(The Center Square) – Hospitals and clinics in Michigan participating in a federal drug discount program are marking up medications and shifting costs onto public employee health plans, according to a new analysis.
The report from IQVIA, a health data analytics and research company, found that providers participating in the federal 340B Drug Pricing Program are buying medications at steep discounts and billing insurers at much higher rates – increasing costs for both state health plans and taxpayers.
A spokesperson for the Alliance for Integrity and Reform of 340B told The Center Square in a statement that the findings show hospitals are profiting from a program intended to help vulnerable patients.
“The most important takeaway is that Michigan hospitals are exploiting the federal 340B program for profit at the expense of Michigan patients and taxpayers,” the spokesperson said. “These hospitals receive large discounts on medicines and are marking up those medicines, raising costs for everyone. According to the research, Michigan state health plan enrollees, which includes teachers, police officers and firefighters, saw a 146% average markup on medicines.”
The spokesperson added that the financial impact extends beyond public employees.
“Every Michigander should care about this issue because 340B abuse leads to increased health care costs for everyone,” they said. “These 340B markups have become a hidden tax that inflates costs across the health care system—higher out-of-pocket expenses, increased premiums and higher government spending that burdens taxpayers.”
The 340B Drug Pricing Program was created by federal law in 1992. It allows qualifying hospitals and clinics serving low-income and uninsured populations to purchase outpatient prescription drugs at steep discounts. Providers can then bill insurers and patients at standard rates, with the expectation that savings will be used to expand care and services.
According to the IQVIA analysis, Michigan state health plan enrollees—including teachers, police officers and firefighters—faced an average markup of 146% on medicines obtained through the program. In some cases, state health plans paid $235 in markups above the discounted acquisition cost of the drugs.
The study also found the issue extends nationwide. Across 46 states, 340B hospitals and clinics marked up discounted medicines and “overcharged” state employee health plans, generating an estimated $1.8 billion annually.
In contrast, hospital leaders and program advocates argue the program is essential to maintaining care, particularly in underserved areas.
“The 340B program, established by Congress more than 30 years ago, remains a critical lifeline for hospitals serving vulnerable communities across Michigan,” Brian Peters, CEO of the Michigan Health & Hospital Association, told The Center Square. “Hospitals, especially those serving rural and low-income areas, operate on razor-thin margins, while absorbing the full impact of unchecked drug pricing.”
In Michigan, there are currently 87 hospitals that participate in the program. Of those, Henry Ford Health, McLaren Health Care, and University of Michigan Health are some of the biggest.
Peters said the program enables hospitals to continue providing vital services while supporting local communities.
“Hospitals rely on the savings provided through the 340B program to keep care local and provide essential services like emergency, mental and maternity care without any taxpayer dollars,” he said. “Efforts that weaken the program or restrict hospitals’ ability to use the resources threaten access to care across the state. Hospitals reinvest 340B savings directly into patient care and the communities they serve. Safeguarding 340B ensures Michigan hospitals can keep care local and puts the interests of patients ahead of drug company profits.”
A spokesperson for the Alliance for Integrity and Reform of 340B disagreed, pointing to prior research that showed faults in the program.
“This study builds on a 2024 analysis by the North Carolina State Treasurer that found 340B hospitals charged state health plans over five times their acquisition cost for certain cancer drugs,” the spokesperson said. “This research is just another reminder that the 340B program is in dire need of federal reform. 340B lacks basic transparency or accountability requirements to ensure it’s actually serving vulnerable patients and the data shows us 340B hospitals and providers are marking up discounted medicines and profiting off us all.”
As previously reported by The Center Square, a report from Hospital Spending Watch found that Michigan’s 340B hospitals reported 49% higher patient revenue than non-340B hospitals. Critics of the 340B program have long argued that lax oversight and limited transparency allow hospitals to generate revenue from discounted drugs rather than directly lowering patient costs. Supporters counter that the savings help sustain essential services.
Rhiannon Marshall Klein, executive director of Community Voices for 340B, is one of those supporters. She told The Center Square that the program helps preserve local access to care.
“At its heart, 340B is about community. It’s about whether patients in Michigan can access the healthcare they need close to home,” Klein said. “In communities across our state, from Detroit neighborhoods to small towns in the Upper Peninsula, local clinics and hospitals use 340B savings to make healthcare affordable for community members who need it most.”
Currently, the Michigan legislature is considering a bill which would expand certain aspects of the 340B Drug Pricing Program. Hospitals have applauded House Bill 4878, which was proposed by Rep. Curt VanderWall, R-Ludington, in September. The bill remains in committee.
Klein explained that she believes it is outside pressures that are threatening the longevity of the 340B program.
“Drug companies are working behind Michiganders backs and attempting to increase their control over how 340B works, but states and communities are standing up,” she said. “This program was designed to strengthen local care. For many Michiganders, it’s the difference between access and going without.”
The spokesperson for the Alliance for Integrity and Reform of 340B explained that they believe systematic reform is needed to truly protect those vulnerable patients.
“Congress needs to act and hold 340B hospitals accountable by supporting reforms that ensure the 340B program truly serves vulnerable patients.”
