When South Dakota’s Rep. Dusty Johnson (R-SD) speaks about expanding the federal 340B Drug Pricing Program, he does so with the right instinct: help rural communities get better access to care. But good intentions are not enough. Expanding a deeply flawed program risks doing the opposite in diverting resources away from the very rural patients he represents, and exacerbating the very waste, fraud, and abuse the Trump administration is working so hard to root out.
The 340B program, created in 1992, was meant to help safety-net providers stretch scarce resources and serve low-income patients. Over time, however, it has grown into a sprawling, opaque system that too often fails to meet that mission. Today, it is less a targeted lifeline for vulnerable patients than a loosely regulated revenue stream for large hospital systems.
Recommended Stories
Start with the most basic problem: lack of accountability. Hospitals participating in 340B are not required to report how they use the savings generated by discounted drugs. Federal watchdogs have repeatedly warned that oversight is weak and largely dependent on self-policing. Congressional hearings have underscored this concern, with lawmakers noting that “without the data it is hard to know if this program is working as Congress intended.”
THE BIG CON: THESE LAWS KILL HOSPITAL COMPETITION
Yet Johnson has opposed even the most basic accountability for the program. Even after President Donald Trump made fighting waste, fraud, and abuse a cornerstone priority of his administration, and zeroed in specifically on waste in the 340B program through a basic rebate model to ensure 340B costs are actually benefiting patients, Johnson joined a group of Democrats in opposing the rebate model.
That lack of transparency has predictable consequences. Hospitals can purchase drugs at steep discounts and then charge insurers — and sometimes patients — full price, pocketing the difference. Crucially, there is no requirement that these savings be passed on to patients in the form of lower costs or expanded charity care.
Unsurprisingly, evidence suggests that many patients never see the benefit. Researchers have found that 340B hospitals are not necessarily providing more care to low-income populations than their non-340B peers. In some cases, hospitals participating in the program serve communities with fewer low-income patients than comparable nonparticipants.
Meanwhile, the program has been tied to waste, fraud, and abuse concerns. The Government Accountability Office has warned of insufficient oversight and a heightened risk of improper use, particularly as the program has expanded into more complex hospital systems. That expansion has not come with corresponding safeguards.
Johnson clearly recognizes the program has vulnerabilities. Last year, he introduced a bill to block 340B savings from being used for transgender operations. This likely came as a response to reports that 340B hospitals, such as the Cleveland Clinic, were taking the windfall from the 340B program and using it to expand controversial offerings such as transgender operations for minors. In his release announcing the bill, Johnson included a quote from swimmer and conservative influencer Riley Gaines, a critic of the controversial 340B program, highlighting the importance of Johnson’s effort to keep 340B funds from transgender operations. Yet that bill never advanced, and 340B funds still remain vulnerable to misuse for terrible purposes. Surely Johnson will withhold support for expansion of the 340B program until these protections are in place?
Perhaps most troubling for a lawmaker such as Johnson is who is actually benefiting. Despite rhetoric about helping rural America, the reality is that much of the growth in 340B has been driven by large, urban hospital systems. In fact, a significant share of facilities qualifying under “rural” designations are located in urban areas, allowing them to tap into funds originally intended for underserved rural communities.
Why should taxpayers in South Dakota be subsidizing gaudy hospital lobbies in Miami, an art museum in Cleveland, or Super Bowl commercials for a tax-exempt hospital in New York?
This creates a perverse outcome: dollars meant to support places such as western South Dakota end up subsidizing expansion in major metropolitan health systems. Large hospital networks have used 340B revenue to acquire physician practices, expand outpatient clinics, and consolidate market power — moves that often raise costs and reduce competition.
RECLAIMING AFFORDABILITY: WANT AFFORDABLE HEALTHCARE? PUT CONSUMERS IN CONTROL
In other words, expanding 340B doesn’t guarantee more help for rural patients. It may simply accelerate a trend in which rural resources are siphoned into urban healthcare empires.
South Dakota deserves better. If the goal is to strengthen rural healthcare, there are more direct and accountable ways to do it.
Cameron Sholty is the director of Government Relations at The Heartland Institute.
