modern 340B landscape, including the explosion of contract pharmacies, the increasing capture of commercially insured patients, weak enforcement of patient eligibility rules, and persistent resistance to transparency reforms.

Over time, this structure has cemented 340B as an immovable force in healthcare politics. Hospitals retain billions of dollars in spread pricing and use that financial arbitrage to crush competition. Pharmacies collect fees for distribution. Consultants sell optimization strategies. And at the center sits Apexus, quietly nudging more and more volume through the system because that is how it gets paid.

The Senate’s investigation is important here. If the administrator of the program has misaligned incentives, no downstream rule tweak will fix the problem. You cannot regulate your way out of a structural conflict. A safety net program cannot be administered by an entity that profits from its expansion. Volume based fees are fundamentally incompatible with safety net goals.

The Senate is right to ask the uncomfortable question. If the entity tasked with administering 340B profits from its growth, who exactly is responsible for saying no?