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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