Proposal to expand federal drug discount could cost Illinois millions, agency head says

A proposal that would expand access to a federal program that discounts the price of prescription drugs could end up costing Illinois employers an additional $89 million a year, including more than $12 million a year for the state of Illinois.

That’s according to a May 12 memo from the Department of Central Management Services, the state agency that administers the state employee health plan, to Rep. Travis Weaver, a Republican from downstate Edwards. He requested the information following a meeting of the legislative Commission on Government Forecasting and Accountability, or COGFA.

Capitol News Illinois obtained a copy of the memo through a third party.

The proposal, contained in a Senate amendment to House Bill 2371, is intended to give Federally Qualified Health Centers, Ryan White AIDS clinics, safety-net hospitals and other healthcare providers that serve large volumes of Medicaid patients greater access to what’s known as the 340B Drug Pricing Program.

What is 340B?

Established in 1992, the federal program requires manufacturers to provide drugs to those facilities at substantially discounted prices. Those facilities then mark the price back up when they dispense or prescribe the drugs to patients. That spread between their acquisition cost and what they charge becomes an indirect revenue stream that helps feed their bottom line.

The bill pending in the General Assembly, which awaits a final vote in the House, would prohibit drug companies from restricting the ability of those hospitals and clinics to acquire discounted drugs through contract pharmacies.

That’s something many clinics and safety-net hospitals say they’ve experienced in recent years, limiting their ability to acquire drugs at the discounted prices.

The bill has generated enormous lobbying campaigns on both sides, shedding light on the complexities of how prescription drugs are priced in the United States and how a seemingly small change can have far-reaching unintended consequences.

During an April 14 COGFA hearing, Shawn Gremminger, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, said the 340B program has grown beyond what anyone expected.

“It was a program designed to be so small, they didn’t bother giving it a name,” he said. “Literally, it’s called 340B because it just sits at section 340B of the Public Health Service Act.”

As Medicaid programs expanded over the years, so too did the number of hospitals that were able to qualify for the 340B drug program, he said. And as those hospitals became eligible, Gremminger said, all of their affiliated clinics and medical practices became eligible, too.

Today, Gremminger said, the 340B program is the second-largest drug purchasing program in the country, behind Medicare Part D, and growing by an average 15% to 20% each year.

Impact on other plans

The problem for many health insurance plans like Illinois’ State Employees Group Insurance Program, or SEGIP, is that when their members go to a 340B-qualifying hospital or clinic, those plans pay the full price for any drugs their members receive. But the plans no longer receive any manufacturer’s rebate for the drugs they purchase, thus raising the net cost of prescription drugs for patients enrolled in those health plans.

“Effectively, our rebates are crowded out by the 340B rebate,” Gremminger said.

Following that meeting, Weaver requested additional information from CMS, including an estimate of the fiscal impact passage of HB 2371 would have on the state employee health plan.

“Independent analysis estimates that the current 340B program costs Illinois employers approximately $224 million annually, with the proposed legislation expected to increase those costs by an additional $89 million,” CMS said in the memo. “For SEGIP specifically, lost rebates are estimated at $31 million annually, with an additional projected impact of $12.4 million under the proposed legislation.”

Pending legislation

As debate over HB 2371 continues, lawmakers will be asked to weigh the estimated cost to employers, with the cost currently being borne by community health clinics and other providers who were originally intended to benefit from the program.

Cyrus Winnett, executive director of the Illinois Primary Health Care Association, a group that represents Federally Qualified Health Centers, said in March that under current law, drug manufacturers have been able to restrict the number of pharmacies or suppliers where clinics can acquire 340B-discounted drugs, thus limiting their ability to reap the financial benefit.

The proposed legislation originated in the Senate as an amendment to a bill that had previously passed the House. That amendment passed the Senate on May 29, 2025, by a vote of 55-0. It then went back to the House for a vote to concur in the Senate amendment, but so far the House has not taken further action.

Sen. Dave Koehler, a Peoria Democrat who sponsored the amendment last year, said the current system of pricing and delivering drugs in the healthcare marketplace is imperfect, but that lawmakers can only work with the tools they have.

“Is this the best way to cover rural hospitals or FQHCs? No, it’s not,” he said. “But you know what? Congress gives us the tools that we have to use. And when we have rural hospitals in our area, or FQHCs, or poor people that are now being kicked off of Medicaid, we have to respond to our constituents.”