What’s the deal with 340B?

History
In 1990, to help ease Medicaid spending on outpatient prescription drugs, Congress created the Medicaid Drug Rebate Program. This ensured that the state-government-run health plans would “receive discounts similar to those provided to private purchasers” (Peters, 2009). Though complicated in the details, the basic idea of this rebate program is that “in order for pharmaceutical manufacturers to obtain Medicaid coverage for their prescription drugs, they must sign a rebate agreement with the Secretary of Health and Human Service (HHS) to provide rebates for those drugs when purchased by Medicaid” (Peters, 2009).
In 2014, 65.1 million people were insured by Medicaid, and the government program spent approximately $42 billion on prescription drugs. With that much money flying around, it’s not surprising that nearly 550 drug manufacturers are participating in the rebate program, given that it is a prerequisite to have their drug covered by Medicaid. After the $42 billion has been spent, the MDRP ensured the government received $20 billion in rebates, bringing the total net cost for Medicaid outpatient prescription drugs to $22 billion (Statista).

This program was such a success, that “in 1992, Congress extended to safety-net providers the same kind of relief from high drug costs” that it provided to Medicaid with the rebate program (340BHealth.org). Section 340B of the Public Health Service Act became law, and required pharmaceutical manufacturers to enter a pharmaceutical pricing agreement (PPA), with the HHS secretary. “Under the PPA, the manufacturer agrees to provide front-end discounts on covered outpatient drugs purchased by specified providers, called ‘covered entities’, that serve the nation’s most vulnerable patient populations” (340BHealth.org). Now these “covered entities” could receive the same rebates as the government insurance program. (For more information: what is a “covered entity”?).
Why is 340B Important?
Covered entities are healthcare systems that serve underserved and impoverished patients, patients who sometimes must choose between paying for food or paying for heat, who would seriously consider not paying for a prescribed medication if it were too expensive. On March 18th, 2017, Shane Patrick Boyle died from complications of Type I Diabetes Mellitus. He had raised $700 on a crowdfunding site, and still was unable to afford a month’s supply of insulin (Higgs, 2017). While this case is complicated by crossing state lines and unclear out-of-state coverage rules, the point remains: outpatient pharmaceuticals can be very expensive. And there are people who choose between going hungry and filling their prescriptions. “In 2015, the Government Accountability Office reported that program participants can save an estimated 20–50% off drug costs” (340BHealth.org). In other words, 340B helps to ensure that the neediest among us have the best chance at living a healthy life.
Why is President Trump “Attacking” 340B?
Currently, covered entities are reimbursed more than the discounts they provide. For example, if a hospital system prescribes $100 (market-value) of medications for which its patient’s pay $50, the hospital is actually reimbursed $55. The agreement is that they spend the $5 net on programs and services to help disadvantaged persons become healthier. Many safety-net hospitals also use these savings to help provide uncompensated care (Masterson, Feb. 2018), which has been increasing over the years (Masterson, Jan. 2018).
President Trump’s Council of Economic Advisors, however, does not believe that these profits are being used as they are intended. According to a 2017 report from the House Committee on Energy and Commerce, “Covered entities are not required to use program savings in any specific way, which has led to concerns about whether the money is truly devoted to improving patient care” (emphasis added) (“Review of the 340B Drug Pricing Program, 2017, pg. 75). Further, a 2018 piece published in the New England Journal of Medicine found that “the 340B Program has been associated with hospital-physician consolidation…Financial gains for hospitals have not been associated with clear evidence of expanded care or lower mortality among low-income patients” (Desai and McWilliams, 2018). (Note: The methodologies and conclusions of this article have been questioned, please read this response from the American Hospital Associate)
In summary, the concern is that hospital systems are using this money to improve their profitability and not to improve patient care.
My Thoughts on the Future of 340B
This is an incredibly valuable program, and oftentimes is the only thing between poor people and uncontrolled disease and death. There is no way for a safety-net hospital system to provide the care they do without 340B.
The main points for reform seem to be:
- This program grew exponentially, to now include about 40% of US hospitals (Tribble, 2017).
- The program has grown beyond its original intent because hospitals have “pocketed the discounts to pad profits- not to help indigent patients” (Tribble, 2017).
These points are being made by pharmaceutical lobbyists, who represent those whose net revenues are limited by 340B.
The main points for maintenance of the status quo seem to be:
- For small healthcare systems, 340B is the difference between staying open and closing down.
- For some patients, 340B is the difference between life and death.
And these points are being made by hospital lobbyists and patient advocates, who see 340B as a lifeline for both healthcare systems and the patients they serve.
If we are going to commodify healthcare, then we force hospitals to become businesses, focused on their bottom-line. It is inescapable. It is not great that hospital administrators are pocketing the rebate-bonuses to maintain operations and improve their institutions. But if these safety-net hospitals fall into disrepair, or worse, become inviable and unable to compete with other healthcare systems, then the impoverished this program was meant to serve will severely suffer very quickly.
Oversight is good, if it can be performed efficiently and effectively. However, with 35,000 healthcare facilities enrolled in the program as of 2016 (serving over 10 million people throughout the country) (“States and the 340B Drug Pricing Program”, 2017), an immense amount of bureaucracy will be needed to monitor it. Inspectors, support staff, facilities, equipment, transportation- these costs will add up. Will the regulatory costs be covered by recuperating the revenue misappropriated by rogue hospital administrators? Maybe. But maybe not.

