An insider’s view of the myths and misconceptions behind 340B ‘reform’

I hardly recognize the 340B drug discount program when I read the pharmaceutical industry’s criticisms about it. They say that 340B has grown too big, is without oversight and transparency, and is in desperate need of reform. Having spent more than a decade working with this program at the Health Resources and Services Administration (HRSA) Office of Pharmacy Affairs, I know that such attacks on the program are unfounded, unfair, and dangerous.

Established with bipartisan support in 1992, the 340B drug discount program requires drug manufacturers to provide discounts to certain safety-net providers as a condition of Medicaid and Medicare paying for manufacturers’ drugs. The program is not funded by taxpayer dollars but instead relies on manufacturers to provide discounts to safety-net providers. These include high-Medicaid nonprofit hospitals, federally qualified health centers, Ryan White clinics, and other federally funded clinics. Since 2010, pharmaceutical companies have experienced an increased responsibility to provide more discounts through 340B and began stepping up their criticism of the program.

Three arguments used by 340B critics are particularly insidious because they are being advanced under the guise of helping patients and improving the program. The truth is that if these “reform” measures are implemented, the program would be led down a path of fundamental and dangerous change which would destabilize safety-net providers, deprive patients of necessary resources, and increase costs for taxpayers.

340B is well-regulated for safety-net providers — but not for manufacturers

Critics argue that the program is unregulated, allowing participants, especially hospitals, to misuse the program. In my time at HRSA as a public health analyst, I never observed bad actors in the program, only inadvertent errors committed by resource-challenged hospitals and clinics doing their best to comply with a complex, highly regulated program.

Safety-net providers abide by a myriad of program requirements and are subject to routine HRSA audits. I reviewed hundreds of these audits and can attest to the intense level of scrutiny providers receive. In fact, a 340B provider is more than twice as likely to be audited by HRSA than a tax filer is to be audited by the IRS.

Pharmaceutical manufacturers are held to much lower standards. Manufacturers must not sell their drugs to safety-net providers above the 340B ceiling price, a calculation of the highest price a manufacturer can charge for their drugs. Drug makers that fail to meet this requirement are subject to civil monetary penalties. The 340B statute mandates that regulations for defining the ceiling price and civil monetary penalties be implemented no later than Sept. 19, 2010. Yet at the apparent request of manufacturers, regulations clarifying ceiling price calculations and implementing the monetary penalties have been delayed, most recently for the fifth time by the Trump administration on June 5, 2018.

Since 2010, HRSA has been required to post drug prices available to 340B providers through a government website but has yet to do that, waiting for the civil monetary penalty rule to be finalized. Until HRSA follows through with this, health care providers in the 340B program can’t determine if drug manufacturers are giving them the right price.

Program growth is overstated

Critics argue that alleged abuse of the 340B program has led to its “explosive” growth. It is true that the program has expanded. But this growth is not because of misuse by safety-net providers. It has grown as a result of deliberate legislative actions taken by Congress and a change in registration requirements.

Congress increased the number of entities that qualify to take part in 340B on three separate occasions. The greatest increase — congressional action to add some of the smallest and most rural hospitals in the nation — was intentional and expected.

Critics also fail to mention that, in the last five years, HRSA started requiring separate registration for every address where covered safety-net providers are located, giving the illusion of program growth. I was one among many at HRSA’s Office of Pharmacy Affairs charged with processing registration applications for thousands of these “child sites” that had been participating in the program for years, if not decades, before being required to submit separate registrations.

So-called reform proposals are not patient-friendly

Critics contend that current reform proposals would help patients. Several of these proposals impose reporting requirements that wildly understate the benefits that safety-net providers share with their communities, or suggest that benefits don’t flow to the uninsured. Other proposals increase the ability for third parties to siphon the 340B benefit away from safety-net providers.

Establishing a “charity care” test for hospitals is patently unfair because it grossly underestimates the financial challenges beyond providing free care. It also would undermine one of the best features of 340B, allowing safety-net providers to determine the best use of their savings to serve their communities.

Three paths, two of them frightening

The immediate beneficiaries of the 340B program are safety-net providers. Any reasonable person reading the 340B statute and legislative history should readily conclude that Congress established an exclusive “covered entity” class of safety-net providers because it was seeking to assist those who serve the uninsured and underinsured. In the language of a congressional report, the purpose of the program is to enable covered entities “to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” Congress was obviously not creating a drug benefit directly to the uninsured or it would have written the law that way.

Pharmacy benefit managers, managed care plans, and other third-party payers are increasingly usurping the benefit of 340B by reimbursing 340B drugs well below their standard rates and by inserting other discriminatory terms into their 340B payer contracts. In this way, they are “taking off the top” the discounts that the safety net should be getting from 340B.

When I worked at HRSA, I routinely received phone calls and letters from safety-net providers complaining about these for-profit payers. These approaches seriously threaten to diminish or remove the benefit to the safety net of discounts on drugs through 340B.

For those of us who have dedicated our careers to the 340B program, this debate is currently leading down two very frightening paths. We are either watching the pharmaceutical industry divert our attention away from an honest conversation about lowering drug costs, or we are allowing the pharmaceutical industry to shirk its responsibility to give drug discounts to safety-net providers that it has been providing for over 25 years. Or maybe both.

I hope we never have to look back and regret that Congress didn’t take a third path, namely standing up to the drug industry and protecting the 340B program, a true lifeline for safety-net providers and those they serve.

Bradford R. Lang, J.D., a former analyst with the Health Resources and Services Administration Office of Pharmacy Affairs, is a health care attorney at Powers Pyles Sutter & Verville. His practice focuses on health law and policy, including the 340B program, drug pricing, and reimbursement, representing primarily 340B safety-net providers and contract pharmacies. Powers Law represents safety-net providers and pharmacies participating in the 340B program.