The once little-known 340B program has grown into the second-largest federal drug program, after only Medicare. With this expansion has come controversy and scrutiny, to the point that it is a frequent topic of congressional hearings and President Biden referenced 340B in a February speech on prescription drug costs.
Conceived as a way to support vulnerable patients’ access to medicines, the 340B program requires that drug manufacturers provide steep discounts for their products to certain non-profit hospitals. Sadly, as the program has grown, it appears it has lost its way. The billions in funds that hospitals save don’t appear to be reaching patients as intended, instead fattening the coffers of hospitals and for-profit pharmacies. In fact, new data indicate that, at most, 39 to 44 cents out of each dollar of 340B profits is benefiting patients in need — making the program remarkably inefficient at achieving its goal.
Meanwhile, roughly $17.7 billion in 340B funds is retained as operating profit each year by non-profit 340B hospitals, or 44% of overall program profits — after accounting for spending on hospital operations and patient care. For-profit contract pharmacies are also drawing money from the program, retaining between $5.1 and $7 billion in 340B profits in 2019 — 12-17% of all program profits.
Created in 1992 by Congress, the program requires drug manufacturers to provide discounted outpatient medications to federally funded health centers, some non-profit hospitals and other “covered entities.” These entities are reimbursed for the drugs by patients’ government- or employer-sponsored health plans, often at a rate that far exceeds their purchase price — allowing the hospital to keep the difference and, in theory, support their care for vulnerable patients. However, the program has long been criticized for its lack of requirements that hospitals reinvest 340B profits into care for low-income populations or account for how profits are used.
In 2010, federal guidance allowed providers to work with third-party pharmacies to distribute 340B-purchased drugs. While this was intended to help small providers lacking in-house pharmacies, “contract pharmacies” have become profit vehicles for large hospital systems and publicly traded chain pharmacies.
The volume of profits retained by these companies is only increasing; contract pharmacy growth is outpacing overall program growth, while expanding into areas with better-insured, wealthier patients. What’s more, evidence indicates that low-income, uninsured patients are often charged the full rate for their medications at the contract pharmacy counter.
Despite the surge in 340B profits at participating hospitals, 340B is not increasing charity care at non-profit hospitals. Since 2012, charity care at non-profit 340B hospitals that use contract pharmacies has declined 11.1%, even as their profits have soared, and as charity care has increased across all other hospital types. For comparison, aggregate charity care at for-profit hospitals increased 196.3% over the same period despite lower profit growth.
As part of their non-profit status, hospitals benefit from several sizable revenue streams outside of 340B — exemption from state and local income tax, sales tax, property tax, not to mention tax-exempt philanthropic donations — in exchange for providing community benefit. Clearly, the significant 340B profits received are not reflected in charity care, and some of these very hospitals whose coffers are overflowing with 340B funds have turned around and engaged in predatory debt collection practices directed at low-income patients.
What’s more, while many call the program “costless,” the volume of program profits flowing through non-taxable hospitals creates significant foregone tax revenues. 340B affects health spending in other ways, too, affecting state Medicaid programs and distorting treatment choices.
As the 340B drug discount program and the debate surrounding it continue to grow, we must seriously examine whether the 340B program has lost its way. We need to ask whether program funds are benefiting patients and fulfilling 340B’s mission. We call on Congress and the federal agencies overseeing 340B to investigate abuses of the program and close loopholes so that patients, not profit-seekers, are getting the benefits Congress intended.
Sally Greenberg is the Executive Director of the National Consumers League.
