The 340B drug discount program, created in 1992 as part of the Veterans Health Care Act, was designed to expand access to critical medication for people in disadvantaged groups and those with lower incomes. But Wayne Winegarden, director of Pacific Research Institute’s Center for Medical Economics and Innovation, says many hospitals participating in this program […]
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The 340B drug discount program, created in 1992 as part of the Veterans Health Care Act, was designed to expand access to critical medication for people in disadvantaged groups and those with lower incomes.
But Wayne Winegarden, director of Pacific Research Institute’s Center for Medical Economics and Innovation, says many hospitals participating in this program do not offer more charitable care — also known as free or discounted services for those who cannot afford to pay — and sometimes 340B hospitals make a larger profit than their counterparts.
“I think everyone can agree 340B is important,” he said. “The problem is in the execution. Hospitals basically use the program to generate revenues and then not really fulfill the mission [of the program]. Discounts don’t necessarily need to be passed down to the patients.”
Based on his findings after analyzing data provided by the Center for Medicare and Medicaid Services and hospitals’ financial forms, 340B hospitals provide 1.66% of their net patient revenues toward charity care, compared to other hospitals that provide 2.03% of net patient revenues. In addition, evaluating each hospital’s net income relative to net revenue, the profitability for 340B hospitals was 37% higher than the average of all hospitals.
He says there are instances where some patients pay coinsurance in addition to costs that are based upon an undiscounted 340B drug price, creating a situation where patients still have affordability issues despite the drug being largely discounted for the institutions.
In recent years, there has been literature supporting and critiquing the role the 340B program plays in the health care system.
A 2019 report from the Government Accountability Office concluded that the federal Health Resources & Services Administration (HRSA) does not provide enough reasonable assurances that hospitals meet eligibility requirements.
The American Journal of Managed Care found that “relying on hospitals to invest surplus into care for the underserved without marginal incentives to do so or strong oversight may not be an effective strategy to expand safety-net care.”
Senior Director of Communications for 340B Health David Glendinning said in an email to the CBJ, the 340B program is essential in more ways than just charity care because just looking at charity care figures “fails to account for the billions of dollars these hospitals provide in uncompensated and reimbursed care.”
L&M Policy Research discovered that 340B hospitals provide 60% of uncompensated and unreimbursed care in the U.S. and use discounts to provide transportation and translation services.
Mr. Glendinning referred to a report from Dobson DaVanzo & Associates that 340B hospitals have operating margins lower than non-340B hospitals, since they offer more services that cost more to deliver than the payments they receive.
He also said that 340B hospitals must meet “stringent requirements proving they serve a disproportionate number of patients with low incomes who are on Medicaid or Medicare or who live in rural areas” and recertify that status every year. In addition, Mr. Glendinning says the government conducts 340B audits on 200 hospitals a year.
Close to a dozen hospitals in the Corridor and Quad Cities participate in the 340B program, including University of Iowa Hospitals & Clinics, according to the HRSA online dashboard.
University of Iowa Hospitals & Clinics is registered as a disproportionate share hospital, a Hemophilia Treatment Center and serves Ryan White patients. UIHC says 340B has provided $203 million in uncompensated care, and more than $58,000 of charity care was funded through 340B in 2021.
The 340B designation is also extended to contract pharmacies — businesses like Walgreens, Rite Aid, CVS and Walmart — which Mr. Winegarden says further diverts discounted medications to non-340B eligible patients. He believes it’s an overreach of the 1992 law.
“You’re allowed to have as many contract pharmacies as you want now,” he added. “I’m not saying there’s anything nefarious going on. It’s just that the ability to have control becomes more and more difficult.”
He says 340B has reached “astronomical levels that are not sustainable,” with more than 12% of all drugs going through the 340B program.
340B Health argues that the program aims to stretch scarce federal resources and that partnerships with local pharmacies are essential for hospitals without in-house pharmacies. They say cuts to 340B discounts would hurt local patients and “take money away from the health care safety net and put it into drug companies’ profits. Reducing the scope of 340B would reduce the incentive for drug companies to keep their price hikes in check.”
In March, Johnson & Johnson became the latest of 16 drugmakers to cut off sales of 340B discounted products to contract pharmacies, citing concerns over diversion and duplicate discounts, reports Fierce Healthcare. HRSA fined drugmakers who did not follow 340B regulations last year, with many of them choosing to sue HRSA, resulting in court battles with mixed outcomes. More than 700 drug companies still participate in the 340B program.
“A small number of large, highly profitable companies have chosen to ignore the law and place restrictions on 340B discounts for safety-net hospitals, health centers and clinics,” said Mr. Glendinning. “Both the Trump and Biden administrations have said these restrictions are unlawful.”
340B Health reported losing 39% of contract pharmacy savings due to drug restrictions. In addition, Fierce Healthcare reported that 10% of rural hospitals said they lost at least $700,000 due to new policies.
Mr. Winegarden believes the program needs to be reined in and returned to its original intent.
“Undoubtedly, these hospitals do a lot of good, and undoubtedly, there’s lots of costs and problems they have to manage,” he explained. “Those probably need to be addressed as well. It’s just that 340B isn’t a means to ameliorate all of the other ills throughout the healthcare sector. Hospitals often say they have lots of uncompensated care where people don’t pay their bills, and those are real problems for institutions.”
“It’s just that 340B is not a solution,” he added. It can’t be. “It’s set up to be a negative-sum game and is a really inefficient way of addressing the problem.”
Participating Corridor Hospitals
- UnityPoint Jones Regional Medical Center, Anamosa
- UnityPoint St. Luke’s Methodist Hospital, Cedar Rapids
- University of Iowa Health Care, Iowa City
- Washington County Hospital
- Compass Memorial Healthcare, Marengo
- Virginia Gay Hospital, Vinton