Jen Laws, President & CEO Jen Laws, President & CEO

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

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

The 340B Drug Pricing Program has no doubt added benefit for patients and providers, alike. The measure of this benefit, however, is shrouded by uncertainty over the lack of transparency and accountability, decline in hospital charity care, as well as the explosive middleman growth in contract pharmacies and pharmacy benefit managers. Twenty-nine years after the program’s inception, it is now unclear to both regulators and patients, both qualitatively and quantitatively, if the Congressional intent is being met.

With all the noise around whether rebate programs might encourage pharmaceutical manufacturers to raise the cost of their products, there is no conversation on how those rebate dollars are used. The lack of the requisite transparency reporting among non-federal grantee covered entities participating in the 340B program makes it impossible to distinguish between anecdotal claims of abuses versus legitimate use of these rebate dollars to the benefit of patients.

These combined situations place the future of the 340B program at exceptional risk, if only by politicization of the national conversation on medication affordability alone. That national conversation churns now, as Congress debates drug pricing legislation. Aside from notorious stump speeches about the prices other countries pay for their medications, nowhere in these discussions do we talk about payers (insurers) and the middleman dictating the at-the-counter prices of medications realized by patients. The ongoing political debate is absent of the larger impacts on safety-net programs benefitting from 340B revenue and the impact on the poorest patients among us. Without clear guidance, all patients can come to expect is more squabbling among covered entities, drug manufacturers, hospitals, and regulators. It is this type of environment in which an idealistic program finds itself at risk.

Lawmakers have reasonably argued federal regulators have not demonstrated a particular need for additional regulatory powers because the Health Services and Resources Administration (HRSA) has not adequately flexed their current oversight muscle (…much less that such would be exercised efficiently). Therefore, regulatory interpretation should be updated, specifically regarding the patient definition, and possibly with further defining “low-income” for more clarity on who the program should benefit most. To the extent of “cracking open the legislation”, there is a singular area in which lawmakers from both sides and the Biden Administration agree: the issue of transparency in reporting. Earlier this year, the Biden Administration’s discretionary budget included an ask of Congress to specifically fund greater oversight and administration of 340B, explicitly including requirements on reporting of how non-grantee entities use these dollars. In this space, where few agreements can be made found, this is one area where legislators can and should move swiftly. The data generated by transparent reporting on use of these dollars is invaluable in evaluating the efficacy of 340B in benefitting patients or otherwise meeting the intent of the program.

To the extent HRSA may need more room for rulemaking, legislators desperately need extend rulemaking authority to include allowable uses for 340B dollars and clarity on the intent of the program. Federal grantees already have to report use of these dollars while other covered entities aren’t. With executives reaping in millions of dollars, reasonable people can grow concerned these dollars are being used to prop up the profiteering and personal enrichment administrators may be enjoying at the expense of employees providing care and patients themselves. Employees of federal grantees don’t generally get to enjoy much in the way of raises and their pay is not on par with the private sector. Hardware and software systems lag in terms of keeping up with modern technology. Sustaining non-revenue generating or underfunded patient benefit programs is absolutely something many entities enjoy as a use of their 340B dollars. There is no doubt these dollars can be used to patient benefit beyond directly sharing the savings with patients, though sharing the savings is the most direct means patients benefit from 340B. Putting guardrails on allowable uses of these dollars would serve well everyone touched by the program. Frankly, anyone fighting this transparency as a suggested method of shoring up 340B in meeting its intended purpose has something to hide and deserves closer scrutiny.

As an additional area of critical need to consider, for non-grantee covered entity hospitals, records of charity care and minimum realized values in served communities should be determinative for qualification to participate as a covered entity. The current calculation of disproportionate share hospitals as 340B participants or non-340B participants by the Government Accountability Office has shown a steadier and steeper decline of charity care among 340B hospitals than among non-340B hospitals. Additionally, hospitals carry the highest issuance of medical debt in the United States, disproportionately affecting low-income patients. Part of ensuring low-income patients get the most benefit from the discount drug program was and remains the ability to extend no- and low-cost care, writing off costs of providing that care, without punishing patients for having a need. If hospitals are to receive the benefit of this program, that same benefit should be extended to patients.

