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In 1992, Congress created the 340B Drug Pricing Program to provide financial resources to safety net hospitals so they could offer more comprehensive services to eligible vulnerable patients. The program requires manufacturers to provide price reductions on covered outpatient drugs through discounts or rebates. The intended benefactor is the covered entity or institution, not the specific patient directly, for these hospitals to use drug cost savings to deliver more services to the patients they serve.
The aims of the 340B program are important. By having access to discounted prices on drugs, healthcare providers that serve a large number of low-income and uninsured patients can stretch their limited resources to offer more comprehensive care to patients. By reducing the financial burden of drug costs, 340B was designed to help maintain the financial viability of safety net hospitals and clinics essential to their communities.
As I described in a prior article , the 340B program does not work the way it was intended. Today hospitals use 340B “spreads” to fund overall healthcare services, an argument which the American Hospital Association continues to claim is consistent with the purpose of the statute. The program has grown dramatically beyond its original intent–in numbers of institutions covered, number of drugs covered, and the number of patients that are deemed “eligible.
” These estimated discounted purchases have increased from about $4 billion per year in 2007-2009 to $66.3 billion in 2023 . This explosive growth is largely the result of hospital corporations purchasing hospitals and independent physician practices that have served vulnerable populations, then extending use of the 340B discount to all its satellite hospitals, even the ones in wealthy suburbs.
Lack of any meaningful program oversight has underscored the pharma industry’s concern about the program’s abuse as a funding mechanism to support generally strapped hospitals–well beyond the original safety net hospitals and clinics for whom the program was intended to benefit. Given that 340B is the second largest federal prescription drug program, there should be clear evidence justifying the validity of submitted 340B claims and how discounts have been used to fulfill the program’s intent. Unfortunately, there is little evidence that the program is delivering on its intended goals.
What is clear is that the program has become a key source of revenue for healthcare delivery organizations in general who are struggling to make ends meet. The program’s impact is hard to demonstrate because of a lack of transparency and reporting requirements. CEs are not required to show how they have invested in more comprehensive services for vulnerable populations.
Since its inception, the 340B program has lacked the necessary level of oversight to ensure program integrity and compliance. Compliance with requirements such as preventing diversion of 340B drugs to non-340B eligible patients and preventing duplicate discounts between 340B and Medicaid has largely been left to stakeholder discretion. Examples of drug diversion include: 1) dispensing 340B drugs at ineligible sites; 2) not monitoring/correcting inventory; 3) dispensing 340B drugs written by ineligible providers; and 4) dispensing 340B drugs to non-eligible patients at contract/onsite pharmacy.
Health Resources and Services Administration audits conducted in 2014 uncovered more than 500 cases of diversion and 400 cases of duplicate discounts in a sample of 1,242 cases examined between 2012 and 2019. Steps taken by HRSA to improve compliance (e.g.
, audits of CEs, self-disclosure for reporting noncompliance, contract pharmacy integrity checks) have been inadequate and add administrative burden for providers, manufacturers, payers, and pharmacies, diverting resources from their mission of delivering better health outcomes to consumers. Lack of transparency into how CEs deploy 340B savings and the absence of clear oversight make possible the diversion and duplicate discounts HRSA audits uncovered. There are also questions about the extent to which 340B revenue is being used to provide services for low-income populations.
CEs often use 340B savings to fund services that are outside the purview of the intended program. A 2022 New York Times investigation found that nonprofit giant, Bon Secours Mercy Health, was using a Virginia community hospital’s eligibility for 340B to generate immense profits, while reducing services for vulnerable patients. Experts and political figures alike agree with concerns about 340B transparency.
For example, Dr. Adam Fein, CEO and President of the Drug Channels Institute, wrote “..
.there continues to be a near-total disregard for accountability and transparency, combined with blatant misrepresentations of non-profit hospitals’ responsibilities .” Senator Bill Cassidy (R-LA), ranking member of the Senate Health, Education, Labor, and Pensions Committee, called for an investigation into 340B hospital revenue in 2023, noting “GAO has identified the troubling recent pattern of 340B covered entities increasingly serving wealthier communities with higher rates of insurance, which is far afield from the program’s intent .
” Duplicative discounts, another major concern among many stakeholders, occur when a drug manufacturer provides more than one discount on the same unit of a drug. This typically happens when a drug sold at a discounted price under the 340B program is also subject to a rebate under another program (e.g.
, Medicaid). Manufacturers are not required to provide multiple discounts for the same drug, and CEs are required to have mechanisms in place to prevent duplicate discounts. This prohibition is in place to protect drug makers from what could be significant financial losses.
Surprisingly, HRSA defers the monitoring of duplicative discounts to drug manufacturers, which absorbs resources and distracts from their work developing innovative therapies to benefit consumers. Furthermore, while deferring responsibility to manufacturers, HRSA doesn’t holistically require claims level detail be provided nor facilitate adequate dispute reconciliation when duplicates are found. Disputes may sit unresolved for years.
Despite the prohibition, manufacturers encounter submissions for multiple discounts on the same drug. This practice can distort drug pricing, potentially leading to higher drug prices to offset the losses. Duplicative discounts run afoul of the Medicaid Best Price rule, which requires drug manufacturers to offer state Medicaid programs the lowest U.
S. price available. 340B program discounts may provide drugs at a price lower than the prices available to Medicaid.
When a hospital claims a 340B discount, the effective price paid may be lower than the Medicaid rebate, causing the manufacturer to inadvertently violate the Medicaid Best Price rule. Addressing duplicative discounts is essential to maintain the integrity of the Medicaid Best Price rule and protect pharmaceutical companies from compliance challenges and associated financial loss. Clearly, legislative reforms are needed to ensure the 340B program achieves its purpose.
Ambiguity in how the law was written allows for abuse and encourages hospitals to secure discounts beyond the intended patient population. In addition, the way the law is being interpreted by the delivery sector translates to an open-ended liability for the manufacturing sector. That loss must be offset at some other point in commercialization, which results in raising costs for consumers in general and makes the current situation unsustainable.
Congress should leverage political and industry appetite to improve transparency and oversight of the 340B program to institute changes. Reforms should emphasize visibility into how hospitals use 340B savings. Congress should also require reporting and monitoring of 340B discounts to limit the risk of duplicative discounts.
These adjustments will help ensure vulnerable populations realize the benefits 340B was designed to deliver..
