Affordable Care Act / Healthcare

Issues in 340B

What is it?

The 340B Drug Pricing Program requires drug manufacturers to provide outpatient drugs to eligible health care organizations at substantially discounted prices ranging from 25 to 50 percent off a drug’s average wholesale price.

Who’s eligible?

In order to be eligible for 340B, a provider must either be a nonprofit with particular federal designations or must receive funding from specific federal programs. This includes clinics that receive federal grants from the Department of Health and Human Services (HHS), such as Federally Qualified Health Centers (FQHCs) and hospitals, such as disproportionate share (DSH) hospitals and critical access hospitals (CAHs). DSH hospitals serve a larger share of low-income patients and CAHs are rural hospitals with limited size and shorter inpatients stays.

Covered outpatient drugs include prescription drugs and biological products other than vaccines.

Patients must receive health care services from the 340B-covered entity in order to be eligible for 340B-purchased drugs. This includes patients with Medicare, Medicaid, and the uninsured.

Why does it matter?

Because of recent substantial growth in the number of covered entities under 340B, the Affordable Care Act (ACA) mandated that the Government Accountability Office (GAO) address how the program is used. There have also been questions on how the Health Resources and Services Administration (HRSA) oversees the program.

According to the Medicare Payment Advisory Commission (MedPAC), from 2005 to 2010, the number of 340B sites increased from 12,353 to 15,530. But from 2010 to 2014, the number of 340B sites almost doubled from 15,530 to 28,272. One factor that might help explain the numbers from 2010 to 2014 is a rule change in 2012 made by HRSA that required hospitals to register offsite facilities that purchase or provide 340B drugs.

Hospitals have largely accounted for increasing growth rates. The number of sites providing 340B drugs increased by 9.6 percent per year from 2005 to 2014, while the number of participating hospital organizations increased by 15.5 percent per year in the same time period.

Needless to say, spending also increased significantly. At 340B DSH hospitals, Medicare spending for Part B drugs increased by 22.6 percent per year from 2004 to 2013. And from 2005 to 2013, overall growth in spending on 340B drugs by 340B providers increased from $2.4 to $7.1 billion.

To compare spending growth to all other hospitals, MedPAC found that between 2004 and 2013, the annual growth rate of Medicare spending for Part B drugs was almost double for 340B DSH hospitals than for all other hospitals. Despite 340B DSH hospitals comprising twenty percent of Medicare acute care hospitals, they accounted for almost half of Part B drug spending at hospitals in 2013.

Notwithstanding rising costs, 340B entertains a host of other problematic issues.

There are serious problems with HRSA’s oversight of the 340B program. According to the GAO, the program is “inadequate to provide reasonable assurance that covered entities and drug manufacturers are in compliance with program requirements.” This is not surprising because, although HRSA began auditing entities in 2012, the administration still primarily relies on participant self-policing to ensure compliance. HRSA does not regularly confirm eligibility of all covered entities, and 340B has been used in settings where providers serve both 340B and non-340B eligible patients, increasing the risk of improper purchasing. HRSA’s guidance often lacks clear direction, and the issue is exacerbated because of problems with the 340B statute itself.

HRSA’s oversight of the purchase of drugs at 340B prices for eligible patients is difficult because the 340B statute never defines an “eligible patient.” 340B providers can interpret this broadly and acquire outpatient drugs at steep discounts despite lacking a need for them. Broad criteria are also used for hospitals to qualify for the program. 65 percent of Inpatient Prospective Payment System (IPPS) hospitals and 94 percent of CAHs qualified, according to MedPAC. Hospitals can even generate unrestricted revenue from the program if payments for drugs exceed the costs.

In 2010, HRSA allowed 340B-covered entities to use multiple contract pharmacies to dispense 340B drugs. Subsequently, as expected, the number of these contract pharmacies grew rapidly, and HRSA found that some pharmacies provided 340B drugs to ineligible patients.

One arguing for stronger HRSA oversight and fixes to the 340B statute must grapple with the committee’s intentions to “enable these entities to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” But in order to avoid improper purchasing and reach more eligible patients, the statute must clarify what constitutes an “eligible patient.” Drug manufacturers have asserted that eligibility criteria must be reconsidered, and contract pharmacy arrangements must be limited. And although hospitals have argued that 340B is essential to maintain hospital services, it is clear that the program has expanded beyond its bounds.