Lastly, in addressing the sheer size of the 340B discount drug program, the most significant areas of growth with questionable benefit to patients are among contract pharmacies. HRSA’s recognized this potential in commentary with its 2010 final rule only to realize those cautionary concerns and integrate guidance curbing the use and growth of contract pharmacies in the no-shelved 2015 “mega-guidance”. While the mega-guidance has been shelved, the abuse of the program by contract pharmacies has not abated. Among reducing the number of contract pharmacies a covered entity may make agreements with, and other geographic requirements, lawmakers and regulators should consider establishing market appropriate flat fees associated with services and a database of fees charged by pharmacy benefits managers, contract pharmacies, and third-party administrators, similar to the 340B ceiling price database established under the Office of Pharmacy Affairs Information System. A similarly situated claims hub would also allow for greater clarity in audits, assessment of potential duplicate discounts, and (if appropriately structured and compliant with patient privacy laws) detect potential diversion.

340B is a massive program which, arguably, has not yet been realized by much of the patient population. Not doing anything in this case doesn’t mean “keeping things status quo”, rather it means leaving the program open to attack, inefficiency, ineffectiveness, and abuse.  We can and should do more to ensure patients are aware of the program, how the program is used by covered entities nearest to them, and how this critical support to federally funded health care programs might be impacted by additional health care policy reform efforts. If ensuring the health and well-being of the country is the priority of all players in this system, then its time patients know it.

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

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Jen Laws, President & CEO Jen Laws, President & CEO

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

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

When the 340B Drug Pricing Program was enacted in 1992, there were a few “gaps” between the law’s statutory language and the program’s practical application. Among them was the realization that some covered entities that couldn’t afford to operate their own pharmacy. The Health Resources and Services Administration (HRSA) issued guidance to address the gap. After all, what’s the use of a discount drug program if providers can’t realize those discounts simply because they don’t have a pharmacy?

In 1996, after the urging of some covered entities, HRSA issued guidance telling covered entities and manufacturers that covered entities could contract with a single, independent pharmacy to provide pharmacy services necessary to engage the discount program. The idea was simple: create an access pipeline to the program, so it could be accessed by small providers, but not abused. In 2001, HRSA began to allow a few pilot projects, for lack of a better term, wherein covered entities would have more than one contract pharmacy. In theory, it isn’t a bad idea. Different pharmacies have different distributors, and as such supply can sometimes be an issue (i.e., natural disasters).

Additionally, it allows industrious covered entities to open the door for competition on “value added” services from contract pharmacies – such as programmatic record keeping for the purposes of 340B and/or financial reporting for federal grantees. And since the pharmacy was the one handling the purchasing and distribution of the medications to patients, that’s one less labor task for smaller covered entities to fund. In 2010, HRSA would later expand these pilot project allowance for multiple contract pharmacies per covered entity.

Sounds great, right? More patients have access to discounted outpatient medications, right?

Right? Not exactly!

Under the 340B program, patients don’t always get their share of the savings from the rebates and discounts. Arguably, it would appear everyone is directly benefiting one way or another from the program and its lucrative revenue stream, except for patients.

Contract pharmacies all want their piece of this pie, too. For example, take the dispensing fees that a pharmacy charges to fill a prescription medication. Indeed, dispensing fees for 340B contact pharmacies are so wildly non-standard a Government Accountability Office (GAO) report from 2018 found dispensing fees ranging from $0 to almost $2000 per fill on 340B eligible drugs. Those fees come out of 340B revenue, which could be supporting a patient’s ability to pay copays or the cost of a drug and instead.

Can you imagine, if you will, you’re a person living with HIV or Hepatitis C, living at about 200% of the Federal Poverty Level (FPL; 200% in 2021 is approximately $25,760 per year for a single person), but thankfully receiving insurance coverage for your medical care. Yet, co-pays and deductibles drain your finances when you could be getting your medications at no cost if the pharmacy or covered entity was applying 340B dollars to your bill? How many Rx fills would that be?

