340B Hospital
A hospital that qualifies for the federal 340B Drug Pricing Program, purchasing outpatient drugs at prices approximately 25-50% below wholesale acquisition cost to support care for low-income and uninsured patients.
On hospital cost-and-quality pages, 340B Hospital carries a specific technical meaning that often differs from how the term is used in clinical practice or general medical writing. The definition here is the CMS-file usage. On the LakeQuality value rubric, 340B Hospital is one of the inputs (directly or indirectly) to the combined cost-and-quality grade. Understanding how the term is computed at CMS — what counts and what does not — is part of reading hospital pages defensibly.
Each hospital page on LakeQuality surfaces the specific 340B Hospital value for that facility (when CMS reports one), so the general definition here translates into a concrete data point on the per-hospital pages you actually use.
How It Works
The 340B Drug Pricing Program was enacted in 1992 under Section 340B of the Public Health Service Act to allow safety-net providers to purchase outpatient prescription drugs at steeply discounted prices from manufacturers, approximately 25-50% below wholesale acquisition cost (WAC) on average. The program is administered by the Health Resources and Services Administration (HRSA). Eligible hospital categories include disproportionate share hospitals (DSH) with a DSH adjustment percentage above 11.75%, children's hospitals and free-standing cancer hospitals with DSH above 11.75%, rural referral centers (RRC) and sole community hospitals (SCH) with DSH above 8%, and critical access hospitals (CAH) with no DSH threshold. Approximately 2,700 hospitals participate as 340B covered entities, including most major academic medical centers and safety-net systems. The program has grown rapidly: 340B purchases totaled roughly $54 billion at 340B prices in 2023 (about $124 billion at WAC, producing $70 billion in program discounts), up from $6 billion in 2011. Hospitals are permitted to retain the "spread" between 340B acquisition prices and reimbursement from payers, using those funds to provide uncompensated care, expand services, and subsidize drug costs for uninsured and underinsured patients. HRSA requires that 340B savings support the program's intent but does not prescribe specific spending categories, a source of controversy as large systems have used 340B revenues to expand into wealthier outpatient markets through clinic acquisitions ("contract pharmacy" arrangements). Manufacturers have pushed back through restricted distribution policies at non-covered-entity contract pharmacies starting in 2020, generating lawsuits and HRSA enforcement actions. The Supreme Court's 2022 American Hospital Association v. Becerra decision restored ~$1.6 billion annually in Medicare OPPS payments that CMS had reduced for 340B-acquired drugs from 2018-2022.
Related Terms
- Nonprofit Hospital, A hospital organized as a 501(c)(3) tax-exempt entity, making up about 58% of U.S. community hospitals, that reinvests revenue into the community in exchange for federal, state, and local tax exemptions.
- Disproportionate Share Hospital (DSH) Payments, Supplemental Medicare and Medicaid payments to hospitals that serve a disproportionate number of low-income patients, totaling approximately $28 billion annually across both programs.
- Charity Care (Financial Assistance), Free or reduced-cost hospital care provided to patients who cannot afford to pay, required of all 501(c)(3) nonprofit hospitals under IRS Section 501(r) and frequently offered voluntarily by for-profit and government hospitals.
- Critical Access Hospital (CAH), A small, rural hospital (25 beds or fewer) designated by CMS to receive cost-based reimbursement at 101% of reasonable costs, ensuring rural communities maintain access to essential hospital services.
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About This Definition
This definition is part of the HospitalCostData Hospital Pricing Glossary, 47 terms explaining hospital costs, quality ratings, and healthcare billing. Written for patients, journalists, researchers, and healthcare professionals.