Named for section 340B of the Veterans Health Care Act of 1992, Congress enacted the 340B Drug Pricing Program so uninsured and indigent populations treated at community health centers, hemophilia treatment centers, black lung clinics, and non-profit hospitals can get needed medicines (prescription medications, biologics and insulins) at significantly reduced prices, thereby stretching federal resources and reaching more eligible patients. Accordingly, the 340B program requires drug manufacturers to provide large discounts to health care organizations that serve high numbers of vulnerable patients as a condition of participation in the Medicaid program.
The problem is that since 1992, the 340B program has expanded dramatically due to such factors as no clear definition from Congress or the federal agency tasked with running the 340B program, the Health Resources and Services Administration (HRSA), regarding which patients qualify for 340B discounted drugs and HRSA’s decision to allow participating institutions to fill prescriptions through contract (often retail) pharmacies. The result is that today, eligible hospitals and clinics use the discounted drugs to treat not only vulnerable patients but also those with private insurance or Medicare coverage, reaping large profits from charging insurers the full price for medicines purchased with sizeable 340B discounts. This is a lose-lose situation for patients: those with insurance are being overcharged for their medicines while the financially needy are not benefitting from the program as Congress intended.
Why Policy Change Is Necessary
When President George H.W. Bush and Congress implemented the 340B program 26 years ago, the purpose was unassailable: to reduce the cost of outpatient prescription drugs to clinics and hospitals serving large numbers of uninsured and low-income individuals, especially in inner cities and rural communities. Under the program, participating pharmaceutical manufacturers provide discounts to qualifying health facilities, otherwise known as “covered entities,” of up to 50 percent of the cost of their medicines when prescribed on as outpatient basis.
However, the 340B program of the past has changed dramatically. There is growing evidence that some hospitals, clinics, and health systems are buying drugs at a deep discount through a network of contract (usually retail) pharmacies and reaping large profits, sometimes while also collecting manufacturers’ rebates.
There are a number reasons why this is happening, starting with Congress not giving HRSA the authority to write clear guidelines on exactly who should get discounted drugs. As a consequence, there is no requirement that health institutions only provide the discounted drugs to people who are truly in need, allowing hospitals and clinics to prescribe 340B medicines to anyone who receives medical care at their institutions. Worse still, due to lack of transparency requirements, hospitals and clinics don’t have to report how they use the discounts or even show they are using the savings to help patients.
Adding fuel to the fire, in 2010, HRSA changed a previous rule only allowing safety-net institutions to contract out their pharmacy services when there was no in-house pharmacy, permitting instead the use of contract pharmacies to fill prescriptions for 340 facilities.
By taking this step and not requiring independent audits of the pharmacy arrangements, HRSA inadvertently created a significant profit opportunity for both contract pharmacies and large hospitals. Quickly, health systems and hospitals built networks of hundreds of contract pharmacies including Walgreens, Rite Aid, CVS, and Wal-Mart. According to a 2014 report from the Office of Inspector General, the number of 340B organizations using contract pharmacies more than doubled between 2010 and 2014.
At the same time, the 2010 HRSA guidance spurred a dramatic increase in organizations participating in 340B and encouraged large hospital systems to purchase and convert independent physician offices into offsite hospital outpatient clinics eligible for 340B discounts. In fact, one year after the HRSA guidance, the number of 340 sites reached 16,500, nearly double the amount a decade earlier. These sites were affiliated with 3,200 hospitals and other institutions, meaning that each organization had about five facilities participating in 340B, according to a 2011 Government Accounting Office (GAO) report.
What have these changes meant to patients? Sadly, vulnerable patients are not benefiting from the expansion of the 340B program. Instead, many new facilities are outpatient clinics in more affluent communities that reap large profits by dispensing prescription drugs purchased at 340 discounts to patients with Medicare and private insurance. Underscoring the extent of these profits, a 2015 report from the Office of Inspector General (OIG) of the Department of Health and Human Services found that Medicare and Medicare Part B patients paid 58 percent more than the 340B discounted prices for their medicines in 2013 alone, allowing institutions to make about $1.3 billion.
Also of concern, the 340B program has fueled hospital consolidation and the closure of community-based physician practices. Especially hard hit are oncology clinics. According to estimates from the Community Oncology Alliance (COA), nearly 400 oncology clinics have closed since 2008, resulting in less choice and convenience and higher costs to patients and insurers.
