A new study released by Xcenda, “340B and Health Equity: A Missed Opportunity in Medically Underserved Areas,” provides further evidence of how the 340B safety-net program is being exploited.  The November 2021 report shows how the program is not being used as intended to help low income and vulnerable individuals get access to low-cost prescription drugs.  Instead, it is boosting hospitals’ coffers and their contract pharmacies’ profits that are largely located in areas that do not serve low-income people.

Citizens Against Government Waste (CAGW) has been concerned about the misuse of the 340B drug discount program since 2014 when we wrote, “ The Federal 340B Discount Drug Program Needs Reform.”  The 2014 blog gave an overview of the program and discusses how the “program requires drug manufacturers that participate in Medicaid to provide heavily discounted outpatient drugs (typically between 20 to 50 percent) to certain health facilities, known as ‘covered entities,’ which provide general health services as well as treatment for specific diseases to uninsured, low-income people who could not qualify for Medicaid or Medicare.  In theory, the entity, or pharmacy it contracts with, is supposed to sell the heavily discounted drugs and pass along the savings to their low-income patients but because of vague language in the statute and regulations, and lack of Congressional oversight, this is not always occurring.”

Unfortunately, the misapplication has gotten worse and is costing a great deal more.  In 2014, 340B discounted prices were at $9 billion but by 2020, it had reached $38 billion, an increase of 27 percent from 2019 and a 322 percent increase from 2014. 

According to the Health Resources & Services Administration (HRSA), which oversees the 340B program, there are 16 types of statutorily-created covered entities, or safety-net providers, that can participate in the 340B drug discount program.  The program “enables covered entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”  Disproportionate Share Hospitals (DSH) are categorized as such based on a formula for the number of Medicaid and low-income Medicare inpatients, and uncompensated care they provide.  They account for about 80 percent of 340B sales. 

Xcenda looked at the locations of DSHs, including “child sites” and their contract pharmacies to determine how many were in medically underserved areas (MUAs).  Child sites are outpatient clinics affiliated with a DSH and the pharmacies are under contract with a DSH to dispense 340B discounted medicines for their patients.  In 1994, when HRSA’s guidance on child sites was first in place, there were 25 registered locations.  Now there are 21,841 child sites affiliated with DSHs, and “Hospitals profit more by obtaining 340B discounts for patients at these child sites, which then creates an incentive to prescribe more medicines and more expensive medicines.”

An average profit margin of 72 percent is being made on 340B medicines dispensed through their contract pharmacies.  In 2010, there were only 1,300 contract pharmacies; now there are nearly 30,000.  When a patient who is not indigent and has insurance or Medicare, the hospital and contract pharmacy get to keep the difference between the price-controlled 340B drug, and the amount paid by insurance.  If a patient is on Medicaid, the law prohibits manufacturers from giving duplicate discounts.  All 340B entities must have a procedure to prevent this from happening, although duplicate discounts do occur.

The study’s analysis of where DSHs, their child sites, and contract pharmacies are located is disturbing.  Xcenda found that only 38 percent of DSHs, 29 percent of child sites, and 26 percent of contract pharmacies are in MUAs.  They reported, “Despite the stated DSH purpose of ‘serving a significantly disproportionate number of low-income patients,’ less than 4 in 10 DSHs are in MUAs.  Additionally, 340B child sites are less likely to be in an MUA compared to DSHs.”  This finding is consistent with an October 2014 study, “The 340B Drug Discount Program: Hospitals Generate Profits by Expanding to Reach More Affluent Communities.”  Xcenda wrote that the 2014 study showed, “child sites are often in wealthier areas than DSHs.  Even fewer contract pharmacy locations are in MUAs, which is not surprising since these pharmacies are typically for-profit chain pharmacies.”  Therefore, 340B DSHs are not developing relationships with clinics or pharmacies in MUAs, the areas where most low-income and vulnerable people are located who could use the 340B program to improve their health.

The report points out that their analysis also mirrors a 2018 New England Journal of Medicine study that “found compelling evidence that financial gains for hospitals were not associated with expanded care or lower mortality among low-income patients.  In fact, the analysis suggested hospitals use the 340B program for financial gain and act contrary to the goals of the program to serve low-income patients.”

Xcenda’s report asks, “if the 340B program was designed to support covered entities serving low-income and vulnerable patients, why are so few 340B hospitals located in the most medically underserved communities?”  It calls for Congress and HRSA to “consider revisiting the eligibility standards for the 340B program to ensure these standards permit only true safety-net facilities to be eligible for 340B discounts and to prevent the 340B program from being used solely as a profit center for hospitals and pharmacies that do not serve low-income and underserved patients in the communities where they live.” 

The need for changes in the 340B program has been cited by Congress, although nothing has been done.  A 2018 House Energy and Commerce Committee report, “Review of the 340B Drug Pricing Program,” lays out many of the weaknesses with the 340B program and provides a good template to implement reforms, like clearly identifying the intent of the program and its parameters.

CAGW has long called for is a clear definition of a 340B patient: an uninsured, low-income individual that does not qualify for Medicare or Medicaid.  Adopting that proposal among others would go a long way in making the program operate in the way it was designed to do.