Report Slams 340B Drug Discount Program

The 340B Drug Discount program, designed to give discounted prescription drugs to poor Americans, has not been effective in serving its targeted population, according to a new report.

The report, “Addressing the Problems of Abuse in the 340B Drug Pricing Program,” by the Pacific Research Institute, found that the 340B program is now an overpriced and inefficient way to provide important medications to low-income Americans, and it's in desperate need of reform.

Winegarden

“The purpose of the 340B Drug Discount program is to enable healthcare providers that serve predominantly low-income patients without insurance to purchase medicines at steep discounts,” says study author Wayne Winegarden, senior fellow in Business and Economics at the Pacific Research Institute. “Unfortunately, the program has grown uncontrollably and now many 340B hospitals do not serve the targeted population. This is largely because the federal government does not provide enough oversight to ensure that the discounted drug program targets the Americans who need the assistance.”  

The number of healthcare providers and hospitals that participate in 340B has increased significantly in recent years. In 1992 there were 50 hospitals participating in 340B. Now about one-third of all hospitals in the United States participate. Estimated drug sales to 340B-covered entities has also increased by 125% in the past three years[TW1] . 

This is in part because the ACA and Health Resources and Services Administration established guidelines that expanded eligibility for 340B discounts and created the contract pharmacy program, which further distributed discounted medications, according Winegarden. “Those pharmacies often do not pass on the savings to customers, continuing the chain of abuse and profiteering,” he says. “Considering the program's growing scale, it cannot continue to fail patients. Reforms to this program are necessary so it actually serves vulnerable Americans.”

Specifically, the report found:

• With little guidance from the federal government there is no requirement that hospitals provide the discounted drugs solely to people who are truly in need.

• In practice, hospitals can prescribe discounted medicines purchased through the 340B Program to any of their patients, including those who have insurance and can pay full price-and pocket the difference. “Hospitals that participate in 340B can sell the discounted medicines to any patient, regardless of their income or insurance status, according to Winegarden. “So many 340B providers actually sell the discounted medicines at market rates to patients and then pocket the difference. As a result, 340B entities have an incentive to prescribe the most expensive drugs to take advantage of this profit margin,” he says. 

• Neglecting the program’s mission to serve the most vulnerable, more 340B hospitals have been set up in recent years to serve higher-income patients and secure more profit.

• Exploiting this profit motive, the program encourages participating hospitals to prescribe high-priced medicines as discounts are based on a share of the drug’s costs. They earn more revenue when prescribing the most expensive drug possible.

The program has also led to a rising trend of healthcare consolidation, as independent practices are not eligible for 340B discounts and losing patients. “Independent practices are not eligible for 340B, but hospital outpatient departments are. So, more hospitals have absorbed these independent practices and set them up as hospital outpatient departments to increase their potential profit margins,” he says.

According to Richard Sorian, spokesperson for 340B Health, which represents more than 1,300+ public and private nonprofit hospitals and health systems that participate in the 340B drug pricing program, “the report is based on a series of incorrect assumptions, most significantly in its view that the 340B drug pricing program exists only to provide care to uninsured patients.

“Congress made clear, in creating the program, that its purpose is ‘to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.’ This includes care for low-income and rural patients with insufficient coverage and those in public programs like Medicaid,” says Sorian.

“Hospitals are using the program savings consistent with the intent to serve their low-income and rural patients,” says Sorian. “Research has shown that 340B hospitals provide 60% of all uncompensated care in the U.S., including provisions of no-cost drugs, cancer care, HIV care, substance abuse treatment, and many other areas. These hospitals also treat 64% more Medicaid and low-income Medicare patients than non-340B hospitals.”

Next: Reforms needed

340B reforms needed

“Successful reforms to 340B would close these loopholes that allow providers to unjustifiably profit from the program,” according to Winegarden. “Reforms to 340B would discourage further consolidation based on the potential 340B profits and allow smaller practices to remain independent.”

Nearly two-thirds of all 340B hospitals spent below the national average on charity care, according to a 2014 Medicare Cost Report data. “That means many for-profit hospitals are actually spending more on charity care than 340B hospitals,” Winegarden says.  

“The 340B program also has increased the financial burden on our entire healthcare system. Mandating discounts on certain medications means that the costs of developing those drugs fall elsewhere,” he says.

According to Winegarden, this has led to increased insurance deductibles and copays, spiked premiums, and higher overall costs. 

“Industry leaders should be aware that increased abuse of 340B may lead to higher levels of pressure on Congress to reform the program,” Winegarden says. “Necessaray reforms would improve oversight of the program and ensure that it actually serves its original purpose of providing uninsured and vulnerable patients with the critical medications that they need at prices they can afford.”