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Did you know there is a federal program that provides medicines at a steep discount to some hospitals and clinics? Created in 1992 as part of the Veterans Health Care Act, the 340B drug pricing program requires drug companies to provide discounts—sometimes as much as 50%—to covered entities, hospitals, and clinics that treat low-income and uninsured patients.

Covered entities also include federally qualified health centers and look-alikes, consolidated health centers, freestanding cancer centers, and more. In addition to paying less for the drugs, the covered entities are also permitted to generate profits from the sale of prescription medications to insured patients in order to subsidize required medications for underinsured patients. Under the 340B program, participating drug manufacturers sign an agreement with the Department of Health and Human Services (HHS) stipulating that they will charge covered entities at or below a maximum price, known as the ceiling price.
 
Pharmacy Services
Typically, pharmacy services provided by a 340B-covered entity may be provided through either an in-house pharmacy or a contract with an outside pharmacy, including a community pharmacy. The thinking is that a community pharmacy might provide real value to a patient and also add an income stream to its existing business model.1That is not necessarily so according to a white paper2

“The 340B law’s legislative history makes clear that the intent of the 340B program is to help uninsured indigent patients by giving covered entities that serve high numbers of uninsured indigent patients access to discounts for drugs. Today, however, it is unclear whether this goal is being met even as the program continues to grow dramatically. Evidence suggests that the program has departed significantly from its statutory foundation.”

Medical centers, hospitals, and other covered entities have begun to use the program to boost profits rather than help low-income and uninsured patients. Over the past few years, there have been calls for greater oversight of the program due to complaints that some hospitals are receiving discounted drug benefits disproportional to the small number of low-income patients they serve.

“Hospitals participating in the 340B program aren't required to pass the discount along to patients or insurers and can subsequently turn a profit by charging the full price for medications the hospital bought at a discount,” according to an article published by Becker’s Hospital CFO.1

The study discussed in the article was conducted by Rena Conti, PhD, an assistant professor of health policy and economics in the University of Chicago Departments of Pediatrics and Health Studies, and Peter Bach, MD, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center. They analyzed data from 960 hospitals and 3964 affiliated clinics registered for the 340B program in 2012, along with socioeconomic information on the communities those hospitals and clinics served from the US Census Bureau's American Community Survey.

“Our findings support the criticism that the 340B program is being converted from one that serves vulnerable patient populations to one that enriches hospitals and their affiliated clinics,” they write in the study.1
 
More Questions
The Health Resource and Service Administration’s (HRSA) 2010 guidance, which allowed hospitals to use an unlimited number of neighborhood pharmacies to fill 340B prescriptions, was premised on the expectation that entities contracting with multiple pharmacies would not increase the risk of 2 illegal activities: (1) diversion of 340B medicines to persons who are not eligible to receive them, and (2) permitting manufacturers to be charged duplicate Medicaid and 340B discounts for the same drug. HRSA further assumed that entities contracting with multiple pharmacies would adhere to certain program integrity standards. Independent reports by the Government Accounting Office and the HHS Office of Inspector General call into question whether these expectations are being met.3One issue is that the program allows hospitals to use the discounted drugs to treat not only poor patients but also those covered by Medicare or private insurance.

The Berkeley Research Group conducted an analysis of the 2014 contract pharmacy network of 10 hospitals in 10 different cities that participate in 340B, based on their disproportionate share hospital percentage and their having 50 or more contract pharmacies. The location of each contract pharmacy was classified by the median income of the zip code tabulation area in which the pharmacy was located. Among these 10 hospitals’ contract pharmacy networks, 1050 pharmacies were identified. The analysis found there are many more contract pharmacies in areas with median incomes above 400% of the poverty level than at or below 200% of the poverty level. Of the 1050 contract pharmacies, only 16% were located in areas with a median income at or below 200% of the poverty level for a family of 3.3
 
Contract Pharmacies
The irony of the contract pharmacy program is that it is supposed to make it more convenient for patients of covered entities to access 340B drugs, but that does not mean that pharmacies provide such patients with discounts on drugs purchased under the 340B program. Insured patients of covered entities do not benefit from 340B prices when their prescriptions are filled by contract pharmacies—health plans pay pharmacies the rate established by agreement between the plan or its pharmacy benefit manager and the pharmacy. And although uninsured patients often receive free or discounted drugs from covered entities’ in-house pharmacies, retail pharmacies typically charge cash payers a higher rate than their insured customers. Consequently, the most vulnerable patients of covered entities may pay more when they take their prescriptions to their community pharmacies.4

It may be that passing 340B savings to uninsured patients can create operational challenges for contract pharmacies; these pharmacies are also commercial ventures and may have little business reason to adjust their operations to identify 340B prescriptions before the drugs are dispensed. Pharmacies often participate in this program only to the extent that the administrative fee or share of the resale price for 340B drugs (deducted from the amount remitted to the covered entity) is more profitable than the sale of their own stock. For example, contract pharmacy arrangements sometimes omit prescriptions of generic drugs because the retail margin over cost is greater than brand drugs. As a result, the parties to contract pharmacy arrangements may profit more on the resale of 340B drugs to an uninsured patient—who is charged a higher cash rate—than they would on the resale to a patient covered by insurance, which pays the pharmacy a lower negotiated rate.4

So often, a program is created that seems to be doing the right thing for the right people. And yet, so often, we find that although the intent was a good one, the implementation enables chicanery or more. The 340B program is a prime example.

As we go to press, the Medicare Payment Advisory Commission (MedPac) has been proposing changes to Congress that will include pay rates for hospitals and clearly defining which patients are eligible for 340B drugs.
 

A corporate and magazine scribe, Nan Myers writes frequently about health care. 

References
  1. Adamopoulos H. Are hospitals abusing the 340B drug discount program? new study reignites controversy. Becker’s Hospital CFO website. beckershospitalreview.com/finance/are-hospitals-abusing-the-340b-drug-discount-program-new-study-reignites-controversy.html. Published October 7, 2014. Accessed May 19, 2016.
  2. The 340B Discount Program.  ncpanet.org/pdf/leg/feb13/340b_white_paper.pdf. Published winter 2013. Accessed May 19, 2016.
  3. The impact of growth in 340B contract pharmacy arrangements. The Alliance for Integrity and Reform of 340B (AIR 340B) website. 340breform.org/userfiles/FINAL.The%20Impact%20of%20Growth%20in%20340B%20Contract%20Pharmacy%20Arrangements.%20AIR%20340B.%20July%2014,%202014.pdf. Published Summer 2014. Accessed May 19, 2016.
  4. Yesner DL. HHS OIG reports findings on 340B contract pharmacy program. Morgan Lewis website. morganlewis.com/pubs/lifesci_lf_hhsoigreportsfindingsof340bcontractpharmprgm_18feb14#sthash.WtlmaO1Q.0gCsgP2Q.dpuf. Published February 18, 2014. Accessed May 19, 2016.