The 340B program, once a lifeline for underserved communities, has become a case study in crony capitalism. Designed to help hospitals serving low-income patients by offering discounted prescription drugs, it has instead evolved into a profit engine for large healthcare systems, often at the expense of the very patients it was intended to assist.
In New Jersey, the misuse of 340B is particularly evident as 25 of the state’s hospital systems participate in the program. These hospitals purchase prescription drugs at steeply discounted prices under the premise of using the savings to expand access to care and provide charity services. However, many of these institutions exploit the program by billing insurers full price for the discounted drugs, pocketing the difference. For example, a hospital might pay $500 for a drug and charge $1,000 to a patient’s insurer, turning what should be a charitable benefit into a lucrative revenue stream.
Unfortunately, the issue is not unique to New Jersey. Nationally, the scale of 340B exploitation is staggering. Hospitals in the program earn nearly $10 in profit for every $1 spent on charity care. They generate 1.4 times more revenue from 340B than they spend on helping underserved patients. A Government Accountability Office study found that patients at 340B hospitals often pay about 150% more for prescriptions than those treated at non-340B facilities.
Despite the financial windfall from 340B, many New Jersey hospitals fail to meet their obligations to low-income residents. More than 80% of the state’s hospitals claim nonprofit status, a designation meant to reflect their commitment to serving underserved communities. Yet, 16% of the state’s 340B hospitals fall below the national average for charity care levels.
This misuse of the program is not just a moral failing — it’s a structural one. When Congress created 340B in 1992, the goal was to reduce hospitals’ operating expenses so they could lower costs for patients. However, the program failed to mandate transparency or accountability, as hospitals were not required to disclose how they used the savings or to demonstrate that these funds directly benefited low-income patients. Instead, the program has become a tool for profit-seeking, with hospitals prioritizing their bottom lines over patient care.
The Affordable Care Act further compounded the problem by expanding 340B’s scope. Hospitals can now contract with an unlimited number of pharmacies, including retail pharmacy networks, theoretically to extend care to more communities. However, without oversight, this expansion has only amplified the program’s misuse. Today, just one-fifth of 340B hospitals account for 85% of the program’s profits, yet they deliver only 24% of its charity care.
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What needs to happen in New Jersey?
In New Jersey, the consequences are particularly dire. More than 85% of residents worry about affording healthcare, and many are forced to make impossible choices between treatment and other basic needs. It is unconscionable that hospitals are siphoning benefits from taxpayer-funded programs that are intended to help underserved communities.
Reform is clearly needed. Hospitals should be required to report how savings are used, meet minimum charity care thresholds, and face penalties for failing to prioritize low-income patients. If lawmakers believe 340B is worth preserving, they must implement stricter oversight.
Healthcare is already unaffordable for far too many New Jersey residents. It is unconscionable that hospitals, which claim “nonprofit” status and benefit from taxpayer-funded programs, are profiting at the expense of patients struggling to make ends meet.
Danielle Zanzalari is an assistant professor of Economics at Seton Hall University and a Garden State Initiative contributor. She researches New Jersey policy, specifically on how to better align economics with economic growth.
