A Patient’s Guide to 340B: Why the Program Matters to You

***This is the first report in a six-part series to educate patients about the 340B Drug Pricing Program***

In 1992, Congress struck a deal with pharmaceutical manufacturers to expand access to care and medication for more patients: If pharmaceutical manufacturers wanted to be included in Medicaid’s coverage, they’d have to offer their products to outpatient entities serving low-income patients at a discount. The idea was brilliantly simple; drug manufacturers could have a guaranteed income from participation in the Medicaid program, and “covered entities” could have guaranteed access to discounted medications. Congress set-up a payment system by way of rebates, affording healthcare providers a way to fund much-needed care to patients who could not otherwise afford it.

This payment program is little known but, now it is significantly large. It is the 340B Drug Pricing Program.

“At the inception [of the 340B program], these entities [Hemophilia Treatment Centers (caring for all patients with both bleeding and clotting disorders), Ryan White Clinics and FQHCs were specifically identified] were the prime targets to benefit from the  three major goals of the initial PHS pricing program: first, that pharmaceutical products would be purchased at markedly reduced 340B pricing; secondly, the discounts would be passed on to the payors and finally that a small, reasonable, percentage would go to the entity itself, to sustain Covered Entities to care and expand diagnostic and clinical services.”
– Dr. Diane Nugent, National Commission on 340B (2018)

Initially, covered entities were exceptionally restricted, including but not limited to federally qualified heath centers (FQHCs), Ryan White HIV/AIDS clinics, hemophilia treatment centers, and only one category of hospitals, so-called “disproportionate share hospitals” (DSH). DSH is a hospital entity that provides a “disproportionate” number of low-income patients, evaluated quarterly and calculated through a formula dictated by statute. Of these entities, those receiving federal grant dollars under any number of federally funded programs are called “federal grantees”.

Federal grantees are required by statutory language to certain transparency in how they spend their 340B-related revenue. In trade, participating drug manufacturers are also required to be transparent in their contributions to the program.

In addition, federal grantees are required to be transparent and accountable regarding their 340B-generated dollars by their federal grants, not by the statutory language of the 340B program. That means every dollar a federal grantee generates is held accountable to serving the needs of low-income patients. How these dollars may be used from grantee to grantee may look a little different but they’re still required to fit within the guardrails of the grant and, for many federal grantees, the most direct way of achieving this goal is sharing the savings with patients at the pharmacy counter. By its very nature, 340B’s purpose is to reduce the amount of tax dollars spent on these grants by providing an avenue of program revenue, and thus support existing efforts to provide care for the most vulnerable.

Over the years, covered entities have expanded to include contract pharmacies, family planning centers, children’s hospitals, critical access hospitals, rural referral centers, freestanding cancer centers, and sole community hospitals. From 1992 until about 2001, participation in the program by covered entities was fairly static – it didn’t grow or change in any massive quantity. After 2001, covered entities able to access the 340B program began to grow at an exceedingly fast pace, with even more growth among “covered entity sites” and the greatest amount of growth among contracted pharmacies. This was reflected in 340B sales, as well. According to the Drug Channels Institute, 340B purchases grew from about $2.4 billion in 2005 to more than $38 billion in 2020.

In general, 340B-related income looks like an insurer reimbursing the cost of a medication for a patient to a covered entity, a pharmacy filling the medication at the rebated cost with addition of a minor dispensing fee, and the covered entity keeping the excess as savings. Covered entities are allowed spend those excess funds in particular ways which qualify as “expanding access” to medication or care. For entities applying those funds directly to outpatient medications, this is known as “following the patient” or “sharing the savings”. Other uses may include anything that directly impacts access to or quality of care for low-income patients. Notable examples may include technology upgrades to be in-line with patient security and best practices in extending scarce human resources (i.e. how efficient care can be delivered to patients), acquiring new care technology to provide care not previously available (i.e. imaging and x-ray machines), and infrastructure like mobile medical units in order to bring care to patients rather than bringing patients to care or opening new locations in order to be more accessible to their served communities. 340B prohibits covered entities on double dipping on discounts or applying rebate dollars to inpatient medications or to a particular patient that does not qualify as low-income (“diversion”).

That patient getting their share of the savings makes a great deal of sense. Indeed, a Government Accountability Office report (GAO-18-480) of selected covered entities stated of 55 interviewees, 30 reported providing low-income, uninsured patients on 340B dispensed medications and all “30 covered entities providing patients with discounts reported providing discounts on the drug price for some or all 340B drugs dispensed at contract pharmacies. Federal grantees were more likely than hospitals to provide such discounts and to provide them at all contract pharmacies.” Patients realize the savings of the rebate program immediately. Benefits of the program which may be less recognizable to patients for a similar report from 2011 (GAO-11-836) included funding a non-revenue-generating case management program, patient and family education programs similar to guidance pharmacists provide on medication interactions, and transportation to and from care appointments. All of which are critically necessary in terms of creating a safety net of accessible care for vulnerable communities and patients.

For more information on the issues facing the 340B Drug Pricing Program, you can access the Community Access National Network’s 340B Commission final report and reform recommendations here 340B Drug Pricing Program.

Sources:

• Community Access National Network (February 2019). 340B DRUG DISCOUNT PROGRAM: The Issues Spurring Discussion, Stakeholder Stances and Possible Resolutions. 340B Commission Final Report. Retrieved online at https://docs.google.com/gview?url=http://www.tiicann.org/pdf-docs/2019_CANN_340B_Commission_Final-Report-v5_03-07-19.pdf&embedded=true

• Hasan, Shiraz, and Sofi Peterson (2021, April 16). 340B Drug Discount Program Growth Drivers. IQVIA. Retrieved online at https://www.iqvia.com/locations/united-states/blogs/2021/04/340b-drug-discount-program-growth-drivers

• Health Resources & Services Administration (2021). Sec. 340B PUBLIC HEALTH SERVICE ACT. U.S. Department of Health & Human Services. Retrieved online at https://www.hrsa.gov/sites/default/files/opa/programrequirements/phsactsection340b.pdf

• U.S. Government Accountability Office (2011, September). DRUG PRICING: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement. GAO-11-836. Retrieved online at https://www.gao.gov/assets/gao-11-836.pdf

• U.S. Government Accountability Office (2018, June). DRUG DISCOUNT PROGRAM: Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement. GAO-18-480. Retrieved online at https://www.gao.gov/assets/gao-18-480.pdf