In light of these serious problems for patients and insurers, HRSA has taken recent steps to improve oversight of the 340B program and was granted additional authorities. Yet these efforts have been unsuccessful or remain unfinished. For example, HRSA published proposed guidance in 2015 to clarify the definition of a patient eligible for the 340B program among other needed changes but withdrew the guidance in 2017. HRSA also issued a final regulation on standards for calculating 340B prices in 2017 but delayed the effective date until 2019 and indicated the rule will be revised.
Recognizing that much more needs to happen, Congressional leaders are responding to recommendations from the HHS Office of the Inspector General and the House Energy and Commerce Committee by introducing three 340-related bills in the House of Representatives and the US Senate. Specifically:
- R. 4710, the “340B Protecting Access for the Underserved and Safety-net Entities Act” (340B PAUSE Act), introduced in the House, would impose a two-year moratorium on most new 340B hospitals and new locations of existing hospitals while requiring “Disproportionate Share Hospitals” (DSH) and certain other 340B participants to publicly report detailed data annually.
- 2312, the “Helping Ensure Low-Income Patients Have Access to Care and Treatment (HELP Act), the first bill introduced in the Senate, also imposes a temporary moratorium on certain new 340B hospitals and outpatient locations and requires data reporting for specific 340B institutions. However, the HELP Act goes farther than 340B PAUSE Act by giving regulatory authority to HRSA to clarify requirements for health facilities to be eligible for the 340B program.
- 2453, the “Ensuring Value of the 340B Program Act of 2018,” focuses specifically on 340B program transparency and the reporting requirements of participating hospitals and other institutions. Introduced by Senator Chuck Grassley (R-IA), the bill would require 340B hospitals and clinics to include in any Medicare cost report to the Centers for Medicare and Medicaid Services (CMS) information on the aggregate acquisition costs of the institution of the drugs purchased under the program and the total revenues received from all payers categorized by type of insurance.
There are pluses and minuses to each bill but collectively, they represent a start towards needed reform the 340B program. As the debate continues, Patients Rising and other patient advocates will continue to press for legislation and regulatory changes that clearly define who is eligible for 340B discounts, require 340B participating institutions disclose publicly how they use the savings received from 340B discounts, mandate specific reporting requirements to ensure 340B savings are passed along to the uninsured patients when filling their prescriptions, and ensure greater transparency of the 340B program, both on the part of participating hospitals and clinics and on contract pharmacies.
Because both insured and uninsured patients are impacted by lax oversight of the 340B program and by perverse incentives that can lead to higher costs for patients and insurers, our position is clear: Congress must act to update the current law so HRSA has more regulatory authority to clarify requirements for the 340B program, starting with a clear and precise program definitions, including eligible patient, covered entity and outpatient department. We also support added federal authority and more agency resources for HRSA to ensure program integrity, promote compliance, and monitor and track program use.
Reinforcing these priorities, Patients Rising NOW supports inserting language in the 340B-related House and Senate bills that will:
- Require 340B eligibility criteria and metrics to ensure participating institutions are treating mostly uninsured and underinsured patients, which is the intent of the original 340B program
- Require 340 institutions provide financial reports annually on 340B savings and the percentage of those savings used to provide care to vulnerable patients
- Mandate that both 340B facilities and contract pharmacies conduct and publish independent audits at regular intervals.
 “Health Policy Brief: The 340B Drug Discount Program,” Health Affairs, November 17, 2014. Accessible at: http://healthaffairs.org/healthpolicybriefs/brief_pdfs/healthpolicybrief_130.pdf
 Office of Inspector General, Memorandum Report: Contract Pharmacy Arrangements in the 340B Program, OEI-05-13-00431, Feb. 4, 2014, 1, 2
 Government Accounting Office. Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement. GAO-11-836: Published: Sep 23, 2011.
 HHS Office of the Inspector General. Part B Payments for 340B- Purchased Drugs. OEI-12-14-00030. November 2015.
 Community Oncology Alliance Fact Sheet. 340B Drug Discount Program: A good Idea Gone Bad. Accessible at: https://www.communityoncology.org/UserFiles/pdfs/340Factsheet-Final8-10.pdf