340B Program Cash Cow for Covered Entities and Their CEOs, Report Finds

By: Brandon M. Macsata, CEO, ADAP Advocacy; Marcus J. Hopkins, Executive Director, Appalachian Learning Initiative

In 2023, ADAP Advocacy, along with the Community Access National Network (CANN), launched a project to examine the potential impacts of the 340B Drug Pricing Program (340B Program) on the annual revenues, chief executive salaries, and charity care expenditures of covered entities. Specifically, we sought to examine whether eligibility for the 340B program was correlated with statistically significant increases in annual revenues and whether executive compensation for company presidents and Chief Executive Officers (CEOs) for all covered entity types and charity care provision for hospital entities saw commensurate increases. The report – “The 340B Drug Pricing Program and its Potential Impacts on Annual Revenues, Executive Compensation, and Charity Care Provision in Eligible Covered Entities” – found that annual revenues increased by an average of 824.32%, and executive compensation increased by an average of 231.51%.

The compensation of healthcare executives has been a topic of growing concern and worker outrage, particularly since the COVID-19 pandemic demonstrated both the irreplaceable value of and the poor compensation of healthcare workers (Saini, Garber, & Brownlee, 2022). Research from the North Carolina State Health Plan for Teachers and State Employees, Rice University’s Baker School for Public Policy, and Johns Hopkins University’s Bloomberg School of Public Health found that CEO pay has climbed significantly in the state of North Carolina while nurse pay has largely stagnated (North Carolina State Health Plan for Teachers and State Employees, 2023). This, their report posits, is because hospital CEO salaries are largely based upon their abilities to increase hospital revenues while simultaneously cutting costs in ways that both threaten patient safety and decrease the affordability of care (Scott, 2023).

In 2021, in the midst of the COVID-19 pandemic, former Democratic Congressman Tim Ryan (Ohio 13), expressed what most American workers and patients struggling to pay their medical bills feel:

“In the late ‘70s, a CEO made 35x the worker; today, it’s 300-400x the worker.”
(Forbes Breaking News, 2021)

Photo Source: Forbes Breaking News

In fewer places is this truer than in the healthcare industry. According to the U.S. Bureau of Labor Statistics, Licensed Practical and Licensed Vocational Nurse salaries average $59,730/year, while Registered Nurses average $86,070/year (U.S. BLS, 2024). Comparatively, the average CEO compensation for the 38 hospitals we examined was $1,141,973.29—180.1% higher than an LPN and 172% higher than an RN.

The explosive growth in the 340B Program has been painstakingly documented over the years by Dr. Adam Fein with Drug Channels. In September 2023, Drug Channels’ headline read, EXCLUSIVE: The 340B Program Reached $54 Billion in 2022—Up 22% vs. 2021. Fein, whose well-known call sign is “I ♥ DATA”, noted the following: “Every 340B covered entity type experienced double-digit growth, despite drug prices that grew more slowly than overall inflation.”

This process involved identifying different covered entities, checking the Health Resources and Services Administration (HRSA) Office of Pharmacy Affairs Information System (OPAIS) to determine the dates when each entity became eligible for the 340B program, and then using ProPublica’s Nonprofit Explorer to access publicly available federal 990 filings for each of the covered entities, looking at filings for the year prior to eligibility, the year after eligibility, five years after, ten years after, and the most recent year on record.

It is first important to define what ADAP Advocacy’s findings do and do not suggest:

1. ADAP Advocacy’s findings make no implications of impropriety against any of the entities whose filings were examined. Rather, the research was designed to determine whether or not eligibility for the 340B drug rebate program had any positive or negative impacts, either directly or indirectly, on annual revenues, on executive compensation, and, for hospital entities, whether or not increases or decreases in annual revenues were met with comparable increases or decreases in the percentage of charity care provided to lower-income patients.

2. ADAP Advocacy’s research makes no claims about the use, misuse, or abuse of 340B revenues by any covered entities.

3. ADAP Advocacy’s research does not claim that increases in executive compensation are the result of any impropriety; simply that those increases have occurred.

From these filings, we gathered the following information:

• Total Annual Revenue
• Annual CEO/President Compensation in U.S. Dollars
• CEO Compensation as a Percentage of Annual Revenue (i.e., what percentage of revenues were spent on CEO compensation)
• Annual Charity Care Expenditures in U.S. Dollars (for hospital entities, only)
• Charity Care Expenditures as a Percentage of Annual Revenue (i.e., how much of annual revenues are spent on the provision of charity care)

We then measured the following:

• Percentage Change in Annual Revenues from Pre-340B to Present
• Percentage Change in Annual Executive Compensation from Pre-340B to Present
• Percentage Change in Annual Charity Care as a Percentage of Annual Revenues from Pre-340B to Present
• Average Change in Annual Revenues Across Entity Types (excluding the highest and lowest outliers)
• Average Change in Annual Executive Compensation Across Entity Types (excluding the highest and lowest outliers)
• Average Change in Annual Charity Care as a Percentage of Annual Revenues Across Entity Types (excluding the highest and lowest outliers)

