Drug tariffs could boost 340B discounts—and scrutiny

Modern Healthcare – Monday, May 5, 2025
By Alex Kacik

Hospitals could get higher 340B drug discounts if tariffs kick in for pharmaceuticals, potentially adding fuel to policymakers’ efforts to curb the program’s growth.

Under a potential tariff policy, drugmakers would have to pay more for pharmaceutical ingredients, many of which are sourced from China and India, possibly resulting in higher production costs and drug prices. If drug prices rise, hospitals eligible for discounted drugs could generate more savings through the federal 340B drug pricing program, legal and policy experts said.

President Donald Trump, his administration and federal lawmakers could point to rising drug discounts to push policies that would limit the 340B program, experts said. Trump issued an April 15 executive order on drug pricing that sets the stage for limits to 340B discounts. The program aims to bolster safety-net providers that treat many low-income patients by providing an average of 25% to 50% discounts on outpatient drugs.

“Tariffs could lead to a short-term period where there is a heightened level of financial benefit for 340B covered entities, coupled with increased oversight of the program,” said Alissa Fleming, a healthcare attorney at law firm Baker Donelson.

Trump last month imposed a universal 10% tariff on many imported goods and has threatened to ramp up country-specific levies, although drugs have been exempted from the additional tax. However, Trump has hinted at lifting those exemptions to try to spur drug manufacturing in the U.S.

Tariffs on pharmaceuticals and their ingredients could increase the size of the 340B program, which is already $66 billion, said Darbin Wofford, senior health policy advisor at Third Way, a centrist Democratic think tank.

“If tariffs increase the cost of producing and importing those drugs, the prices of those drugs will increase, and therefore 340B discounts will increase as well,” he said.

The 340B program has built-in guardrails aimed at limiting drug price increases and any potential 340B drug pricing effects, experts said. The program requires drug manufacturers to sell their drugs to 340B providers at deeper discounts if they increase their prices faster than inflation.

“If manufacturers were to increase prices due to market changes, the inflation penalty could help limit the impact of those price increases on 340B providers,” said Jeffrey Davis, a healthcare attorney at law firm Bass, Berry & Sims.

A higher average sales price could ultimately lead to higher 340B drug discounts that could bolster 340B-eligible providers’ finances, experts said.

Hospitals associations and providers declined to comment amid the volatile policy environment.

While tariffs’ effects on 340B drug pricing are still uncertain, any tariff-related swings in the 340B space may be short-lived as the federal government and Congress eye broader policy shifts.

Many hospitals that qualify for 340B drug discounts contend the program helps preserve low-margin services that other providers may not offer. Critics contend that the program needs more transparency and oversight to ensure providers use discounts to improve patient care.

One of those critics, Senate Health, Education, Labor and Pensions Committee Chair Dr. Bill Cassidy (R-La.), said the program has grown too fast and provides little benefit to patients.

Cassidy recently issued a report that looked at how two hospitals, as well as some federally qualified health centers and pharmacies, used 340B drug savings. The investigation found that those hospitals used drug discounts to fund capital improvement projects and community benefit programs, but did not account for what specific expenses 340B savings went toward.

Cassidy insists the program needs better transparency and oversight to appropriately direct savings to patient care. Congress should step in and revamp 340B, he said.

“If 340B discounts go up, the federal government could exercise more scrutiny on how hospitals are using 340B savings, as evidenced by Cassidy’s recent report,” Fleming said.

Cassidy’s office didn’t respond to a request for comment.

The administration is also paving the way for regulatory changes that could limit 340B discounts.

Trump’s executive order on drug pricing ordered federal agencies to conduct a survey to determine the hospital acquisition cost for outpatient drugs. The lack of survey data contributed to the 2022 Supreme Court decision that overturned the first Trump administration’s cuts to the 340B program.

“The executive order signals a potential return to the Medicare Part B payment reductions for 340B drugs,” said Richard Davis, a healthcare attorney at law firm Quarles & Brady.

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