Rural hospitals seek renewal of key drug discount program

REGIONAL— An obscure drug law, set to sunset in Minnesota on July 1 of next year, could be a make or break for health care providers in the state, particularly those in rural areas.
The 340B Drug Pricing Program was created by Congress in 1992 and currently has no sunset provision. But health care leaders in Minnesota fear that losing additional state protections that closed some troublesome loopholes and required greater transparency could be another blow to beleaguered rural hospitals.
Under the program, pharmaceutical manufacturers that participate in Medicaid must sell certain outpatient prescription drugs to eligible health care providers at discounted prices. It was designed as a way to help those providers serving rural, low-income, and vulnerable populations stretch their resources.
“For us to be able to give, say, a cancer medication that is relatively new and still a name brand through the FDA. We can’t afford to take care of that patient if we don’t get a discount,” said Patti Banks, CEO of Ely-Bloomenson Community Hospital, who spoke recently with the Timberjay about 340B discounts.
Those discounts can be substantial. For example, a hospital might purchase a hypothetical medication for $40 through the 340B program, even though the medication’s regular price is $100. Most of the drugs covered are for ongoing treatment of chronic conditions like arthritis, Crohn’s disease and cancer.
Oversight and enforcement of the federal law have weakened over time as the program has increased in scale. Administrative backlogs at the federal level now limit providers’ ability to seek recourse when a drug company denies them discounts. Around 2020, several drug companies in Minnesota started exploiting a loophole in the law wherein they could force buyers without other options to purchase drugs at full price from local pharmacies, even though the hospital prescribing the drug was covered by the program. As a result, Minnesota passed a state law requiring greater cost transparency and prohibiting drug companies from denying discounts to covered entities using contract pharmacies. Now the state law is set to sunset.
Controversy over 340B
The federal 340B law gives health care providers flexibility in how they use the financial benefits they receive from the drug discounts. That flexibility has become a point of disagreement in the debate over the federal law.
Pharmaceutical manufacturers and industry groups, including the Pharmaceutical Research and Manufacturers of America (PhRMA), have challenged state-level restrictions on their ability to control drug distribution. They argue that some hospitals purchase medications at steep discounts but collect payments from insurance companies at prices closer to the drugs’ market rates.
The debate has grown alongside the size of the 340B program. According to reporting by the Minnesota Star Tribune, Minnesota hospitals generated more than $1.3 billion in net 340B revenue in 2024.
Hospitals and health care organizations argue the program helps them maintain services that might otherwise be difficult to afford. While some larger hospitals may not need the program to stay open, small rural hospitals are already stretched thin.
“People believe that there is somehow profit from a lot of what we do. There’s not profit. There’s break-even,” Banks said, describing the hospital’s financial situation.
She explained that small hospitals struggle with variations in patient costs while trying to remain financially able to provide necessary care.
“There is no way to control your revenues. You can’t. You never know what is or isn’t going to come through your door. But you have to be ready for whatever,” Banks said, adding, “We need to have enough money coming into us that we can keep the lights on, and we can still do the services that we do at a reasonable rate.”
Banks said that rural hospitals are already faced with a litany of challenging issues, including federal Medicaid cuts, aging populations, workforce shortages, rising operational costs and under-resourced ambulance, mental health and long-term care services. These issues compound one another and have created a dire situation for rural hospitals around the state.
Banks was clear that maintaining the current 340B status quo will not solve many of the issues faced by hospitals.
“You put in something that might fix that little component, but you find out over time, oh, I fixed this piece, but now all these other cracks are starting to appear,” Banks said. “You’re addressing a symptom, and you think you have the cure, but you don’t understand what the disease is.”
Where politicians stand
In Minnesota, lawmakers from both sides of the aisle, particularly those representing rural districts, have come out in favor of strengthening 340B at the state level.
“340B is a priority for me. Priority one,” said Roger Skraba, who represents District 3A, which contains several rural hospitals, including those in Ely and Cook.
“This was a phenomenal way to help our rural hospitals. The issue that we’re having is the bigger hospitals, the metro hospitals, are using this now to their advantage to generate more, and it’s taking away from the rural ones, and we’re trying to figure out how to fix it without totally messing with the system,” Skraba said.
During the 2026 legislative session, lawmakers considered House File 3609 and Senate File 3769. Both bills sought to remove the expiration date from the existing law, as well as give the attorney general the ability to label violations as deceptive trade practices, effectively allowing the state to enforce the law.
The state Senate passed SF 3769 on April 7, 2026, by a 42-24 vote. However, the measure failed to receive a final vote on the House floor before adjournment.
If lawmakers do nothing before the law’s expiration, Section 62J.96, Minnesota’s state addendum to the federal law, will expire. That means the specific state-level protection preventing manufacturers from restricting 340B discounts for covered entities using contract pharmacies will no longer be in effect.
“I don’t know what’s going to happen. I know that it will get very, very expensive overall to the patients as well as to the providers when the 340B sun sets,” Banks said.