We examine a total of 69 covered entities, including 24 HIV Care Providers, 38 Hospitals, and 7 Other types of entities, including Federally Qualified Health Centers (FQHCs) and Comprehensive Healthcare Centers (CHCs). Our key findings include:

• Annual revenues increased by an average of 824.32% across all entity types:
• HIV Care Entities saw an average increase of 2,094.88%
• Hospitals saw an average increase of 217.09%
• Other Entity Types saw an average increase of 1,312.59%

• Executive compensation increased by an average of 231.51% across all entity types:
• HIV Care Entity executives saw an average increase in annual compensation of 282.57%
• Hospital executives saw an average increase of 206.10%
• Executives at other entities saw an average increase of 187.16%

• Charity Care as a percentage of annual revenues decreased across all hospital entity types by 14.79%

Increases in Annual Revenues

ADAP Advocacy’s findings suggest that the types of entities that the largest increases in revenues after gaining eligibility for the 340B drug rebate program tend to be those providing HIV care. This may be because of the high list prices of HIV medications which, when the rebates are supplied to HIV care providers for the difference between the list prices and the purchase prices, may result in significant revenues (Figure 1). These 340B revenues may account for a percentage of those revenue increases, though other revenue streams and the acquisition of additional locations with pharmacies may account for them, as well. 

Figure 1 - HIV Organizations with the Largest Increases in Annual Revenues After Receiving Eligibility for the 340B Drug Rebate Program 

Photo Source: ADAP Advocacy

While hospital revenues saw comparatively modest increases, this may be because many of those hospitals already had annual revenues in the hundreds-of-millions of dollars, whereas many of the HIV organizations began with revenues in the lower millions (Figure 2). Essentially, while hospitals still see increases in revenues in the multiple millions of dollars, they tend to start with far greater annual revenues than HIV care organizations making the increases in revenue proportionally smaller.

Figure 2 - Hospitals with the Largest Increases in Executive Compensation After Receiving Eligibility for the 340B Drug Rebate Program 

Photo Source: ADAP Advocacy

While increases in 340B revenues—and consequently increases in 340B revenues as a percentage of total revenues—significantly bolster the ability of HIV care providers to provide services to patients, where more clarity is needed across every entity type is in exactly how, where, and on what those 340B dollars are spent.

The 340B regulatory and enforcement landscape is such that, aside from certain types of entities being required to report the amount of 340B revenues in a specific filing period, HRSA has failed to provide specific guidelines concerning allowable expenditures using those dollars or where those dollars are reinvested (Mulligan, 2021). While the legislation itself only requires certain entity types, including HIV care providers, to spend 340B revenues according to the stipulations of their grants, hospitals are not required to utilize those revenues in any specific way or in any specific jurisdiction. This may result in expenditures that, while not technically in violation of the statutory requirements, would be largely perceived as violating the spirit of the statute. An example of this would be for a hospital system to generate 340B revenue at a Disproportionate Share Hospital—one that serves a disproportionately large share of lower-income patients and receives payments from the Centers for Medicaid and Medicare Services (CMS) to cover the cost of providing care to uninsured patients—and then utilizing those revenues by building new facilities, upgrading existing facilities, or expanding services in areas that serve primarily higher-income populations.

Increases in Executive Compensation

When examining the compensation of covered entities’ presidents and CEOs, ADAP Advocacy found that their compensation increased by an average of 231.51% across all entity types, with executives at HIV care organizations seeing the highest increases in compensation, in terms of a percentage of growth, at an average of 282.57%. Two organizations—Equitas Health, Inc. and CAN Community Health—saw CEO compensation increase by 1,380.79% and 1,088.94%, respectively (Figure 3). These increases resulted in both CEOs receiving more than $1 million dollars in compensation, significantly higher than any of the other 22 HIV care organizations we examined.

Figure 3 – HIV Organizations with the Largest Increases in Executive Compensation After Receiving Eligibility for the 340B Drug Rebate Program

Photo Source: ADAP Advocacy

By comparison, executive compensation rose at the hospitals ADAP Advocacy examined by an average of 206.10%, with the highest increases in compensation occurring at Yale New Haven Hospital and Sutter Valley Hospitals, at 1,421.15% and 1,133.42%, respectively (Figure 4). The primary differences in executive compensation levels between HIV care organizations and hospitals is that the starting size of the compensation packages are vastly different. All of the HIV care executives began with salaries below $200,000/year, while only one hospital executive’s salary started below $200,000. In fact, 25 of the 38 hospitals we examined (65.8%) had starting executive salaries above $500,000.