If the payer wasn’t applying a co-pay accumulator or co-pay maximizer program, the dispensing fee of two fills could mean extending your ability to access care for an entire coverage year – not just for medications, but for all health care. If the intent behind the 340B program is to extend limited federal resources, ensuring those exorbitant dispensing fees weren’t so exorbitant would certainly be one way to do it. Ultimately, 340B is a pie – when there’s more taken out, hacked at along the payment pipeline of getting medications to patients, there’s fewer resources left for patients to benefit from.

What’s more concerning about the explosive growth in the number of contract pharmacies with their hands in the 340B cookie jar, is HRSA knew when the 2010 guidance was issued that diversion and duplicate discount increases, abuses of the program, would most certainly follow. In part, because the program would grow and at such a pace that HRSA couldn’t keep up. In fact, GAO included that warning in a 2011 report, stating “…increased use of the 340B Program by contract pharmacies and hospitals may result in a greater risk of drug diversion, further heightening concerns about HRSA’s reliance on participants’ self-policing to oversee the program.”

The best part? By the “best”, I mean the worst: contract pharmacies, like non-grantee hospital entities, don’t have to show any benefit to patients for any of the dollars. Clearly, it raises questions over the legislative intent of the program and whether it is being met?

Now, contract pharmacies, like hospitals, like to massage and carefully select data to pitch answers to these concerns (there are a great number of “concerns”) by saying “we served X many 340B eligible patients”. They get around having to say if those patients realized any of those savings and benefitted from the program, without defining what they mean by “eligible”, and without defining “patient”. Contract pharmacies and hospitals get away with not having to provide meaningful information because statutory language doesn’t define “low-income” or “eligible” and regulatory guidance has an outdated definition of “patient”. Regardless of the existing language in regulation, a bona fide relationship should exist in order to call a consumer a “patient”, otherwise this is all just pocketing dollars meant for extending medication access to needy people.

All this lack of transparency fees assessed against the program could easily be solved with merely requiring contract pharmacies to establish a “flat”, reasonable dispensing fee and to describe what those fees actually cover. If the contract pharmacy is providing an additional navigation benefit to patients or an in-house location for a federally qualified health center, reasonable people can see fees being slightly elevated to cover additional costs. However, those costs should be outlined like any other contractor would be expected to do in any other contract for service. Most hospitals already have their own in-house pharmacy, they shouldn’t be contracting that service out and thus giving room for inappropriate 340B related rebate claims. And if HRSA just does not have the capacity to meaningfully audit 340B claims and the use of these dollars, they could at the very least make more room for the other mechanism in the statute for audit: manufacturer-originated audits. That’s right. The statutory language of 340B anticipated HRSA wouldn’t be able to keep up if the program was successful or even particularly abused. So, legislators reasoned if manufacturers were taking a cut of their potential profits through discounts and rebates, manufacturers should be able to audit the claims seeking those discounts and rebates to make sure everything was in line. When a retailer offers a discount to veterans, they typically require proof of veteran status. Why would medication discounts be any different?

In the end, if contract pharmacies don’t have anything to hide, then they need to stop hiding so very much. There are enough hands in the 340B cookie jar that patients are being squeezed out and left with crumbs. When legislators ask “is the intent of the program being met?”, these are the questions on their minds. Patients should have them on their minds as well.

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

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Jen Laws, President & CEO Jen Laws, President & CEO

A Patient’s Guide to 340B: Why the Decline in Charity Care Matters to You

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

A cornerstone argument in favor of the 340B Drug Pricing Program centers on so-called charity care rates of the participating Disproportionate Share Hospitals (DSH). Those covered entities, specifically DSHs, should be able to leverage their 340B dollars to extend care and out-patient medications to offset losses from uncompensated care. In the ideal, offsetting the costs associated with charity care to provide more care to low-income patients is noble and moral and just, and one society should support. The problem occurs when charity care is wrapped up or conflated with all “uncompensated, unreimbursed care” because a significant portion of uncompensated care is written off as bad debt, and that debt all too often gets reported to patients’ credit reports. Whereas charity care is care provided at no cost or debt to the patient. Moving forward, we must not confuse, conflate, or combine generalized uncompensated care with charity care.

