Rural hospitals worry about the future of an obscure discount drug program they rely on
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Rural health care facilities in Minnesota are grappling with the implications of the failure of state legislation last month that was meant to strengthen a critical discount drug program, and they now fear that the pharmaceutical industry will further erode the program.
In the final days of this year’s legislative session, a bipartisan bill that appeared on track to pass, failed to get called for a vote. It was a big win for the pharmaceutical industry, which had run an aggressive ad campaign opposing the measure.
The controversial program, called 340B, has changed in scope over the past few decades, and critics accuse large, affluent hospital systems across the country of taking advantage of a program that was never intended to serve them. The pharmaceutical industry argues that the program is desperately in need of reform by Congress, not by individual states, to better serve critical access hospitals and community clinics.
But multiple rural, critical access hospital leaders told MPR News that while imperfect, 340B has become a lifeline. These facilities serve a large percentage of patients on Medicaid and Medicare, which pay low reimbursements to hospitals, making it difficult for them to break even. The revenue earned under 340B allows them to keep the lights on and preserve the full slate of medical services for the communities they serve.
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“Every one of us would be out of business without 340B,” said Rachelle Schultz, president and CEO of Winona Health.
What is 340B and how does it work?
Congress created the federal 340B Drug Pricing Program in 1992 to allow safety-net providers to purchase drugs at steep discounts from pharmaceutical companies.
Sayeh Nikpay, a public health professor at the University of Minnesota who researches the drug program, said the program began with a very narrow scope. It was meant to help community clinics and Federally Qualified Health Centers that primarily serve low income patients who were seeing their drug costs soar.
The idea was that these clinics and some public hospitals would have access to cheaper drugs through the new program. But 340B’s parameters expanded under the Affordable Care Act, when Congress voted to include nonprofit hospitals that met eligibility factors like serving rural populations.
“Today we are in a situation where instead of being a narrowly focused program targeted to public health service act clinics and 200 hospitals, we have a program in which almost two-thirds of nonprofit hospitals are participating here in Minnesota,” Nikpay said. “I don't think that policymakers could have envisioned that we would be where we are today.”
How 340B works depends on the type of provider.
Federally Qualified Health Centers, dedicated to serving uninsured patients and those on Medicaid, can buy 340B eligible drugs at a substantial discount, which they then pass onto patients. Or, those patients can buy their medicine from a contract pharmacy and receive a similar discount.
Dr. Cynthia Woods, the medical director of Community Health Services, Inc, a network of federally qualified health centers across Minnesota and North Dakota, says the program is invaluable. An expensive blood thinner medication could cost $600 a month, but with the 340B program, a patient can buy the drug for $60.
“In the rural communities, as you can imagine, there are a lot of people that work on farms, are independently employed, so they pay for their office visits on the sliding scale, and then they really rely on the discount program,” Woods said.
Hospitals, on the other hand, can purchase drugs at a substantial discount from the pharmaceutical manufacturer but then charge the patient’s insurance full price and use the extra revenue to help fund hospital operations or to provide financial assistance to patients.
But the pharmaceutical industry alleges that some larger, more affluent hospitals use the program to pad their budgets to the tune of millions of dollars and are essentially profiting off of 340B, which was intended to support community health clinics and critical access public hospitals.
‘A hospital markup program’
A 2022 Wall Street Journal Investigation found that Cleveland Clinic, one of the top hospitals in the country, earned $1.35 billion in 340B profits in 2021 by classifying itself as a “rural referral center.”
According to Minnesota’s latest 340B Covered Entity Report, large urban hospitals in the state received a disproportionate share of the funds in 2024.
M Health Fairview’s University of Minnesota Medical Campus in Minneapolis earned $335 million in 2024, more than any other hospital in the state and a whopping 26 percent of the total revenue Minnesota hospitals generated from the program. Abbot Northwestern Hospital, also in the Twin Cities, brought in nearly $154 million.
Jessica Lynch, the Midwest state policy director for PhRMA, the trade group for the nation’s drug manufacturers, argued that the program often doesn’t lower the costs of medications for patients and instead drives up the cost of employer health plans and for taxpayers because the hospital bills them for the full cost of the drug.
