Myths vs. Facts: 340B, Drug Discounts, and Price Fixing

Imposing 340B mandates and regulation at the state level are, at best, misguided and, at worst, potentially unconstitutional.

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March 25, 2024 3:26 pm

What is 340B?

There is significant controversy surrounding 340B, a program created by Congress in 1992 to help hospitals and certain other health care providers that serve large numbers of uninsured patients purchase outpatient drugs at a steep discount. Drug manufacturers who participate agree to provide a discount to eligible hospitals and certain other health care providers.

How does it work?

Drug manufacturers enter into a Pharmaceutical Pricing Agreement (PPA) with the Health Resources and Service Administration (HRSA). Hospitals and other health care providers who qualify for the program register as “covered entities” to participate. The covered entity is then able to purchase largely discounted drugs. In 1996, some hospitals began contracting with outside private pharmacies (usually referred to as “contract pharmacies”) to provide pharmaceutical coverage for their 340B eligible patients based on guidance from the Health Resources and Services Administration (HRSA). In 2010, the HRSA began allowing providers to contract more than one pharmacy and still remain eligible for the 340B discount.

Here are a few myths about the 340B program:

Myth: 340B discounts go to patients.

Fact: Studies have shown patients rarely receive the 340B discount at the pharmacy counter. A 2022 study found the only evidence of patients receiving the 340B discount was for the 1.4% of branded drugs at contract pharmacies that used 340B discount cards. Pharmacies often have no way of knowing whether patients are 340B eligible at the pharmacy counter. Some entities have used 340B discount cards to indicate the eligibility status of the patient for 340B drugs, but the practice has not been widely adopted. Other methods such as electronic tags (called “claims modifiers”) that allow providers and pharmacies to determine patient eligibility for 340B have been banned by some states.


Myth: 
Contract pharmacies are part of the 340B program.

Fact: The term “contract pharmacy” does not appear in the federal statute that created the 340B program, but prior to 2010, most manufacturers allowed covered entities without in-house pharmacies to contract with one independent pharmacy for 340B drugs. Problems arose when HRSA released a guidance letter in 2010 that allowed covered entities to contract with an unlimited number of pharmacies for 340B prices. Since then, the number of contract pharmacies has increased 8,000%. Sadly, as the program has grown, the percentage of these pharmacies in underserved and economically disadvantaged areas has decreased. Litigation over the subject of contract pharmacies is taking place at both federal and state level.


Myth: 
340B transactions are documented, monitored, and transparent.

Fact: The original purpose of 340B was to help support health care providers who are serving large numbers of low income and uninsured patients. Unfortunately, these savings aren’t passed on to patients. Multiple instances have shown us that covered entities are obtaining 340B drugs and charging privately insured patients full price. A lack of transparency has turned what should be a good program into a money-making scheme for providers and pharmacies with patients rarely benefiting. The increased utilization of Pharmacy Benefit Managers (PBMs) has only exacerbated the problem. Since 2010 hospitals, PBMs, and pharmacies have leveraged the 340B program to increase profits. One study estimated $2.58 billion in 340B savings went to PBMs in 2021. The result— a program that was designed to help those who are socioeconomically disadvantaged and uninsured has been corrupted and fails to honor its intended purpose.


Myth: 
340B savings help hospitals and other covered entities that provide large percentages of charity care.

Fact: A 2021 study showed that some 340B hospitals are performing very little charity care. The white paper compared the financial health and charitable care of 340B and non-340B hospitals, finding that the top performing 340B hospitals received $10 for every $1 they invested in charity care. The study also found that patients were charged higher prices at 340B hospitals versus non-340B hospitals. Instead of funding charity care, 340B discounts are used by hospitals, pharmacies and PBMs to boost profit margins, and patients get little to no benefit.

Conclusion

The 340B program has no method in place to ensure the discounts from the program are helping uninsured or economically disadvantaged patients. Efforts to bring additional accountability and transparency to the program have faced stiff opposition. Policymakers should ensure that the 340B program is helping those it was designed to help and not used as a mechanism for health care providers and pharmacies to increase their profits.

340B is a federal program and efforts to impose mandates and regulation at the state level are, at best, misguided and, at worst, potentially unconstitutional. Requiring drug manufactures to sell drugs at the 340B price to all contract pharmacies, many of which are not even in the state they are designed to serve, is essentially fixing the price of those drugs — as noted in ALEC’s Essential Policy Solutions for 2024. History has repeatedly shown that fixing the price of any good or service does not achieve the intended goal—no matter how well intentioned.