The argument from the American Hospital Association is narrowly focused to present the rosiest picture, touting the totality of charity care provided by 340B DSH covered entities ($64 billion in of 2017, the latest available data as of the AHA’s statement). It ignores 340B participating hospitals have seen a steady decline in both charity care and uncompensated care, according to the Government Accountability Office’s 2018 report. The AHA’s own data reveals the same thing, despite exponential growth of the 340B program, largely attributed to hospitals and contract pharmacies. Unlike Federally Qualified Health Centers (FQHCs, a type of federal grantee entity in the 340B program), which are required provide care “regardless of ability to pay”, hospital systems, in large part, have a much more extensive debt collection program; they are not necessarily beholden to rules regarding debt collection practices. FQHCs, as an example, may be required to seek debt payments from internal billing specialists, but don’t generally have contracts to sell the bad debt to collections companies or report to credit bureaus. Furthermore, they are prohibited from doing so in certain circumstances.

While the Affordable Care Act (ACA) prohibited certain types of hospital-originated debt from being reported to credit bureaus, it doesn’t stop the hospital from selling the debt and then the collection company reporting the debt. Indeed, hospitals are notorious for reporting medical debt and sending bills to collections. If 340B dollars are meant to offset some of these expenses, with program growing about 23% per year, why does the Census Bureau report that about 20% of Americans are under some form of medical debt? Why has that medical debt grown from $81 billion in 2016 to $140 billion in 2019?

The ACA required non-profit hospitals to offer charity care programs, and the vast majority of hospitals across the country are non-profit hospitals. Adding insult to injury, that tax designation and the requirement to offer charity care hasn’t stopped these “non-profit” hospitals from chasing after low-income patients and further impoverishing them. A recent Kaiser Health News “An Arm and a Leg” podcast dove into just one state’s effort to tackle an epidemic of “non-profit” hospitals suing patients as a result of medical debt. The effort found a massive coalition of 60 entities, including a nurses’ union, and startling data supporting the need for Maryland’s now-passed “Medical debt Protection Act.”

Data included notation of almost 150,000 lawsuits against patients over the last 10 years, making almost $60 million from patients who would otherwise automatically qualify for charity care, and hospitals negotiating with for state funds to support charity care taking in $119 million than they actually gave out in charity care. And that’s just in one state. Indeed, according to information behind this report, Johns Hopkins – a 340B hospital – alone raked in $36 million more from this state-funded charity care support than they spent. While Maryland already had certain patient protections from these predatory practices on the books, too few patients knew about those protections and the state awarded these dollars without ever investigating the existing status of bad debt to charity care ratios. All the paper in the world written into the law is meaningless if affected people and corporations are not made to be transparent and held accountable.

Access to care, and freedom to access care, are two different things. Access to care being an open door, and freedom to access care is the freedom to walk through that door without fearing a dire financial consequence. While some special interests may argue the program is critical to hospitals extending access to care, their rhetoric lacks practical application when patients don’t have the freedom to access that care without fear of acquiring life-altering debt. The fear of medical debt keeps people away from seeking care. In fact, one of the most immediate and meaningful ways to tackle the country’s medical debt crisis would be for 340B covered entities to share the savings with patients. A patient’s medical debt reported to their personal credit file can, and does, perpetuate cycles of poverty; it is harming patients’ wealth, health, and overall well-being. If 340B dollars are supposed to be aimed at ensuring access to care, then concerns over medical financial toxicity shouldn’t be discounted.

Hospitals, in large part, though not universally, have seen a significant decrease in uncompensated care due to the ACA’s expansion of Medicaid. With more patients qualifying for Medicaid, meaning an ability for providers to be reimbursed where none previously existed, hospitals should be able to shift their uncompensated care burden from bad debt to patient financial assistance and charity care programs.

On the other end of decreases in charity care provided by 340B hospitals, are truly magnificent non-profit hospital chief executive officer compensation.  In a 2019 hearing, CEOs admitted to having salaries in the millions of dollars per year range – that’s before bonuses. They also admitted to holding more money in reserves than they generally need in order to operate safely or not run the risk of running out of funding. Other instances of concern from this hearing include a hospital group using their 340B dollars to acquire a stand-alone oncology center. Typically, when these types of purchases are made, patients experience an increase in costs of care and sometimes experience a reduction in ability to access care due to an increase in patient load without subsequent staffing support or their provider’s office is physically moved as part of the consolidation effort, reducing a patient’s ability to physically get to and from office visits.

