By Lola Butcher
Debate about the government’s 340B Drug Pricing Program continues to build as the program expands. Like all good controversies, this one has enthusiastic advocates and wild-eyed opponents, and it’s easy to get snagged by the passion of the partisans.
340B is a discount program that requires pharmaceutical companies to sell outpatient drugs – both branded and generic – to eligible health care organizations at significantly reduced prices, up to half off in some cases. The program was created in 1992 to help provider organizations that serve a lot of poor people stretch their resources.
Over the years, the eligibility criteria to participate has expanded repeatedly. Currently, safety-net hospitals, children’s hospitals, critical access hospitals, federal health centers and other organizations are eligible; organizations that fall into those categories must register and enroll in the 340B program. Check here to find 340B organizations in your community.
The government gives hospitals and other 340B entities a lot of leeway in how they implement the program, including contracting with private pharmacies to dispense the drugs (which are not taken in the hospital, only as outpatient). 340B entities also have freedom in what they do with the money saved by purchasing the drugs at discount; they are not required to use that money to benefit uninsured or low-income patients.
What’s the controversy?
The 340B program creates winners (those entities that get the discounts) and losers. The biggest losers are drug manufacturers, which is why they spend a lot of time complaining about the program. But other losers include private physician groups, for-profit hospitals and not-for-profit hospitals that do not serve a sufficiently large number of low-income or uninsured patients to qualify.
For an even-handed review of the situation, check out this Health Affairs/Robert Woods Johnson Foundation brief.
How much money are we talking about?
Apexus, which contracts with the government to negotiate the discounted prices, estimated that 340B purchases in 2013 were $7.5 billion – just more than 2 percent of the U.S. prescription drug market that year.
However, that is only one measure of the program’s size. Hospitals and other 340B entities can sell the drugs at any price they want, so they may well make big profits on their 340B purchases. In general, they are not required to report details of their 340B participation. However, an inquiry by Sen. Charles Grassley, R-Iowa, revealed some interesting numbers reported in The (Charlotte, N.C.) News & Observer:
Last year, Duke University Hospital purchased $65.8 million in drugs through the program and received $135.5 million in revenue. Duke says it saved $48.3 million buying the drugs through the 340B program. That means the hospital made a profit of $69.7 million instead of $21.4 million if it had not participated in the program.
But 67 percent of Duke patients who received those discount drugs were covered by commercial insurance companies, which often pay hospitals many times over cost for medications. Only 5 percent of the Duke patients were uninsured.
Check out letters from UNC Healthcare, Carolinas HealthCare System, and Duke University Health System to see how they responded to Grassley’s questions about their 340B profits.
Duke’s 340B performance added fuel to the criticism that the discount program has expanded from a benefit-for-the-poor program to a help-hospitals-get-rich scheme. A study reported in Health Affairs last year put it this way: “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.”
So what?
Critics claim the 340B pricing program gives hospitals an incentive to buy physician practices – particularly oncology practices – that prescribe high volumes of drugs. Hospitals can make big profits on those because they pay a discounted price.
The consolidation of physician practices and hospitals is its own controversy, but one thing is irrefutable: Care provided at a hospital-owned facility costs more than care provided in a physician-owned clinic. (See this AHCJ tip sheet on hospital consolidation.)
Reporters who tie the 340B pricing program to higher costs to patients have a terrific story on their hands. The Atlanta Journal-Constitution’s 2013 story, “When Doctors Sell Out, Hospitals Cash In,” is behind a paywall now, but the copy is here.
Story ideas to start you off:
- Identify local organizations enrolled in the 340B program and ask them how they administer the program. Key question: Are a hospital’s cost savings passed on to low-income patients? How exactly?
- If oncology practices have recently been acquired by your local 340B hospital, ask the physicians whether they think the hospital was motivated by its 340B status, which allows it to buy chemotherapy agents at deep discounts? Does cancer care cost more at the hospital than it did in the physician practice?
Lola Butcher is an independent journalist in Springfield, Mo. She completed her project on the migration of cancer care from physician-owned clinics and community centers to hospital outpatient departments and how it affects patients, oncologists, hospitals and payers as a part of the 2014 AHCJ Reporting Fellowships on Health Care Performance. Her stories:
- Medicare Pay Change Triggered Care Migration
- 340B Drug Discounts Have Fueled the Migration of Cancer Care
- Emerging Payment Systems Fuel Cancer Care Consolidation
- Oncology Goes to the Hospital: Good or Bad? The View from 4 Key Stakeholders
