Eight years after California’s Legislative Analyst’s Office warned that the federal 340B drug discount program posed oversight and duplicate-discount challenges for Medi-Cal, California providers, lawmakers, and healthcare groups are still debating the program’s transparency, financial impact, and oversight requirements in 2026.
Established in 1992, the 340B program enables eligible hospitals and healthcare organizations to purchase outpatient medications at significantly discounted prices.
Hospitals participating in the 340B program can use the savings to fund essential services and programs, such as free or low-cost medication assistance, expanded access to healthcare, and community outreach initiatives.
Participating hospitals, however, “often extend their 340B discounts to clinics in well-off communities, where they can charge privately insured patients more than those on Medicaid,” reported the Wall Street Journal.
“In some cases, the program appears to be bolstering profits in well-off areas more than it is underwriting services in less-privileged neighborhoods,” said the Journal article.
In a 2018 report, the California Legislative Analyst’s Office said that the state faced growing administrative challenges ensuring manufacturers were not subjected to prohibited “duplicate discounts,” where a drug receives both a discounted 340B purchase price and a Medicaid rebate. The report said oversight becomes more difficult in Medi-Cal managed care arrangements and through the use of outside contract pharmacies.
“The use of contract pharmacies poses a number of challenges from a state perspective,” the report said, noting the arrangements can make it more difficult to identify 340B claims and prevent duplicate discounts.
AIR340B reports that California 340B hospitals maintain 3,514 contracts with 340B pharmacies, including approximately 40% involving out-of-state pharmacies. The report said 79% of California 340B hospitals provide below-average levels of charity care, and estimated California 340B hospitals generate 3.6 times more in 340B profits than they spend on charity care.
A separate report by PhRMA estimated California employers pay approximately $586 million more in healthcare costs because of foregone rebates tied to the 340B model, along with an estimated $76.6 million reduction in state and local tax revenue.
The debate has continued into 2026 as California providers adapt to Medi-Cal Rx billing requirements tied to 340B claims. The California Department of Health Care Services (DHCS) requires providers to use specific billing identifiers on Medi-Cal claims involving 340B drugs so the state can properly exclude those claims from Medicaid rebate invoices submitted to manufacturers.
According to DHCS guidance, for claims involving 340B-purchased drugs, providers must use designated billing modifiers and cost-identification fields to prevent “duplicate discounts/rebates.” This occurs when a manufacturer provides the 340B discounted price while also paying a Medicaid rebate on the same drug. To prevent this, physician-administered drug claims must include a “UD” modifier, and pharmacy claims must include “08” in the Basis of Cost Determination field to indicate that a 340B-purchased drug was used. These requirements apply to both pharmacy claims and physician-administered drugs billed through Medi-Cal.
California lawmakers also revisited the issue in 2025 through AB 1460, a measure addressing the use of contract pharmacies in the 340B drug pricing program. According to the Chronic Care Policy Alliance, the proposal would have allowed what it described as “unlimited use of contract pharmacies” and risked benefiting large health corporations and PBM-affiliated pharmacies rather than safety-net providers. The group also said the bill was halted for 2025 but could return in 2026.
In contrast, Assemblymember Chris Rogers’ office and supporters characterized AB 1460 as a patient-access measure designed to protect the ability of clinics and health centers to use contract pharmacies in obtaining discounted medications for low-income patients.
Dr. Anthony DiGiorgio, a neurosurgeon and academic physician affiliated with the University of California, San Francisco, wrote in a San Francisco Chronicle op-ed that AB 1460 would “lock in many of the worst aspects” of the 340B system by prohibiting restrictions on drug delivery even when hospitals use pharmacies with “no connection to the safety net.”
DiGiorgio said the bill would have shielded hospitals from scrutiny regarding how discounted drugs are dispensed and whether savings reach vulnerable patients.
Julie Gill Shuffield, Executive Director of Patients Come First California, said 340B’s “lack of transparency” has allowed large hospitals and insurers to benefit from discounts intended for vulnerable patients, reported Golden State Today. She said some hospitals buy deeply discounted drugs and charge patients and insurers higher prices while retaining the difference.