In addressing potential reforms that would benefit patient experiences, increase the sense of freedom patients feel to access care, and improve program efficacy, policy and law makers should both distinguish between generalized uncompensated care and charity care in annual financial reporting and 340B related audits and require a threshold of charity care for hospitals seeking to qualify for the 340B program. If hospitals are dissatisfied with their Medicare or Medicaid reimbursement rates and what that means for boosting their bottom line, they would do well to send their lobbyists after reimbursement dollars rather than disingenuously justifying their pilfer effort to rob 340B of its noble cause. Either way, it’s time these entities see requirements tied to their dollars, including rules around charging off debt against low-income patients.

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

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Jen Laws, President & CEO Jen Laws, President & CEO

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

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

The word accountable is defined as “being required or expect to justify actions or decisions.” Accountability is often broadly discussed on a variety of levels about governmental and social issues, and the 340B Drug Pricing Program is certainly no exception. The 340B program exists to address the health care needs of a segment of society – social needs. As such, program accountability is of paramount importance since patient health depends on it.

Accountability in use of 340B dollars follows the benchmarks of transparency in reporting: federal grantees are required by contract to demonstrate patient benefit in use of program dollars and non-grantee covered entities are held to no such standard. Without fiscal transparency, non-grantee entities cannot be held accountable for their use of these revenues. The Health Resources Services Administration (HRSA) largely selects covered entities for audit based on a selection of “risk” characteristics. While some criticism of manufacturers is warranted in terms of accountability, manufacturers have only one statutory requirement. That requirement is to provide discounts or rebates on qualifying medications to covered entities. HRSA selects manufacturers for audit based on complaints from covered entities. Areas of complaint about manufacturers typically consist of overcharging a covered entity, not making a particular medication available, or not being transparent about the “ceiling price” of a drug.

To be fair, the statutory accountability requirements of 340B program are…limited and…vague. However, according to a 2020 report by the Government Accountability Office (GAO-20-108), the Health Resources and Services Administration (HRSA) severely lacks meaningful oversight, uniform assessment and request standards, and, as with many other reports, finds HRSA’s administration of the program to be largely inadequate.

As an example, GAO identified HRSA audits from 2017 and 2018 reviewed less than 10% of all non-governmental hospitals enrolled in the program. HRSA primarily relies upon hospitals to self-attest their eligibility. Of the selected hospitals participating in the GAO review, 18 submitted documents that would constitute a government contract – any description of a community program – and when HRSA found these instances, allowed the hospitals to avoid getting in trouble by acquiring contracts with retroactive applicability. All of that meaning, these hospitals in question did not experience any reprimand for failing to provide programming to low-income people but they got to enjoy the perks of unaccountable 340B dollars until they got caught. At the rate HRSA reviews these entities, it’s possible for a non-compliant or otherwise non-qualifying entity could go an entire decade soaking up dollars meant for patients in needs.

While HRSA’s annual 340B audits are primarily targeted toward covered entities, drug manufacturers are also audited to ensure they’re not charging covered entities more than they should be for 340B medications, to ensure drug manufacturers are not discriminating against covered entities, and make sure drug manufacturers are making sure their products are made available in compliance with the 340B program. Manufacturers represent about ten percent of annual audits, while covered entities represent about 90 percent and there are about 900 drug manufacturers participating in the program (dramatically less than covered entities). To be fair, GAO concluded HRSA also needed to provide clearer guidance to drug manufacturers regarding what qualifies as an acceptable distribution restriction due to anticipated or actual supply shortages and to provide specific guidance as to what constitutes “discrimination” of covered entity participants.

