What’s the tea on 340B?

If you want to see an epic battle between hospitals and pharma, look no further than the 340B drug discount program. Why is this program so controversial, and what do new studies show about its effectiveness? Let’s take a look.

What is the 340B program?

The 340B Drug Pricing Program, part of the 1992 Public Health Service Act, provides outpatient drugs at a high discount to safety net providers. These discounts help keep hospitals afloat financially so they can continue delivering needed services to their communities. Hospitals say that the savings from 340B allow them to do things like “provide free care for uninsured patients, offer free vaccines, provide services in mental health clinics, and implement medication management and community health programs.” Hospitals can do these things with their 340B savings…but there’s no regulation that says they have to.

As the prices of cancer medications and other drugs used in the outpatient setting have skyrocketed, it makes sense that hospitals on thin margins deserve a discount. And it’s not like pharmaceutical companies — whose profits are nearly double that of other large companies make — need even more money. But at the same time, it’s important to ask whether the 340B program is actually serving its intended purpose.

340B and safety nets

If the 340B program worked perfectly, it would primarily help struggling hospitals that serve more low-income patients. However, the definition of “safety net” hospital when it comes to 340B eligibility is murky. Critical access hospitals (very small rural hospitals) and sole community providers, which typically operate on thin margins, are eligible for 340B. But so are “Disproportionate Share Hospitals,” a designation that ironically applies to half of all nonprofit hospitals and is not based on uncompensated care spending. Because eligibility is broad, an estimated 55% of nonprofit hospitals in urban areas receive 340B discounts.

Ideally, 340B would lead to more provision of financial assistance and care for underserved communities. However, research on whether 340B participation increases this kind of care is mixed. A 2021 study compared spending on uncompensated care at hospitals after they entered the 340B program compared to those that did not participate, and found that hospitals that participated did not spend more on uncompensated care compared to those not in 340B. However, a similar study from 2020 found that 340B hospitals did increase their spending on financial assistance specifically, although their overall community benefit spending and provision of low-profit services did not change.

The lack of regulation around how hospitals and systems spend their 340B savings can lead to cases like Bon Secours. According to a 2022 New York Times investigation, Bon Secours health system made a $100 million profit off of 340B discounts from their Richmond hospital, which serves mostly Black patients, but reinvested this money into its hospitals that serve a wealthier, whiter clientele. As a result, Bon Secours Richmond did not have an intensive care unit, maternity ward, or even a consistently-working MRI machine in 2022, despite a high need in the community for more services. Unfortunately, this may not be a unique example, as one study found that disproportionate share hospitals that participated in 340B after 2004 tended to be in higher-income communities, compared to hospitals that joined the 340B program earlier.

The 340B “remedy”

If 340B hospitals passed along the drug discounts they receive to patients, that would be another good use of these funds. However, there’s no requirement for hospitals to do so. In fact, one recent study found that commercially-insured patients spent more on certain cancer drugs at newly-participating 340B hospitals, compared to hospitals that didn’t participate in 340B. For cancer patients with high-deductible plans or other cost sharing, these increased charges can contribute to financial toxicity.

State Medicaid agencies reimburse 340B hospitals at the discounted price at which the drugs were acquired, but Medicare and commercial insurers can’t do the same. When Medicare cut their reimbursement rates in 2018 to match hospitals’ discounted price, hospitals went to court and had the cuts overturned. Now CMS has to pay back these hospitals to the tune of $9 billion, what is being called the “340B remedy.” According to a recent Modern Healthcare analysis, the 340B hospitals that will benefit the most from the proposed remedy provided less in uncompensated care as a share of expenses than other hospitals, while the hospitals spending the most in uncompensated care stand to gain the least from the remedy.

Fixing 340B

You might be thinking that given the issues with 340B, we should get rid of this designation altogether. But that’s a solution that only helps pharma. Let’s not forget, there wouldn’t be such a big problem with 340B if drug prices weren’t so high in the first place. At the same time that pharmaceutical companies are looking to restrict or get rid of 340B, they’re also brazenly suing the US government for trying to negotiate the highest-cost drug prices for Medicare patients.

But there are ways that 340B could be tweaked to optimize the benefit for low-income patients and the hospitals that serve them. In a recent Viewpoint article in JAMA, Dr. Sanjay Kishore at The University of Alabama, Dr. Rahul K. Nayak at the Emory University School of Medicine, and Dr. Aaron S. Kesselheim at Harvard Medical School explore policy solutions to improve oversight and eligibility for the 340B program. Here are a few of their proposals:

  • Alter eligibility requirements for hospitals to redefine “safety net” hospitals beyond disproportionate share percentage, to include other criteria such as “measures of uncompensated care and area socioeconomic disadvantage.”
  • Offer 340B discounts on a sliding scale based on hospitals with the neediest patients, rather than having 340B eligibility be “all or nothing.”
  • Add more reporting requirements and utilize audits to better understand how 340B hospitals are using their discounts and gain more data around whether these discounts are being passed along to patients.

“Instead of heeding calls to cancel the program amid growth, policymakers should consider reforms that better ensure 340B benefits are targeted toward people with the most need. It is the least patients, clinicians, and health care facilities deserve.”

Dr. Sanjay Kishore et al, JAMA Viewpoint