By all means, increase oversight, and do everything you can to ensure that this money is being used properly. But remember, Pfizer gave $7.7 billion in dividends in 2017 (“Pfizer Reports Fourth-Quarter and Full-Year 2017 Results”), paid its CEO $27.9 million (Melin and Hopkins, 2018), and spent $3.1 billion on advertising (“Pfizer Ad Spending 2008–2017”), all while receiving a 6% decrease on their effective income tax rate (“Pfizer Reports Fourth-Quarter and Full-Year 2017 Results: Provides 2018 Financial Guidance”). So safety-net hospitals aren’t the only ones pocketing funds.
No one can argue that the US healthcare system is efficient, and few would argue that is anywhere close. But decreasing the scope of 340B is not a solution.
Limiting 340B won’t solve the outrageous healthcare expenses many Americans face. Cutting the program is simply a means to increase revenue for pharmaceutical companies, and will only serve to further decrease the accessibility of healthcare for millions of American patients.
Conclusion
340B is a life-saving and system-saving program that has grown quickly because it is trying to provide affordable healthcare, which our country desperately needs. If it has outgrown it’s regulations and oversight, then let’s change that.
Oversight can be good: it can encourage efficiency in a system that is too complex to run on its own. But if they recommend limiting rebates for the sake of increased pharmaceutical profits, that’s no longer oversight. That’s corporate extortion. Big pharma is doing fine without us closing down hospitals and forcing patients to choose meds over meals.
References
- Desai, Sunita, and J. Michael McWilliams. “Consequences of the 340B Drug Pricing Program.” New England Journal of Medicine, Oxford University Press, 24 Jan. 2018, www.nejm.org/doi/full/10.1056/NEJMsa1706475
- Higgs, Micaela Marini. “The High Price of Insulin Is Literally Killin People.” Tonic, Vice, 5 Apr. 2017, tonic.vice.com/en_us/article/ezwwze/the-high-price-of-insulin-is-literally-killing-people
- Masterson, Les. “More Oversight for 340B Needed, White House Council Says.” Healthcare Dive, 12 Feb. 2018, www.healthcaredive.com/news/more-oversight-for-340b-needed-white-house-council-says/516839/
- Masterson, Les. “Uncompensated Care INcreased for Community Hospitals in 2016.” Healthcare Dive, 8 Jan. 2018, www.healthcaredive.com/news/uncompensated-care-increased-for-community-hospitals-in-2016/514264/
- “Medicaid Enrollment Total U.S. 1966–2017.” Statista, www.statista.com/statistics/245347/total-medicaid-enrollment-since-1966/
- Melin, Anders, and Jared S Hopkins. “Pfizer Lifts CEO’s Pay 61% to $27.9 Million with Retention Bonus.” Bloomberg.com, Bloomber, 15 Mar. 2018, www.bloomberg.com/news/articles/2018-03-15/pfizer-lifts-ceo-s-pay-61-to-27-9-million-with-retention-bonus
- “Overview of the 340B Drug Pricing Program.” 340BHealth.org, 340B Health, 2018. www.340bhealth.org/340b-resources/340b-program/overview/
- Peters, Christie Provost. “The Basics: The Medicaid Drug Rebate Program.” National Health Policy Forum, www.nhpf.org/library/the-basics/Basics_MedicaidDrugRebate_04-13-09.pdf
- “Pfizer Ad Spending 2008–2017.” Statista, www.statista.com/statistics/254404/us-ad-spending-of-pfizer/
- Pfizer Reports Fourth-Quarter and Full-Year 2017 Results.” Pfizer Inc. — Financials — Annual Reports, investors.pfizer.com/investor-news/press-release-details/2018/PFIZER-REPORTS-FOURTH-QUARTER-AND-FULL-YEAR-2017-RESULTS/default.aspx
- “Pfizer Reports Fourth-Quarter and Full-Year 2017 Results: Provides 2018 Financial Guidance.” Business Wire, Berkshire Hathaway, 2018. www.businesswire.com/news/home/20180130005389/en/PFIZER-REPORTS-FOURTH-QUARTER-FULL-YEAR-2017-RESULTS
- “Review of the 340B Drug Pricing Program.” Committee on Energy and Commerce, U.S. House of Representatives, 2017, energycommerce.house.gov/wp-content/uploads/2018/01/20180110Review_of_the_340B_Drug_Pricing_Program.pdf
- “States and the 340B Drug Pricing Program.” National Conference of State Legislators, 13 Nov. 2017. http://www.ncsl.org/research/health/340b-drug-pricing-program-and-states.aspx
- Tribble, Sarah Jane. “Federal Drug Discount Program Grows Too Big and Courts Political Fight.” USA Today, Gannett Satellite Information Network, 27 Nov. 2017, www.usatoday.com/story/news/politics/2017/11/22/federal-drug-discount-program-grows-too-big-and-courts-political-fight/885781001/