This issue of defining discrimination is developing and playing out in “real-time”. In May of 2021, HRSA announced notification letters sent to 6 manufacturers regarding their new policies requiring additional reporting from covered entities with contract pharmacies (as opposed to in-house pharmacies). HRSA’s interpretation of statutory language (“…shall…each covered entity…”) as non-discretionary on the part of manufacturers. In essence, if an entity is registered with HRSA for the program, a manufacturer is required by law to offer medications at ceiling price or below to that entity, regardless of any potential for a covered entity to use program dollars outside of the intent of the program. While skepticism of non-grantee use of these dollars may be warranted due to lack of transparency in use of these dollars, diversion, or duplicate discount concerns, given that federal grantees are already required to report use of these dollars to their federal funders, a more narrowly tailored policy directed exclusively at non-grantee covered entities would be more appropriate to address the interest needs of manufacturers, the public, and program stability. However, given HRSA’s interpretation of the statutory language, even such a proposal might run the risk of rubbing regulators wrong. At the time of this writing, at least one of the manufacturers has sued the Department of Health and Human Services to prevent any monetary penalties related to these letters from being imposed. A judge has dismissed the government’s opposition to the suit in June of 2021. And on September 22, 2021 HRSA issued letters to the manufacturers in question, stating the issue had been referred to the Office of the Inspector General.

Lack of transparency means less accountability. Patients are better served when 340B-related dollars remain within the same geographic area they were generated by the covered entities. After all, if serving low-income patients means serving community and getting usable revenue required to be used on low-income patients, those dollars should be put back into the same community in which they were generated, right? But covered entities with large networks and multiple covered entity sites aren’t required to show those revenues are reinvested in the same area they were generated. For instance, monies made off the health and illness of an Atlanta community should not be spent to buy up profit generating imaging machines in a well-to-do suburban area outside of Los Angeles. But, without both transparency and accountability, 340B dollars can easily become a slush fund of revenues for any industrious non-grantee covered entity.

Indeed, many large contract pharmacies offer software programs to covered entities as a measure of their own “transparency” with internal reporting but the real goal is to show the covered entities “here’s how you can make more 340B dollars” – but at a cost of providing the service and without uniform assessment metrics. That means the contract pharmacy can tilt the experience of a patient by applying pressure to the covered entities very subtly through software programs telling the provider, “You can make more money off this patient by prescribing…”. Advocates have very good reason to be suspicious of contract pharmacies associated with (or even owning) pharmacy benefit managers who, then, can very easily provide programming that targets their profits over ensuring rebate dollars make it back to a patient.

Statutory clarification could greatly benefit the intended purpose of the 340B program – ensuring low-income patients get the care they need by taking a few, simple steps, specifying reporting requirements that mirror existing transparency and accountability found among grantees. Additional oversight is needed in numerous areas, all designed to further benefit patient access to care and medications. Among them, non-grantee entities should be required to report how 340B dollars are being used, by which payer source a claim is generated, how much charity care a non-grantee entity provides, and how much revenue is generated from pharmacy sales (and how much is generated from 340B sales). Patients might not understand the nuances behind the program complexities, but they do understand when they cannot access the care they need and deserve. If the purpose of the 340B program is to expand access to care and medications, then why not go that extra mile?

Congress could go a great deal further to ensure these billions of dollars serve patients, rather than the interests of shareholders in private hospital systems or propping-up senior management compensation packages, or other non-medically-related expenses. Congress could also opt to provide for additional minimum requirements in order to qualify as a covered entity – especially with regard to private hospitals providing a certain percentage of charity care.  

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

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Jen Laws, President & CEO Jen Laws, President & CEO

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

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

All public-private partnerships require transparency to instill confidence in program function, private business operations, and government accountability. Transparency is an essential part of the equation; it brings us more accountability and more effective programs. It helps to identify areas of improvement in operations or enforcement, as well as limiting waste, fraud, and abuse. The 340B Drug Discount Program is no exception because transparency ensures investments into patient access to medications for critically vulnerable populations are reaching patients. Transparency – in every programmatic aspect – serves the public interest and is, frankly, just good government. It builds confidence in the efficacy of the program and good will of the participating entities.

In general, under the 340B program, those entities receiving federal grant funding – known as “federal grantees” – under other programs (i.e., federally qualified health centers, Ryan White HIV/AIDS clinics, hemophilia centers, and others) receive a great deal over oversight on how they use their discounts and rebates from 340B, though that oversight comes as part of their fiscal reporting under those other programs. For non-grantee covered entities, oversight is primarily dependent on audits and self-attestation of compliance and corrections to issues. With non-grantee covered entities lacking dedicated oversight like federal grantees, there’s a lack of transparency in how those entities qualify under the program and how those entities are using 340B-generated revenues to benefit low-income patients.

