What Is the 340B Drug Discount Program and Why Is It So Important?

By Hagop M. Kantarjian and Robert Chapman

Recently, a number of concerns and criticisms have been raised against the 340B Drug Pricing Program, which provides the opportunity for uninsured or low-income patients to obtain prescription drugs at discounted prices. The question is, why is the 23-year-old program encountering resistance? The simple answer: money. Curtailing 340B will allow drug companies to sell drugs at higher prices and increase profits.

In the following Q&A, Dr. Hagop Kantarjian, Baker Institute nonresident fellow in health policy and chair of the Department of Leukemia at The University of Texas MD Anderson Cancer Center, and Dr. Robert Chapman, medical director of the Josephine Ford Cancer Institute at the Henry Ford Health System, provide background and support for the program, which they call “a medical lifeline that should be maintained, nurtured and expanded.”

What Is the 340B Drug Pricing Program?

Originally created by Congress through the Veterans Health Care Act of 1992, the 340B Drug Pricing (or Discount) Program (“340B”) allows some health care entities with large shares of poor, indigent, uninsured or low-income patients to obtain drugs at discounted prices. The program requires drug manufacturers who participate in Medicaid or Medicare Part B programs to give discounts of 20 to 50 percent on outpatient drugs. In return, pharmaceutical companies are able to significantly expand their patient bases. Congress stated that the purpose of 340B is “to enable [covered entities] to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” The Health Resources and Services Administration (HRSA) administers 340B.

To be eligible for 340B, so-called “safety-net” hospitals must show that roughly 30 percent of their patients receive Medicaid or Medicare Supplemental Security Income (which benefits low-income elderly patients). Freestanding children’s and cancer hospitals and rural hospitals of 25 beds or less, including rural referral centers, sole community hospitals and critical access hospitals, have different eligibility criteria. The rationale behind 340B is to allow such organizations to provide much-needed comprehensive services to vulnerable patients and to rural, uninsured and underserved populations.

Is the 340B Program Helping More Patients and Facilitating More Comprehensive Services?

Indeed it is. This is supported by the following: 1) the load of low-income patients in 340B hospitals is twice that of non-340B hospitals; 2) 340B hospitals account for one-third of all disproportionate share hospitals (or DSH — hospitals with high volumes of vulnerable patients) but provide nearly 60 percent of all uncompensated care; and 3) more 340B DSH than non-340B hospitals provide specialized services, which are often not profitable. The 2011 Government Accountability Report on the 340B program stated that 340B providers are using their program savings to benefit vulnerable patients, consistent with congressional intent.

Concerns Related to 340B

Recently a number of concerns and criticisms have been raised against 340B. The question is why? The simple answer: Follow the money. The 340B drug sales in 2013 were 2.3 percent of U.S. drug spending ($329 billion), or about $7 billion. Curtailing 340B will allow drug companies to sell drugs at higher prices and increase profits. To accomplish this, the drug industry employs a formidable lobby, probably the most powerful such industry advocacy group in the United States, to create seemingly “independent” coalitions and organizations that “spin” arguments and talking points against 340B. In 2014, the pharmaceutical lobby spent $229 million on lobbying, and another $32 million in campaign contributions in the 2014 elections.

Most of the reports criticizing 340B are directly or indirectly linked to the Alliance for Integrity and Reform of 340B (AIR 340B), a coalition of mostly drug manufacturers, trade associations and other interest groups that may benefit financially from curtailing 340B. Their arguments have been addressed by reports from the Safety Net Hospitals for Pharmaceutical Access (SNHPA), which represents more than 1,000 hospitals participating in 340B.

How Legitimate Are These Concerns?

A major concern is that 340B hospitals provide discounted drugs to insured patients. In fact, this is exactly what Congress intended. Hospitals are able to stretch their scarce resources because they buy drugs at discounted rates but receive reimbursement from insurers through negotiated rates, thereby accessing savings. Hospitals use these savings to treat low-income patients, provide disproportionate levels of uncompensated care and offer unprofitable public health services that other hospitals do not provide.

Other concerns are: 1) 340B may have caused the shift in private oncology practices to hospital settings through acquisitions of and mergers with community cancer clinics, with the goal of increasing profits from use of oncology products; 2) 340B continues to expand, 340B locations (contract pharmacies dispensing 340B drugs) are increasing, and 340B sales may continue to increase; and 3) the Medicaid expansion under the Affordable Care Act will allow more hospitals to treat Medicaid patients and to qualify for 340B.

None of these concerns is valid, and have been addressed in previous reviews. First, hospitals are purchasing oncology practices regardless of their 340B status. The shift in cancer care to hospital-based settings is due to declining oncology practice revenues and declining reimbursements. Second, while hospitals participating in 340B have increased, this is almost entirely due to congressional expansion of the program to rural and cancer hospitals in 2010, a good thing for patients with cancer. Third, 340B drug sales account for only 2 percent of the $329 billion drug market in the United States, an insignificant amount considering drug companies’ large profits and the fact that 340B is benefiting millions of Americans. Finally, expanding Medicaid under the Affordable Care Act will help millions of uninsured, poor and vulnerable patients and will save ten thousands of American lives every year, without increasing the number of 340B hospitals, as the experience in Massachusetts has shown.

Conclusions

340B is an excellent and essential program that allows health care providers to care for large proportions of vulnerable, poor, underserved or rural populations and remain solvent. The disproportionate amount of uncompensated care shows they deserve 340B status. Restricting 340B may help increase the already skyrocketing drug companies’ profits, but will harm millions of Americans. The 340B Drug Pricing Program is a medical lifeline that should be maintained, nurtured and expanded — but certainly not curtailed.

Hagop M. Kantarjian, M.D., is chairman of the Leukemia Department at the University of Texas M.D. Anderson Cancer Center and nonresident fellow in health policy at the Baker Institute.

Robert Chapman, M.D., is the medical director of the Josephine Ford Cancer Institute at the Henry Ford Health System.

Note: Expanded versions and discussions related to 340B have been published in the Journal of Oncology Practice (Kantarjian HM, Chapman R. Role of the 340B Drug Discount Program in Recent Cancer Care Trends. J Oncol Pract 11[4]: 303-7, 7/2015) and JAMA Oncology (Kantarjian H, Chapman R. Value of the 340B Drug Discount Program. JAMA Oncol. e-Pub 8/2015).

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.