Citizens Against Government Waste (CAGW) has called for reforming the 340B program since 2014.  The 340B safety net program was created in 1992 and derives its name from Section 340B of the Public Health Service Act.  It is administered by the Health Resources and Services Administration (HRSA), a division within the Department of Health and Human Services (HHS).   A June 8, 2021, Inside Health Policy article discusses a proposal in President Biden’s fiscal year (FY) 2022 Budget that would provide $17 million for oversight of the program, including establishing a dispute resolution process, which is $7 million more than FY 2021.

The 340B program requires drug manufacturers that participate in Medicaid to provide heavily discounted outpatient drugs to certain healthcare facilities, typically called “covered entities,” which provide general health services as well as treatment for specific diseases to uninsured, low-income people who could not qualify for Medicaid or Medicare.  It was expected that the 340B entity would pass along the savings to the patient.  Many hospitals and their for-profit contract pharmacies dispense the heavily discounted drugs to insured individuals and pocket the spread between the greatly discounted price and what the insurer reimburses.  According to Congress, government officials, media reports, and studies, the 340B drug discount program has drifted far from its original mission of helping uninsured, indigent people get access to prescription drugs.  Instead, it is enabling hospitals and pharmacies to generate millions of dollars in profit.  Ultimately consumers and taxpayers pay for its misuse.

Because of vague language in the 1992 law, including the lack of a clear definition of a 340B patient, the program has been ripe for exploitation.  It’s growth has skyrocketed since 2010 when more healthcare facilities were added to the list of covered entities under the Patient Protection and Affordable Care Act and HRSA allowed these entities to have unlimited for-profit contract pharmacies through guidance, even though the law is silent on the use of contract pharmacies. 

CAGW has long called for a clear definition of a patient and believes it should be a “low-income or indigent person that is not eligible for Medicaid or Medicare.”  That one change would solve most of the misuse of taxpayer funds in the program.  While Congress has tried to reform the program, these efforts have failed.

The HRSA budget justification to Congress for the increase states that the $7 million additional funds will be used to “continue to build on its program integrity efforts” by expanding its Administrative Dispute Resolution process between manufacturers and entities that participate in the program.

The justification also asks Congress for general rulemaking authority to reform the program.  The agency stated that its oversight ability is limited, and its guidance documents do not enable adequate enforcement.  Inside Health Policy reported that part the rule making authority would include the ability to audit hospital records on how program savings are spent.

This change would be a significant step forward in understanding how hospitals spend the savings they receive from the 340B discount.  While the 340B law does not require covered entities to track or report how program savings are used, unlike hospitals, federal grantees have some restrictions on how they use the funds due to other federal requirements.

As the old saying goes, the devil is in the details, and there are no details yet on exactly how such audits should be conducted.  CAGW believes a good place to start is to require that any savings a hospital, contract pharmacy, or any covered entity receives under the 340B program must be segregated and tracked separately from other funds.  Those segregated funds should only be used to lower other healthcare costs for indigent people and thus live true to the program’s intent to “stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”