Figure 4 – Hospital Organizations with the Largest Increases in Executive Compensation After Receiving Eligibility for the 340B Drug Rebate Program

Photo Source: ADAP Advocacy

Decreasing Charity Care Provision

Perhaps the most stunning findings to come out of ADAP Advocacy’s research are the significant decreases in the provision of charity care or uncompensated care by hospitals at cost as a percentage of annual revenues. Of the 38 hospitals whose 990s ADAP Advocacy examined, just 9 (23.7%) reported increases in the amount of charity care they provided as a percentage of annual revenues. Of the five hospitals that saw the largest decreases in charity care, three—Cabell-Huntington Hospital, Pleasant Valley Hospitals, and Charleston Area Medical Center—are located in West Virginia, one of the most impoverished states in the nation (Figure 5). This is particularly concerning due to the fact that more than 1 out of every 4 West Virginians (28.1%) earns less than 150% of the Federal Poverty Level (American Community Survey, 2023).

Figure 5 - Decreases in the Provision of Charity Care as a Percentage of Annual Revenue in Hospitals After Receiving Eligibility for the 340B Drug Rebate Program

Photo Source: ADAP Advocacy

This raises a significant concern regarding the utilization of 340B revenues in hospitals: if the purpose of the program is to increase patient access to medications and treatments, shouldn’t the provision of charity care at cost be one of the primary mechanisms for doing so? Unfortunately, because there is no transparency regarding 340B revenues, either in the generation or spending of them, neither HRSA nor patients are able to hold hospitals accountable.

Perhaps the most salient statement about the rules regarding hospitals and 340B is this: 

“The number one rule of 340B is that there are no rules.”

Where other 340B entity types have reporting requirements, hospitals have none; where other entities are required to use funds in compliance with certain restrictions, hospitals have no such restrictions; where other entities actively risk losing their 340B eligibility for failing to comply with HRSA’s 340B requirements, hospitals face no such risk. Moreover, hospitals, their lobbyists, and their executives have openly opposed all efforts to reform the 340B program, including a 2023 bill—H. R. 3290—that proposed relatively modest changes to the program that would require transparency about revenues generated by covered entities (Southwick, 2023).

HIV care providers are equally likely to oppose 340B reform. In a statement released in September 2022, Ryan White Clinics for 340B Access (RWC-340B)—a national 501(c)(4) organization composed of over 60 organizations across 24 states that advocates against 340B reform efforts—argued that opinion pieces and “so-called ‘studies’” criticizing the 340B program in 2022 were authored almost exclusively by persons with “...have financial ties to the pharmaceutical industry, calling into question the objectivity and integrity of their work” (RWC-340B, 2022). The arguments against 340B reform from HIV care organizations tend to be grounded in the idea that any changes to the program are likely to fundamentally destroy their ability to provide services to PLWHA by reducing the size of the program and increasing scrutiny of how those revenues are reinvested to improve patient access to and utilization of care. They additionally contend that efforts to reform the 340B program are funded by pharmaceutical manufacturers that are statutorily required to participate in the program, and that anyone who receives funding from those companies is biased in favor of increasing pharmaceutical company profits.

The arguments against 340B reform pose a set of interesting questions:

• Is there room for targeted 340B reforms that focus on increasing regulations, transparency, and reporting requirements for specific types of covered entities?
• How should potential reforms be structured in order to ensure that patients reliant upon social safety net programs like the Ryan White Part B program and who receive healthcare services at Ryan White clinics are not negatively impacted?
• What are the potential downstream impacts of reforms that would specifically define how 340B revenues may be used, and which entities will be most likely to face negative impacts?
• Aside from regulatory reforms, what changes are required to grant enforcement power and regulatory oversight to HRSA that would allow them to discipline entities that fail to comply with existing 340B regulations and any other requirements that may be enacted through the reform process.

As with most issues related to the healthcare system in the United States, the answers to these questions and issues are rarely simple. Any efforts to reform programs or the healthcare system itself to benefit patients is met with stern opposition from providers who rely on certain revenue streams, payors who rely on cost containment measures to ensure profitability, and manufacturers who depend on complex reimbursement and the for-profit healthcare model to support both profitability and purported innovation. One significant change in the patient’s favor may result in the destabilization or wholesale destruction of one or more pillars of an overly complex, profit-driven model that impacts one-sixth of the American economy.

With those considerations in mind, it is important that any efforts to reform the 340B program look at the totality of impacts across all covered entity types and make reforms that will increase and improve patient access to care and treatment, rein in bad actors who abuse the 340B system, and ensure that good actors are able to access 340B revenues without increase their regulatory and reporting burdens.

This report reminds us why patients keep asking, "340B: What About Me?"

Disclosure: Phase I of this report was funded by general revenues. A complete listing of funders is available online, here. Phase II of this report was funded by revenues from its Ryan White Grantee 340B Project. This 340B Project is funded by the following corporate entities: Bristol-Myers Squibb, Genentech, Gilead Sciences, Johnson & Johnson Health Systems (Janssen Pharmaceuticals), Merck, Novartis, PhRMA, and ViiV Healthcare. The report explicitly states that ADAP Advocacy exercised full control over the implementation strategy, design, and data analysis, independent of funder influence. This independence is crucial for maintaining the objectivity and credibility of the research.

Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates.