Recently, Robert Popovian and Peter J. Pitts authored an editorial for the Food and Drug Law Institute, “340B and the Warped Rhetoric of Healthcare Compassion.” In the article, Popovian and Pitts posit that the 340B program benefits hospitals, certain pharmacies, and vertically integrated insurers/PBMs/pharmacies while patients, employers, and the government overpay. Additionally, they note that it has yet to be seen as to whether individuals for whom the 340B program was intended to benefit actually capture the value of the 340B program sales.
Popovian and Pitts note that the 1992 statute that established the 340B program states that the program savings “are intended to ‘stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.’” They go on to call the 340B program “an honest attempt to enhance prescription drug access for vulnerable, low-income, and uninsured patients.”
Now, however, they note that the 340B drug pricing program is the second-largest government pharmaceutical program based on net drug spending. However, unlike other government programs such as Medicare Part D and Medicaid, “340B lacks a regulatory infrastructure, well-developed administrative controls, and clear legislation to guide the program.”
Some 340B advocates have been saying that “drug companies are cutting 340B,” but Popovian and Pitts found that the data disagrees. For example, they note, in 2021, the difference between purchases at list price and purchases at 340B discounted price was $49.7 billion ($93.6 billion minus $43.9 billion), $7 billion higher than the 2020 gap. The estimated total value of pharmaceutical manufacturers’ gross-to-net reductions for brand-name drugs was $236 billion in 2021. Therefore, Popovian and Pitts acknowledge, manufacturer discounts under the 340B Drug Pricing Program accounted for more than 1/3 of the total gross-to-net reductions for brand-name drugs.
Hospitals and the Handling of 340B
Disproportionate Share Hospitals (DSH) serve a disproportionate number of low-income patients and receive payments from the Centers for Medicare and Medicaid Services (CMS) to cover the costs of providing care to uninsured patients. Non-DSH hospitals and hospitals that joined the 340B Program after 2004 are more likely to serve wealthier (and insured) patients.
According to the Lown Institute Hospitals Index, nearly three-quarters (72%) of private nonprofit hospitals spent less on charity care and community investment than they received in tax breaks. The fair share deficit for private nonprofit hospitals was $17 billion, with individual hospital deficits ranging anywhere from a few thousand dollars to $261 million.
Popovian and Pitts also reference a 2013 Charlotte Observer story, which found that Duke University Hospital purchased $65.8 million in drugs through the 340B program, saving $48.3 million. Duke then sold the drugs to patients for $135.5 million, resulting in $69.7 million in profits.
Contract Pharmacies
In 2010, the government shifted the 340B requirements, allowing 340B participants (including those with their own pharmacies) to contract with an unlimited number of third-party pharmacies. Between April 1, 2010 and April 1, 2020, the number of contract pharmacy arrangements increased by more than 4,000% and account for more than ¼ of 340B revenue (28%).
Popovian and Pitts refer to a JAMA Health Forum study that found that once more contract pharmacy relationships became permitted, the “proportion of 340B contract pharmacies in socioeconomically disadvantaged and primarily minority neighborhoods declined, while they increased in affluent, predominantly white neighborhoods,” allowing 340B hospitals and their for-profit contract pharmacies to charge fully insured patients hefty markups and then keep the difference, instead of passing on the savings.
How to Fix the Problem
Popovian and Pitts conclude by referring to several sources of recommendations, including a 2018 House Energy & Commerce Committee report and a 2020 letter from the Drug Channel Institute. They note that “piecemeal actions won’t fix a 340B system run amok” and call on Congress to “hold the covered entities profiting from 340B accountable.” They suggest that Congress begin by “insisting on the necessary oversight and implementing the overdue reforms that will restore benefits to patients while protecting the public from rampant waste and abuse.”