Problems Continue with 340B Program | Citizens Against Government Waste

Problems Continue with 340B Program

The WasteWatcher

Citizens Against Government Waste has been critical of the 340B drug discount program for several years and has called for it be reformed.  On Thursday, October 8, the Berkeley Research Group (BRG) released a report that demonstrates once again how 340B has been corrupted and is being abused due to unclear legislation, legally questionable guidance, and unwarranted expansion.  The opening statement in the report, “For-Profit Pharmacy Participation in the 340B Program,” could not be better said:   “What started as a well-intentioned effort to provide safety-net providers free or discounted drugs to treat uninsured and vulnerable patients appears to have evolved into a profit-centric corporate initiative that has fundamentally altered the 340B program.”

Congress created the 340B program in 1992 to fix a problem it had created two years earlier when it implemented price controls, or rebates, in the Medicaid drug benefit program.  As a condition to participate in Medicaid, pharmaceutical companies must also partake in the 340B program, giving significant discounts of between 20-50 percent, to certain federally-funded facilities and disproportionate share hospitals (DSH) that receive extra government subsidies to treat large numbers of low-income people on Medicare and Medicaid, as well as indigent, uninsured patients.  The hope was the drug savings for these covered entities would “stretch scare Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”  But because the law does not require covered entities to pass along the drug savings to their patients and there is no clear definition of a 340B patient, many hospitals and contract pharmacies have figured out how to turn it into a cash cow.

In 1996, the Health Resources and Services Administration (HRSA), which oversees the program, wrote guidance that allowed covered entities that did not have an in house pharmacy to contract with one outside pharmacy to provide the deeply discounted medications to the indigent patients they served.  But due to the expansion of the 340B program under the Patient Protection and Affordable Care Act (ACA), or Obamacare, and additional HRSA guidance allowed all covered entities, even if they had an in house pharmacy, to contract with an unlimited number of for-profit pharmacies, leading to exponential growth of the drug discount program beginning in 2014.

The blog Drug Channels reported in June 2020 that discounted 340B drug purchases reached $29.9 billion in 2019, an increase of 23 percent from 2018 and more than 232 percent since 2014.  The October BRG report noted 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.”  From 2010 to 2020, contract pharmacy arrangements increased 4,228 percent.  That is an amazing statistic considering the 340B statute does not authorize the use of contract pharmacies.

The BRG report found that, “The average gross margin on 340B purchased medicines dispensed through contract pharmacies is an estimated 72%.”  This figure highlights the problem of having no clear definition of an eligible 340B patient.  Insured patients under private insurance or Medicare may utilize a DSH or other 340B covered entity and contract pharmacies and hospitals take advantage of the spread to pocket the difference between the insurance reimbursement and the cost of the deeply discounted 340B drug, since they are not required to pass the savings to the patient.  This means that far too often, indigent patients are not receiving the deep discounts to which they are entitled.

BRG’s report concludes, “What began as a close alignment between 340B covered entities serving indigent populations and independent community pharmacies has morphed into a sophisticated network of vertically integrated for-profit national pharmacies with enormous power.  This evolution has fundamentally altered the 340B program and resulted in for-profit entities earning substantial profits through complex profit-sharing agreements with the 340B covered entities.”

Members of Congress like to talk about providing healthcare for as many Americans as possible, yet they continue to fail to fix an obvious and serious problem of their own making.  It is long past time for them to restore and preserve the original intent of the program, help indigent patients get better access to medication, and stop enriching private, for-profit contract pharmacies at the taxpayers’ expense.  Hopefully, the BRG report will provide sufficient information and incentive to finally fix 340B.

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