Hospitals and clinics serving high-risk, high-need patient populations, including low-income and uninsured individuals, have long benefitted from a federal program that allows them to buy medicines from drug makers at a steep discount.
But as a debate over drug pricing rages in Congress, there’s mounting evidence the 340B program has been exploited for profit under the guise of “doing good.”
The program, enacted with bipartisan support in 1992, has noble intentions. Estimates suggest the program saved participating entities up to $6 billion on drug acquisition costs in 2015. These savings provide a critical buffer to the cost of taking care of high-risk, high-need populations.
Lawmakers are concerned that it has grown beyond its original intent. The 340B program includes about 40 percent of all U.S. hospitals and an even larger number of clinics — tens of thousands of them depend on these reduced drug prices.
Part of the concern is that benefits are not being used for the intended populations. A report by the Alliance for Integrity and Reform of 340B shows that charity care spending in 2014 for nearly two-thirds of 340B hospitals was less than the national average for similar hospitals.
In November 2017, the Trump administration announced plans to scale back how much participating organizations could benefit from the program, by reducing the rates at which Medicare would compensate hospitals and clinics for the cost of 340B drugs. The 28 percent decrease in reimbursement rates took effect in January 2018.
Within weeks, Reps. Mike Thompson (D-Calif.) and David McKinley (R-W.Va.) filed legislation to negate the effects of the Trump administration’s regulation. Within months, the PAUSE Act in the House and the HELP Act in the Senate followed, both calling for an overhaul of the current 340B program.
Sen. Bill Cassidy (R-La.), a physician who introduced the HELP Act, warned that “too often the program’s discounts are used to pad hospitals’ bottom lines instead of helping disadvantaged patients afford their treatments.”
Several studies suggest that the program increases the supply of certain drugs, some unnecessarily so, raises the cost of care, and some recipients pocket the profits rather than reinvest them into improving their care models.
A study in the journal Health Services Research examined the impact of the 340B program on the cost of cancer care. It found that hospital participation in the program is associated with a shift of patients’ care from more affordable physician offices to more expensive hospital outpatient care centers, contributing to market-wide increases in per-patient spending.
Similarly, an article in the Journal of the American Medical Association suggested that the 340B program could encourage providers to use more expensive drugs. Because the program reduces acquisition costs but does not reduce reimbursement rates, providers could profit by purchasing more expensive drugs at a discount, getting reimbursed at the original higher price, and pocketing the difference. Drug manufacturers may even increase their list prices of 340B drugs to offset lost revenue.
A recent study in the New England Journal of Medicine found that the 340B program has led physicians to leave private practice to join hospital care teams and led to a spike in the use of drugs covered under the program in hospitals and clinics. However, the study did not find any evidence that hospitals have used the profits from the program to improve access to care or to reduce mortality rates among low-income patients.
These results are consistent with those of a study in Health Affairs that found that, in recent years, 340B hospitals have increasingly affiliated with clinics in affluent communities with higher rates of insurance as opposed to those that serve low-income populations with less coverage.
“Our results suggest that many hospitals have not responded as the program intended but have certainly followed the incentives,” said Harvard researcher Michael McWilliams, who co-authored the NEJM study with Sunita Desai, a health economist with New York University. “Ideally, we should have policies that help underserved patients directly, without distorting the incentives to provide drugs.”
Several reforms to the program have been proposed that could help limit the unintended consequences and encourage hospitals to use the drug discounts to advance the program’s goals.
For example, members of Congress have suggested that hospitals and clinics be held accountable for all cost savings accrued under the 340B program. Sen. Chuck Grassley introduced a bill to require hospitals and clinics to report both total costs of 340B drugs and total revenue from insurance companies for those same drugs.
Others have suggested that all profit from the 340B program should be reinvested into the high-risk, high-need populations that warranted eligibility in the first place.
Finally, the House Committee on Energy and Commerce proposed revising the eligibility for the 340B program so that it admits only organizations that serve large populations of high-risk, high-need patients, ensuring the intent of the program is intact.
The goal of assisting hospitals and clinics that provide care to vulnerable populations is noble. Corruption does not negate potential, nor does reform equate to failure. Long-term sustainability of the 340B program requires timely action that seeks to restore the program to its original intent.
Elsa Pearson, MPH, is a policy analyst at Boston University School of Public Health. Austin Frakt, Ph.D., is the director of the Partnered Evidence-based Policy Resource Center at VA Boston Healthcare System; an associate professor at BU School of Public Health; and an adjunct associate professor at Harvard T.H. Chan School of Public Health.