Congress created the 340B program in 1992 to fix a problem it had created two years earlier when an overreaching government implemented price controls in the Medicaid drug benefit program.  As a condition to participate in Medicaid, pharmaceutical companies are required to participate in the 340B program and give discounts of between 20-50 percent to certain federally funded healthcare facilities and disproportionate share hospitals (DSH) known as “covered entities” that serve large numbers of low-income, uninsured patients. 

The savings are intended to give patients of these covered entities access to prescription drugs, and also allows, according to Congressional intent, the entities to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”  But due to unclear legislation, legally questionable guidance by the Health Resources and Services Administration (HRSA), which oversees the program, and expansion under the Patient Protection and Affordable Care Act, the program has grown exponentially and is vulnerable to abuse.

CCAGW has long been concerned with the misuse of the 340B program.  A May 14, 2014, blog post noted, “Because of a poorly written law and unclear regulations that allow a broad interpretation of the term ‘patient,’ permit too many organizations to qualify for the program, and provide little control over how the drug savings can be spent, consumers and taxpayers ultimately end up paying for a program that has become nothing more than an ATM for nonprofit hospitals and pharmacies.” 

Subsequent commentary, including a July 17, 2015 blog post that highlighted a June 2015 Government Accountability Office (GAO) report on 340B, cited both a September 2011 GAO report and a February 2014 HHS Office of the Inspector General (OIG) report that found “many troubling issues withing the program, such as 45 percent of covered entities had profited from the 340B program, that the savings from the discounted drugs were often not passed along to low-income patients, that drugs were being diverted to people that were not patients of the covered entities, and that drug manufacturers were providing duplicate rebates to covered entities and states via the 340B program and Medicaid respectively, both practices which are proscribed by law.” 

An October 29, 2020, coalition letter led by CCAGW and signed by 18 organizations to then-Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-Tenn.) and House Education and Labor Committee Ranking Member Greg Walden (R-Ore.) cited the June 2015 GAO report and findings from several other reports including the April 2016 Community Oncology Alliance release of, “Cost Drivers of Cancer Care: A Retrospective Analysis of Medicare and Commercially Insured Population Claim Data 2004-2014.”  The report found that the movement of from lower-cost physician offices to higher-cost hospital outpatient settings led to increased costs in the 340B program.  The coalition letter summarized the report’s findings by stating, “When a 340B hospital purchases a physician’s office, it can administer their heavily discounted drugs to its newly acquired patients that have insurance, charging the insurers the full reimbursable price and pocketing the difference.” 

The coalition letter also cited a December 2017 Berkely Research Group (BRG) report, “The Oncology Drug Marketplace: Trends in Discounting and Site of Care,” which echoed the Community Oncology Alliance’s findings.  The BRG report noted that the “shift in site of oncology care from the physician office to the hospital outpatient setting has continued unabated since 2008, and almost 50 percent of 2016 Medicare Part B chemotherapy drug administration claims occurred in the hospital outpatient setting – up from just 23 percent in 2008” and “average profit margins on Part B-reimbursed physician-administered oncology drugs purchased at a 340B price increased from 40 percent in 2010 to 49 percent in 2015 and have created substantial financial incentives for 340B hospitals to expand oncology services, despite overall healthcare costs increasing as a result of this shift in site of care.”

The letter included a comment from the January 10, 2018, House Energy and Commerce Committee report, “Review of the 340B Drug Pricing Program,” that while HRSA prohibits diversion and resale of 340B drugs to ineligible patients, “a large percentage of HRSA’s audited entities diverted drugs to ineligible patients in FY 2012 through FY 2016.”  Additional reporting on 340B cited in the letter included an October 2020 BRG report, “For-Profit Pharmacy Participation in the 340B Program” which found that, “more than 27,000 individual pharmacies (almost one out of every three pharmacies) participate in the 340B program as contract pharmacies” and that “hospitals now account for over 44 percent of all contract pharmacy arrangements, up from 2 percent in 2000,” a 4,228 percent increase, despite the lack of authorization for contract pharmacies in the 340B statute.

A November 2021 Xcenda study, “340B and Health Equity: A Missed Opportunity in Medically Underserved Areas,” provided further evidence of how the  program is not being used as intended to help low income and vulnerable individuals get access to low-cost prescription drugs.  Instead, it is boosting hospitals’ coffers and their contract pharmacies’ profits that are largely located in areas that do not serve low-income people.

In 2014, 340B discounted prices were at $9 billion, but by 2020, they reached $38 billion, an increase of 27 percent from 2019 and a 322 percent increase from 2014.  On April 14, 2023, the healthcare data analytics firm IQVIA released its study, “The 340B Drug Discount Program Exceeds $100B in 2022,” which showed a massive increase in spending and provided further evidence of the exploitation of the program.  The report found that the misuse of the funds by hospitals and contract pharmacies is ongoing, and patients are still not getting the benefits Congress intended them to receive.

A September 24, 2022, New York Times article analyzed how 340B was being abused at Richmond (Virginia) Community Hospital, owned by Bon Secours.  Rather than reinvesting profits from 340B drug sales into its facilities and improving patient care, the money was being diverted to Bon Secours’ facilities in Richmond’s wealthier neighborhoods.  Dr. Lucas English, who worked in the hospital’s emergency department until 2018, said, “Bon Secours was basically laundering money through this poor hospital to its wealthy outposts … It was all about profits.”  Dr. Peter B. Bach, who has written about the use of 340B profits to open more clinics in wealthier areas, said the hospitals are “nakedly capitalizing on programs that are intended to help poor people.”

Beyond the impact of the 340B program on pharmaceutical sales, biopharmaceutical drug companies are facing further market challenges due to government price controls.  The IQVIA study noted that the Inflation Reduction Act’s (IRA) price controls will impose additional pressure on future research and development.  CAGW submitted comments in response to the Center for Medicare and Medicaid Services (CMS), “initial guidance for implementation of the Negotiation Program for initial price applicability year 2026.”  The price controls in the IRA will further distort the medical marketplace.  Additionally, the IRA expands the 340B drug discount program despite its flaws.

Duplicate discounting for 340B is another going problem that could be addressed with more oversight from CMS.  Improving and reporting requirements will help to ensure that the patients benefit from the program as intended.

Reforms Congress should consider also include a clear definition of a patient as an uninsured, low-income individual that does not qualify for Medicare or Medicaid.  This could be easily fixed by tightening the current definition that has been loosely interpreted for far too long and go a long way to ensure that the program operates closer to the way it was originally intended. 

There have been sufficient reports by Congress, the media, and outside organizations about the corruption, cost, failure, and abuse of the 340B program.   All that remains is the will to get the job done, which will both save the taxpayers money and give low-income patients the discounts on drugs that they have long deserved.