Regardless of program, dollars meant to serve low-income patients are often scarce. As such, patients lose when the investments needed to support and expand services for vulnerable populations are directed elsewhere (outside of the community those dollars originated from or for-profit building purposes). Patients lose out on funding support that keeps programs stable, ensures access to critical health programs nearest to them, and ultimately threatens to destabilize a program relied upon by the federal government and community stakeholders to keep clinic and hospital doors open.

At the inception of the 340B program, legislation such as the Patient Protection and Affordable Care Act did not exist, and only 29 million people nationwide were enrolled in Medicaid. Fast forward to 2018, Medicaid rolls had grown to 72 million people – meaning in all but the hold-out “non-expansion states” nearly any hospital in the country might qualify as a “disproportionate share hospital” – a situation 340B never considered at inception. The development and growth of the program was analyzed in a 2018 report issued by the U.S. House of Representatives’ Committee on Energy & Commerce.

According to a Government Accountability Office report (GAO-21-107) about 80% of current covered entities are federal grantees and 20% of covered entities are hospitals. However, many of these entities, especially hospitals operate multiple sites – not all entities are created equal in terms of generating program revenue. Of the approximate 37,500 covered entity sites participating in the program, about 75% of those sites are hospital affiliated with hospitals, not federal grantees. Hospitals are able to qualify specifically because of the low threshold of “disproportionate share” of low-income patients who can now afford to seek care thanks to Medicaid expansion – even if the hospital entity is generally well off enough to not actually need those dollars in order to provide care. In order to better understand how these changes have impacted growth and qualification of the program, “disproportionate share” may not be the best formula to ensure 340B dollars are helping those who need it most. Particularly, given the decreasing share of charity care certain hospital entities have offered over the years, evaluating charity care percentages and qualifying patients by income and payer type (self-pay, Medicaid, private insurance, etc.) may be more accurate in ensuring entities are actually serving low-income communities.

To be clear, “charity care” is a specific type of “uncompensated care” – or when patients receive care but can’t pay their bills. Unlike other types of uncompensated care, whereby providers may send a patient’s bill to a collections company, charity care releases the patient from a portion or all of their financial responsibility. Typically, charity care is limited to those who have to choose between putting food on their table and seeking preventative care like mammograms or having to decide in what life-saving neonatal care a family might need. Given the intersection of race and poverty in this country, charity care is a critical, even if anecdotal measure of how much a hospital is invested in their local community and combating community health disparities like pregnancy-related mortality.

The 340B program’s statutory language is largely silent on how these revenues dollars may be spent and because of that, there’s little to ensure these dollars are actually going to benefit patients instead of hospital networks or pad executive pay. Patient advocates have long crowed about the need for non-grantee covered entities to meet the same transparency requirements federal grantees are required to meet. Indeed, one of the biggest challenges facing the 340B program is better understanding how these dollars are spent. Now, typically, where statute is vague, government agencies tasked with managing programs have the regulatory power to make rules and the man power to enforce them. That’s just not the case with 340B and the Health Resources and Services Administration (HRSA) has repeatedly stated a lack of surety in its ability to regulate beyond guidance and frequently cited an inability to expand auditing capacity due to lack of funding. So much so that President Biden included $17 million in his budget request to strengthen and expand oversight of the program specifically in terms of auditing how 340B revenues are generated and spent among on-grantee covered entities.

Given the program’s growth, there’s reason and need to further clarify the intent of the program, cemented into unambiguous statutory language to reflect the country’s health care landscape of today and ensure the revenues generated are actually helping patients and not padding executive pockets. In our next blog, we’ll discuss the accountability processes currently in play for covered entities and manufacturers and the glaring holes in that part of the oversight “net”.

For more information on the issues facing the 340B Program, you can access the Community Access National Network’s 340B Commission final report and reform recommendations here 2018 report.

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Jen Laws, President & CEO Jen Laws, President & CEO

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.

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