The federal 340B Program is a drug price control program that allows qualifying providers, generally hospitals, specialty clinics and their associated outpatient facilities serving uninsured and low-income patients in rural communities, to purchase outpatient drugs from manufacturers at discounted prices.
Qualifying providers, known as Covered Entities (CEs), are allowed to bill and collect the full price for drugs from patients’ insurance companies. Buying drugs at a discounted rate and billing the full price allows CEs to generate revenue to serve their communities. The surplus funds (called 340B funds) allow providers to reduce the financial burden of medications or other medical care for uninsured, under-insured, and low-income patients.
Generally speaking, the 340B program benefits facilities that serve uninsured and low-income patients. The 340B program was created to help these facilities “stretch scarce federal funds”.
If your facility is eligible, you apply and get approved for the 340B Drug program. Once enrolled, your facility can purchase outpatient medications at discounted “340B” drug prices.
Drug manufacturers are required to discount prescriptions for 340B-approved facilities. The difference between typical wholesale drug prices and “340B” drug prices creates what is considered “340B savings”. Each facility chooses how to spend their 340B savings, but most use it to provide low or no-cost medications and services to low-income patients.
Funds generated by 340B allow safety-net providers to “stretch scarce federal funds” to provide more affordable or free care to their vulnerable patient population. 62% of 340B hospitals are in rural areas, and 45% are specifically critical access hospitals.1
Without these funds, CAHs, Community Hospitals, and their associated outpatient facilities would need to either
In 2018, the American Hospital Association (AHA) reported2 that 340B eligible hospitals provided $51.7 billion in benefits to their communities. Tax-exempt hospitals report the value of their services provided to the community as part of their annual tax reporting.
AHA included examples of community services such as “tailored programs to address identified community health needs, such as access to prescription drugs for low-income populations, free vaccinations, chronic disease management programs, transportation services for follow-up appointments, and mental health services”.
In June 2019, 340B Health, a membership organization representing over 1,300 340B participants, reported on 340B’s rural impact in their 2018 Annual Survey4. Key points include:
The survey made clear that rural hospitals depend on the 340B program to provide care to low-income and underserved patients and communities. Without it, the already vulnerable rural healthcare landscape would be decimated if no alternative funding was made available.
The 340B Drug Pricing Program accounts for less than 3% of all drug purchases in the United States. Yet according to the Government Accountability Office, 340B program participants can save 20-50% off drug costs, all without costing the taxpayers a dime. Since 340B offers a discounted drug rate for Safety-Net providers and qualifying hospitals, theoretically those cost savings can be passed to their patients either as a drug discount or other community programs.
How 340B-generated funds are spent is at the discretion of the covered entity. Additionally, CEs determine the pricing each patient receives, not all patients will see direct discounts on drugs or services.
Sallie Barker, Director of Strategy and Business Development at UPSON Regional Medical Center sees firsthand the importance of the program saying “The 340B program helps our patients get their infusion needs for oncology or chronic conditions. Some patients would not have the insurance benefits to afford beginning therapy without the program.”
It is important to note that earnings from the 340B program must be distributed back into the program one way or another.
Until 2019, 340B discount drug pricing was only available from wholesalers. Drug manufacturers would calculate drug ceiling prices; wholesalers would add their service fee and generate a 340B drug price list to their contracted CEs.
In 2019, HSRA created a portal that allows CEs to see published 340B drug ceiling prices. This information is not available to the public as only 340B program participants can access the portal. Discounts have been referenced to be 20-50% off drug prices.
For a complete list of 340B drugs and prices, CEs should request this information directly from the wholesaler.
Let’s say for example, a CAH has two patients come in for the same treatment and both need the exact same medication. Only one of those patients has insurance. The drug is purchased by the CAH at the same costs for both patients, but the income generated from the patient with insurance can now go towards helping the non-insured patient pay for their medication.
In some cases, a drug manufacturer may encounter a drug price calculation that is negative or zero. In these cases, HSRA has instructed drug manufacturers to use $0.01 for the ceiling price thus creating what is referred to as the “penny policy”.
Regardless of insurance type or lack of insurance coverage, covered entities can provide all of their patients with 340B drugs. It is often misunderstood that 340B pricing only applies to Medicare or Medicaid patients.
340B drugs are only for outpatient use, sometimes mixed-setting use, for eligible patients (see definition below under compliance requirements). All outpatient drugs, exclusive of “Orphan Drugs”, are eligible for a discount under the 340B program. An exact 340B drug list can be obtained through a covered entity’s wholesaler.
The Secretary maintains a list of excluded “Orphan Drugs” that manufacturers are not required to discount for rural referral centers, CAHs, community hospitals, or cancer hospitals. Orphan Drugs are a protected class of medications typically for rare conditions or diseases.
Sometimes these same drugs also treat common conditions as well. HSRA determined that these CEs were able to get discounts on Orphan Drugs as long as it was for a common condition. Discounts on Orphan Drugs for rare diseases and conditions are at the discretion of the drug manufacturer for these CEs.
To be 340B compliant, CEs are responsible for the following ongoing requirements:
340B compliance comes at a cost, with hospitals reporting average 340B compliance costs ranging between $100,000-$200,000 and on average, requiring two full time employees to oversee and maintain the hospital’s 340B program3. With an average hospital making $11.8M from the 340B program, it is clear the monetary benefits outweigh the costs.
Multiple pieces of legislation have been called to reduce Medicare reimbursements on 340B drugs by nearly 30% for the 340B Drug Pricing Program, and cuts were implemented in January 2019. The Centers for Medicare and Medicaid Services (CMS) Department of Health and Human Services (HHS) passed the Calendar Year (CY) 2018 Medicare Hospital Outpatient Prospective Payment System (OPPS) Final Rule, issuing a significant cut to the funds generated under the 340B program.
The OPPS policy impacts DSHs and RRCs, reducing the amount of reimbursement for prescription drugs under Medicare Part B by a whopping $1.6 billion. In May 2019, the courts ruled favorably for hospitals, striking down the HHS’ ability to cut Medicare reimbursements on 340B drugs. (Hospitals will not be retroactively repaid for 340B drug discounts.)
The courts acknowledge the role of HHS to control drug prices but warned against using that power to specifically undercut the purpose of the 340B program.
HHS Secretary, Alex Azar, has promised “change is coming” for the 340B program, but also stated that hospitals that are “responsibly investing their 340B savings have nothing to fear”2. Azar has expressed that more insight and oversight is needed to ensure 340B funds are being used for the program’s intended purpose.
There continues to be concern amongst communities who currently benefit from the 340B program that more cuts could happen or regulatory burdens would increase. Some fear they will have to close the doors of their clinics or organizations if they are unable to find new money to stay open.
The other option these organizations might be faced with is turning away patients like Patient B in the example above. It is important to note that many of the lawmakers who are pro-reimbursement cuts to 340B are also supporting efforts to lower the cost of prescription drugs as a whole.
The 340B Drug Pricing Program continues to remain a hot topic for advocates and critics alike – only time will tell the fate of the 340B Drug Pricing Program. For more information and updates on the 340B Drug Pricing Program, view the official Health Resources and Services Administration (HRSA) website.
Disclaimer: This guide is provided as an overview but is not a complete representation of the entire fine print of the law.
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