Hospital 340B Participation, Site-Dependent Payment, and Vertical Integration

Importance: Both the 340B Drug Pricing Program and Medicare site-dependent payment differences create financial incentives that may increase hospital-physician integration. Understanding the magnitude of 340B's independent incentive beyond site-dependent payment differences is critical for evaluating the effectiveness of payment reforms, such as site-neutral payment, intended to reduce spending in the context of complex, overlapping policy environments. Objective: To estimate the effect of initiating 340B participation on vertical integration across outpatient settings with and without site-neutral payment. Design, Setting, and Participants: This cohort study used difference-in-differences analysis and Medicare fee-for-service outpatient claims from 2016 through 2019, a period that included site-neutral payment reforms and changes in 340B drug reimbursements. Hospitals newly initiating 340B participation in 2017 and 2019 and a comparison group of nonparticipating hospitals were included. Data were analyzed from January 2025 to July 2026. Exposure: Entry into the 340B Drug Pricing Program. Main Outcomes and Measures: Hospital-level quarterly measures of off-campus and on-campus service volume, including drug-related and drug administration claims, used as indicators of vertical integration. Results: The analysis included 23 304 033 claims from 901 hospitals, 122 newly participating in 340B and 779 nonparticipating hospitals. Initiation of 340B participation in 2019 led to significant increases in overall claims (average treatment effect among the treated [ATT], 83.4 claims per hospital-quarter; 95% CI, 6.6-155.9) and drug administration claims (ATT, 12.8 claims per hospital-quarter; 95% CI, 0.3-27.3) at newly established off-campus hospital outpatient departments subject to site-neutral payments. The probability of having more than 1 claim or drug administration claim per hospital-quarter at these sites after 340B entry, compared with not having entered, increased by 11.6% (95% CI, 1.4%-21.0%) and 8.8% (95% CI, 0.3%-19.8%), respectively. No significant changes were observed in other settings. Conclusions and Relevance: In this cohort study, initiation of 340B participation increased claims at newly established off-campus hospital outpatient departments, consistent with vertical integration, despite site-neutral payments at these sites. These findings illustrate how a reform intended to reduce expansion incentives can be offset by incentives created elsewhere in the payment system, emphasizing the importance of considering policy interactions when designing payment reforms.