What Is the 340B Drug Pricing Program?

Established by Congress in 1992 and managed by the Health Resources and Services Administration (HRSA), the 340B Drug Pricing Program mandates drug manufacturers participating in Medicaid to provide certain outpatient drugs (prescription medicines and biologics other than vaccines) to covered entities (eligible hospitals and health care providers) at discounted prices. This program has allowed participating hospitals to save billions of dollars over the years, with the intent that they can stretch the limited federal resources to provide more care and additional services for patients. The manufacturers cannot charge a covered entity more than the HRSA-established 340B “ceiling price” for each covered outpatient drug. 

Covered entities include:

  • Hospitals and clinics that receive certain federal grants from the Department of Health and Human Services (federally qualified health centers and Ryan White grantees)
  • Disproportionate share and safety-net hospitals (those that serve a disproportionately high number of low-income and uninsured populations)
  • Rural referral centers
  • Sole community hospitals
  • Children’s hospitals
  • Freestanding cancer hospitals

Drugs purchased under the 340B program can be used for patients enrolled under Medicaid, Medicare or commercial insurers.  

Has the Program Worked?

The 340B program has had intended and unintended consequences. According to a recent report by 340B Health, which is an association of hospitals and systems that participate in the 340B program, the average annual savings across all hospitals for the year 2018 alone were $11.8 billion. The idea behind this program was that the resulting savings, that is the delta between the subsidized drug acquisition cost and what the hospital or clinic charges the payer, could help subsidize other safety-net services. The 340B Health report shares that their member organizations redirected their savings to provide uncompensated care; transportation, translation and social services; discounted or free drugs to low-income/rural patients; and added to their repertoire of patient services among other things. 

However, controversies have erupted over several aspects of the program, including utilization of program savings, which falls beyond HRSA’s statutory authority. Following a 2-year assessment of the 340B program, the House Energy and Commerce Committee released a report in early 2018 that highlighted several weaknesses, included limited regulatory authority for HRSA and absence of reporting requirements that mandate covered entities to disclose program savings and how they are used.

A research study by the Center for Regulatory Effectiveness found that tactics used by certain 340B hospitals—such as prescribing more medication and more expensive drugs to patients who qualify for 340B—have increased drug spending. The study also claims that outpatient oncology care in 340B hospitals is twice as much as their counterpart non-340B hospitals. 

Payers and 340B

In a move to curb burgeoning health care costs, the Centers for Medicare & Medicaid Services (CMS) announced plans to cut its 2018-2019 reimbursement payments for 340B-acquired drugs from average sales price (ASP) plus 6% to ASP minus 22.5%, a 28.5% drop for the eligible health care providers. However, a US District Court judge, while ruling that the Department of Health and Human Services or HHS (CMS is a part of HHS) had exceeded its authority with adjusting the payment rates, asked the stakeholders to come up with suitable remedies for payment adjustments for the years 2018 and 2019. 

CMS, having appealed the decision, recently announced that it is seeking public comments on appropriate reimbursement rates for 340B-acquired drugs, primarily for the year 2020 and also to remedy 2018 and 2019 adjustments. The federal payer is keen on maintaining the 2020 reimbursement rate at ASP minus 22.5%, as it awaits the District Court’s decision, but would like to know if ASP plus 3% would be a suitable remedy for the year 2020 and also in restructuring the 2018 and 2019 payments. Exceptions to this 340B policy change are:

  • Critical access hospitals
  • Rural sole community hospitals
  • Children’s hospitals
  • A prospective payment system or PPS-exempt cancer hospital

These facilities will continue to be paid at ASP plus 6%.   

How Does This Impact Patients?

The CMS announcement notes that reversal of its policy change would mean a significant financial impact on the eligible facilities and it would also reflect on patient cost-sharing, because “The items and services that could be affected by the remedy were provided to millions of different Medicare beneficiaries, who, by statute, are required to pay cost-sharing for such items and services, which is usually 20 percent of the total Medicare payment rate.”

There’s also this 2017 report by the Community Oncology Alliance that shares stories of patient mistreatment by 340B hospitals: care denial for the uninsured, policies that deny inpatient care for Medicaid patients, preference for insured patients instead of the indigent patients who should be the focus of the 340B hospitals.   

As the debate continues, it is evident that mandating reporting requirements for the 340B hospitals, on their 340B revenues and services provided from these revenues, would be an important step to improve program efficiency and, more importantly, to ensure continued and improved care for low-income and uninsured populations who are most in need of these government-mandated safety-net services.