The 340B Drug Discount Program turns 30 on Nov. 4. This once-obscure drug access program began modestly, but has grown to be the second-largest federal prescription drug program, behind Medicare Part D. It’s time, past time, really, for an honest conversation about it.
In a nutshell, the 340B program allows certain federally funded health clinics (grantees) and nonprofit hospitals (covered entities) to buy drugs for their outpatients at prices typically only available to state Medicaid programs: an average discount of 25% to 50%, and often as low as a penny per dose.
With the 30th anniversary, I’ll wager that its biggest advocates will herald it as a successful program that has helped safety-net hospitals and clinics provide more care to more people from underserved communities. But as people like me who have tried to study the 340B program know, it’s been difficult to measure its success.
Research on 340B suggests a complicated story, with the program’s growth in spending boosting hospitals’ bottom lines. Press accounts have highlighted the importance that 340B profits play in health center acquisitions, rather than providing care to underserved communities. More recent articles have pointed out that some highly profitable hospital systems are using poor neighborhoods to generate 340B revenue while investing profits into hospitals in affluent communities.
Some advocates for the program may defend this by saying the quiet part out loud: The law neither prevents health systems from making a profit when a patient or their insurance company pays the full cost of penny-priced drugs, nor does it put any strings on what they actually do with the extra money. Sadly, they’re right — but that doesn’t mean there is nothing wrong with this, and it doesn’t mean it’s not worth investigating 340B’s problems.
The challenge to doing that is the 340B program lacks even the simplest of transparency requirements. The federally funded health clinics, nonprofit hospitals, contract pharmacies, and third-party administrators that are part of the 340B pipeline don’t disclose how many patients receive 340B drugs and whether or not they received the 340B discount, leaving researchers to come up with inventive methods to peer into this box of mysteries.
As the leader of a research organization, I was delighted to see IQVIA shed some light on 340B with a new report that pointed out, among other things, that just 1.4% of 340B-eligible claims show that discounts were actually given to patients.
Is this really what Congress intended?
The 340B program is named after the section of the Veterans Health Care Act of 1992, which authorized the program. As described in the report that summarized the law, it was meant “to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”
For the first eight years, the program functioned as many believe it was intended to: ensuring discounts on drugs bought by hospitals, which they would use when caring for low-income people in outpatient clinics. The vague language of the statute, however, left many details open to interpretation, did not provide the Department of Health and Human Services, which oversees the program, with the authority to clear up the issues, and courts have ruled that only Congress can provide this clarity.
One of those issues is that the statute doesn’t clearly define which patients are eligible to receive 340B drug discounts. The late Senator Ted Kennedy (D-Mass.), who brought the 340B legislation to the Senate, described the bill in the Congressional Record as extending Medicaid-like drug prices to community health centers, clinics, and other public and nonprofit agencies that provide “health services to low-income patients, a majority of whom have no public or private health insurance.” He also described safeguards, such as a prohibition on the resale of discounted drugs. Taken together, these suggest that, under 340B, discounted drugs are intended for low-income and often uninsured people who use these kinds of clinics and hospitals.
Unfortunately, several well-intended regulatory changes have created greater loopholes and driven the program away from its original purpose.
In 1996, the Health Resources and Services Administration, the HHS agency that oversees the 340B program, allowed each hospital to contract with one pharmacy to dispense 340B drugs. Then in 2010, it decided to allow each hospital to contract with many pharmacies. As a result, more than half of the pharmacies in the United States serve as 340B contract pharmacies.
On its face, that decision seems like it would make it easier for low-income individuals to access these discounted medicines. In practice, that’s not what’s happening. IQVIA’s research shows that most individuals received “zero or close to zero” relief in out-of-pocket expenses, with stakeholders other than patients benefitting from the savings.
Where’s the 340B money going?
That is the fundamental question researchers should be trying to answer. In 2021, the difference between the list prices of drug purchases and their 340B prices — which amounted to about $50 billion — flowed to grantees, covered entities, contract pharmacies, and for-profit entities, all of whom have played their part in helping 340B grow by 24% per year since 2015.
As a pharmacist, I’m aware of how grantees and some hospitals use the difference between the discounts and the list price to subsidize needed health care services. Others along the 340B supply chain are likely doing the same. But no one knows for sure because 340B hospitals and their contract pharmacies can hide their profits from the program and how they use those profits.
In the words of one lawmaker shocked by a recent New York Times investigation into 340B activities, the program “was not meant to do what they’re doing with it.” The late Senator Orrin Hatch (R-Utah), who helped create and shape the 340B program, said in 2014 that it’s “unacceptable that inconsistent, lax oversight has allowed the 340B program to be gamed — jeopardizing its core mission of helping low-income Americans.”
What would help is if the 340B program had the transparency of programs like Medicare Part D and Medicaid. Researchers can readily obtain Medicare and Medicaid pharmacy data to study trends and public health impacts. But getting that kind of data for 340B is like trying to catch a will-o’-the-wisp, despite the fact that pharmacies have had the ability to electronically track the 340B eligibility of individual prescriptions since 2019.
It’s time for an honest conversation
The data released on 340B to date indicate there are fundamental questions about this program that need to be answered. I commend every team of researchers that has attempted to peer into 340B’s murky waters, because it is a big challenge. But it’s critical to answer these questions because, as my colleagues and I often say, good policy requires thorough research.
If hospitals, contract pharmacies, and third-party administrators have more data that can add more detail to this discussion, the research community must be given access to it so their work can restore confidence that the program is helping those it is supposed to help.
It’s time to have an honest conversation and recognize that the 340B program has grown far beyond its intended purpose. Protecting the charity care it provides requires measuring and ferreting out the profiteering the law has enabled. An important first step is more transparency into how 340B works and who is truly benefiting from it.
John Michael O’Brien is a pharmacist, the president and CEO of the National Pharmaceutical Council, a Washington, D.C.-based health policy research organization, and a senior fellow at the USC-Schaeffer Center for Health Policy and Economics.
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