Medicaid Pharmaceuticals Public Policy

Is 340B working?

I have written about the 340b program a number of times on this blog in the past (e.g., “The 340B Program: An Overview“, “340B Facts and Figures“). A new commentary by Thomas and Schulman (2020) in Health Services Research provides some additional information.

For instance, why was 340B originally enacted? Blame the Medicaid Drug Rebate program enacted as part of the 1990 Omnibus Budget Reconciliation Act (OBRA):

Prior to OBRA, pharmaceutical companies often made special discounts available to safety-net hospitals to support their charitable and uncompensated care. Once the Medicaid Drug Rebate Program was in place, safety-net providers found that pharmaceutical firms would no longer sell products at deeply discounted prices because the safety-net prices would inadvertently serve as the Medicaid best market price. Thus, the 340B program was narrowly crafted to provide specific relief to safety-net hospitals by restoring their pre-OBRA discounts while exempting the prices available to 340B hospitals and prices on the Federal Supply Schedule from becoming the basis of the market price used in the Medicaid best price calculation.

Why would pharmaceutical companies agree to this? Well, if they didn’t agree to the 340B discounts, they couldn’t receive reimbursement for their drugs from Medicaid.

How big are the discounts?

The article claims discounts typically range between 25% to 50% of outpatient drug prices. 340B providers are offered discounts of between 25 percent to 50 percent on outpatient drug prices

How many providers participate in the program?

Originally, there were only 90 providers participating in 340B. This figure has few to 1,673 covered entities in 2011 including about one-third of all US hospitals. Today, there are over 12,000 covered entities and 40% of hospitals are included in 340B. Thus, while the program originally targeted a narrow section of providers with limited means, it has now expanded to include a large number of hospitals as well as other providers such as public AIDS Drug purchasing programs and hemophilia treatment centers.

How is 340B changing the practice of medicine?

As the prices of medicines administered or delivered in the outpatient setting have increased,
the profits from 340B participation have also increased. The result has been an increasing divergence between the economics of community-based medicine and hospital outpatient practice at a 340B covered entity. This spread has created a strong incentive for 340B participating hospitals to purchase community-based practices that have the greatest opportunity to benefit from dispensing medications acquired through the 340B program, including practices in oncology, ophthalmology, and rheumatology.

Is 340B helping provide care for low-income patients?

The answer is somewhat. However, in recent years, the impact has been lower.

340B-participating hospitals based on DSH criteria appear to be no more engaged in providing care to vulnerable populations than nonparticipating, nonprofit, and public hospitals…Another study found that DSHs that registered for 340B in 2004 or later generally served communities
with fewer low-income people and with higher rates of health insurance compared to similar non-340B registered hospitals. MedPAC reported that 40 percent of 340B hospitals provided less than the national median share of uncompensated care (3.6 percent) in 2014 as reported in Medicare cost reports…340B participation had limited impact on charity care at covered entities. New 340B participation did not increase provision of uncompensated care or community benefit spending, nor the probability of offering low-profit medical
care service lines.

What is the authors’ takeaway?

Overall, the literature now suggests that the 340B program has offered a major financial windfall to covered entities with little of the benefit targeted toward safety-net providers who care for low-income patients

A scathing indictment of a program with good intentions, but significant unintended consequences.

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