The federal 340B Drug Pricing Program program is theoretically designed to curb medication costs for hospital “charity care” cases, but it allegedly lacks safety rails to ensure that the savings are actually exclusively used for the intended purpose instead of boosting hospital profits.
The 340B program requires drug manufacturers to provide discounted drugs to eligible healthcare organizations, known as covered entities. These covered entities include certain safety-net hospitals, clinics, and healthcare centers that serve vulnerable populations, such as low-income individuals and uninsured or underinsured patients.
Under the 340B program, covered entities can purchase outpatient drugs at significantly reduced prices, often up to 50% or more below the average wholesale price. They can then dispense these drugs to eligible patients, while also generating revenue by billing insurance companies at higher reimbursement rates.
However, according to Senior Fellow and Director, Life Sciences Initiative at the Pioneer Institute, Dr. Willliam Smith, Ph.D, the authorizing legislation — despite the best of intentions — was so poorly crafted that it failed to ensure savings from drug discounts be devoted to charity care, did not require drugs bought through the 340B program be given to low-income or uninsured populations; and charity care was not even defined in the statute.
Despite that, Smith said — in both a recent interview with the Sentinel and in a paper published last month — that he doesn’t want to see the program terminated, but rather transparency and accountability added.
“I was very careful in the recommendations when I wrote the paper,” he said. “I don’t want to damage these clinics and I don’t want to damage hospitals that are financially strapped that are in low income, urban and rural areas.
“There are a lot of hospitals like that that are really struggling. Medicaid reimbursements are low and they’re having labor problems because of COVID. And I … don’t think those institutions should go away. So I didn’t call for any kind of dramatic cut in 340. B. I’m just in favor of greater transparency.”
According to Smith, in the beginning there were just a couple hundred hospitals nationwide in the program, and it initially worked quite well.
However, loosened requirements during the Barack Obama administration saw an explosion in the number of 340B hospitals.
“While only about 500 hospitals participated in the program in 2005, that number had ballooned to 2,500 by 2019 and drug purchases in 340B soared to more than $30 billion. Today, 340B drugs total more than 8 percent of all U.S. drug prescriptions,” Smith wrote in an opinion piece last month. “Many institutions joined the program because they knew that they could secure windfall revenues by arbitraging the drug discounts. For example, if a wealthy, insured patient were to be treated at a 340B facility, that hospital might bill his insurance company for a $100,000 oncology drug. Yet, because of the 340B discount of, say 75 percent, the hospital would be able to purchase that same drug for only $25,000, offering a revenue windfall of $75,000 to the hospital for one prescription.”
Indeed, one study found “it is evident that the ability of people suffering severe economic hardship to afford needed medicines and medical care, relative to the general population, is negatively correlated with growth in the 340B program.”
Another study in the New England Journal of Medicine found that “financial gains for hospitals have not been associated with clear evidence of expanded care or lower mortality among low-income patients.”
Finally, a recent study published in Health Affairs in 2021 concluded that nonprofit hospitals spend less on charity care than either government or for-profit hospitals.
Online tools show how hospitals cover charity care
A pair of online tools help track some of the 340B issues.
The first tracks the number of contract pharmacies in each state for every 340B covered entity at a zip code level, spotlighting the number of out-of-state pharmacies in high-income areas. It includes state-level mapping of contract pharmacy relationships for every 340B covered entity, and the growth of contract pharmacy relationships with 340B covered entities since 1992 in all 50 states, including unique contract pharmacies and active contracts with those pharmacies.
For example, in Kansas, there are a total of 387 contract pharmacies, 221 of them contracted specifically to the University of Kansas Health System.
The second tool shows the average ratio of “uncompensated care” and “charity care” as a function of total operating cost.
Again, at KU Med, in 2019, only about 1.5 percent of the total operating cost was charity care — and that percentage has been falling since 2012.
“The charity care numbers at KU Med are not terrible, [but] they’re not the best I’ve seen, let me just put it that way,” Smith said. “I’ve seen numbers lower than 1% at some wealthy Boston hospitals, which makes them worse than KU’s. I’ve seen numbers up to 8 to 10% at some hospitals in Massachusetts, Cambridge Hospital Boston Medical Center. So they’re somewhere in between, but they’re on the low end for sure.”
Keep the 340B program, just fix it
Smith is clear, however, that he doesn’t want to see the program ended, but fixed.
He noted he used to work for Pfizer and has no objection to requiring the discounts.
“If Pfizer were being forced to give discounts and they were taking all the money from the discounts and giving it out as charity care? That would not have been problematic to me at all,” he said. “But what seems to be happening is this program is exploding and … it’s become a profit center and they’re not taking those profits and plowing it into charity care as 340B legislation intended.”
Smith said the solution is simply greater transparency in the program and a requirement that any savings from 340B discounts simply be funneled back to charity care.
