By Dan Crippen
Washington is increasingly tapping a hidden “piggy bank” to fund its growing healthcare commitments. Proponents of this strategy proclaim that it doesn’t cost taxpayers a dime, but that’s an illusion. It’s quietly draining one of America’s most important industries — and threatens to degrade millions of Americans’ health while greatly increasing future healthcare spending.
Each year, policymakers force prescription drug manufacturers to transfer tens of billions of dollars to hospitals and other providers (mostly clinics) — through mandatory rebates and discounts. These transfers don’t come out of the federal treasury or show up as a line item on the budget, so most Americans have no idea this is happening. And policymakers are perfectly happy to keep it that way.
But as the saying goes, there’s no free lunch. Over time, these transfers will cause the nation’s medical innovation pipeline to shrink. That’d deny patients the next generation of lifesaving treatments. And the higher healthcare spending that results from a sicker population absolutely will have a significant impact on the federal budget.
The clearest example of this off-budget spending is the 340B Drug Pricing Program, which lawmakers established more than three decades ago to help safety-net providers access discounted medicines and expand charity care. Rather than fund that support directly, Congress mandated that drug makers provide steep discounts to certain hospitals and clinics that treat low-income and uninsured patients.
Lawmakers meant well — but over time, the program has expanded dramatically due to limited oversight and changes in regulatory guidance. More than 2,600 hospitals now participate in the 340B program, up from around 50 when it first began. There are 32,000 pharmacies that handle 340B drugs with 240,000 contracts — the majority with hospitals. In 2024, the program effectively transferred over $66 billion from drug makers to hospitals and other “covered entities.”
Instead of passing those savings on to low-income patients, many hospitals sell those discounted drugs to employers, their employees, and insurance companies at significant markups and pocket the spread. Their profits from the program far exceed their total spending on charity care.
In effect, the off-budget and effectively unlimited nature of the program has driven tremendous abuse — allowing large hospital systems to extract billions in profit with far less accountability than an on-the-books government program.
If policymakers continue to extract money from drug manufacturers to expand health programs now — and increase the deficit — they will prevent the development of therapies that would have delivered far greater long-term benefits.
Bringing a new drug to market typically takes more than a decade and costs over $2 billion. Nine in 10 drug candidates fail during clinical trials. Companies only invest in these efforts if they have confidence that their rare successes will generate a return and fund the next round of research.
When policymakers repeatedly reduce those returns and skim off companies’ revenue, the incentive to invest in new R&D efforts shrinks. That brings serious consequences for patients — and workers, employers, and taxpayers.
Consider how drug innovations have transformed chronic disease care, which drives 90% of U.S. healthcare spending. Statins reshaped cardiovascular care. Immunotherapies revolutionized cancer treatment. GLP-1 drugs promise to reverse the rising tide of diabetes and obesity. Breakthroughs like these reduce long-term healthcare spending by preventing hospitalizations and slowing disease progression.
Expanding Americans’ access to treatments is an important goal. But forcing drug makers to directly bankroll government programs is not sustainable.
Dan Crippen is a former director of the Congressional Budget Office. This article originally ran in The Washington Examiner.