“PhRMA strongly supports the original intent of the 340B program, which, from our position, is to ensure that low-income and vulnerable patients can access medicines when they need to,” Lynch said. “However, we feel that over the course of time, the 340B program has evolved into something else that looks more like a hospital markup program and is no longer serving the patients that it is intended to.”
Nikpay agrees. While these large hospitals aren’t doing anything illegal, she said some don’t appear to be in line with the spirit of the program.
“I would say that the rules are not very clear, and so it’s difficult to say what is and what is not allowed, given the ambiguity,” Nikpay said.
An imperfect lifeline
While acknowledging flaws in the 340B program, multiple rural hospital leaders told MPR News that it is essential to balancing their budgets and that ending it could cripple their operations. They say that while patients may not pocket the savings firsthand, the program is the reason their hospital is able to stay open and continue providing services to the community.
“[Patients see] the savings when the ambulance picks them up at their house to bring them to our ER that is staffed,” said Lisa Bjerga, CEO of Lakewood Health Systems in Staples, a rural community about an hour northwest of St. Cloud. “We don't pass it on to the patient, but we pass it on in the form of access.”
Because Medicaid’s reimbursement rate to hospitals is so low, Bjerga said they’re providing many medical services at a deficit. Labor and delivery, for example, is famously expensive to staff because it requires around-the-clock coverage; but in rural areas, there aren’t enough births to cover the entire cost.
According to the Minnesota Hospital Association, 31 hospitals in Minnesota — nearly a quarter of all hospitals in the state — are financially distressed. But Bjerga said that the revenue her hospital makes from 340B allows them to stretch their scarce resources.
Hospitals, in turn, accuse the pharmaceutical industry of undercutting and circumventing the program by removing some medications from the list of those covered by 340B.
Bills introduced into the Minnesota legislature this year would have addressed that by authorizing the state attorney general’s office to enforce the law to ensure pharmaceutical companies comply. The legislation also would have extended a provision, which otherwise sunsets next summer, that allows hospitals to qualify for the discount at a wide range of contract pharmacies. Since the bills failed, starting in July 2027, manufacturers will be able to limit which pharmacies hospitals can use to qualify for a discount.
The pharmaceutical industry opposed the legislation, even funding TV and social media ads in a campaign aimed at persuading Minnesota lawmakers to forgo the changes.
Bjerga, of the hospital in Staples, said she’s disappointed that better protections for rural hospitals are not in place.
“340B is a federal designation, so what was up for discussion wasn't the program itself, it was the ability for it to have some teeth in making pharmaceuticals follow what's put in place, because individual hospitals just can't do it,” Bjerga said. “We can't go to bat against them. I mean, they have pockets deeper than anyone.”
What’s next for rural hospitals
Legislation to protect the 340B program will likely be reintroduced in next year’s legislative session, but the pharmaceutical industry is primed to keep fighting back and will keep pushing for federal changes instead of state protections.
Multiple hospital leaders told MPR News they’re concerned the pharmaceutical industry will continue to find ways to chip away at and limit the program until it’s no longer effective, with the goal of ultimately ending the program.
“What I believe to be true is that this is slowly going to be eating the elephant one bite at a time,” explained Rick Ash, CEO of United Hospital District in Blue Earth. “Eventually, they want to get rid of 340B.”
The U’s public health expert Nikpay said she doesn’t believe the program will go away, but she said there could be legal challenges down the road, which could ratchet down the amount of money hospitals can generate from the program.
In the meantime, Nikpay said she hopes large hospital systems that have profited the most from this program will take actions to preserve the original intent of the program. Instead of using 340B revenue to renovate a surgery wing, the funds should be used to make essential medications more affordable to those in need.
“Sharing some of those discounts with the patients who really are struggling to pay would certainly help to alleviate some of the financial strain that Minnesotans are feeling,” Nikpay said.
Clarification (June 3, 2026): This story has been updated to indicate that the pharmaceutical industry broadly funded ads opposing Minnesota's 340B legislation. The ads were not funded by its trade group, PhRMA.
