340B, the add-on to the 1990 Medicaid Drug Rebate Program that requires manufacturers to give high discounts on drug prices to “disproportionate share hospitals” (DSH’s), is targeted now for massive reforms. In the last year alone there have been eight bills introduced in Congress (none passed).  
 

The attention is for good reason: the dollars at stake annually are in the billions as the number and types of eligible entities multiplied many times over, especially since the passage of the Affordable Care Act. With each expansion, 340B became both a source of survival for safety-net providers and a thorn in the side of manufacturers.
 

What Is It?

For a pharmaceutical manufacturer to have any of its products covered by Medicaid, manufacturers must provide substantial discounts on all outpatient drugs purchased by providers that are covered by the 340B Drug Discount Program (those providers are called “covered entities”). The provider is then allowed to dispense the 340B discounted drugs to any of its patients whether they are uninsured, Medicaid, Medicare or commercial beneficiaries. In short, products are sold to covered entities at a discount, even if they are then reimbursed at a higher rate from an insurer. And there is no statutory guarantee that the manufacturer discounts actually be passed through to beneficiaries.

Why Is It?

340B was signed into law by George W. Bush in 1992. It was in response to unintended consequences of the Medicaid Drug Rebate Program in 1990 that led to providers that previously had exceptionally high discounts from manufacturers lose those discounts as the program replaced their existing contracts. In other words: manufacturers that had traditionally stratified contracted rates so that charity providers serving the uninsured could still afford to treat their patients. When the law set drug rates, it lowered drug prices overall but unintentionally raised rates for these providers. In short, 340B sought to address that unintended outcome.
 

Who Is Eligible?

There are several categories leading to being a “covered entity” in 340B: most entities are "disproportionate share hospitals” (DSH) which is a Medicare-defined category, cancer treatment centers, children’s hospitals, community and rural hospitals or urban, critical access hospitals that are either run by government-run, non-profits, or a combination of the two. What the entities have in common is a large share of uninsured or Medicaid beneficiaries. As of 2013, a third of all hospitals participated in 340B. As of today it is closer to 40%.
 

What Does it Cover?

The program covers outpatient drugs, regardless of how they are administered. This expands coverage from prior programs which excluded injectables. It includes oncology as long as it is not administered inside a hospital’s walls, for instance.
 

How Does It Work?

HRSA uses providers’ Medicare cost reports to determine eligibility to participate. The percent of patients that are uninsured or low income Medicare or Medicaid determines eligibility.   
 

What Are the Arguments?

Advocates for providers argue that the program helps safety-net providers offer better care to those who need it the most. They say safety-net providers apply the profits they receive for 340B outpatient drugs utilized by commercial and Medicare beneficiaries to preventative and other unreimbursed care for those that are uninsured, are low income Medicare, and those on Medicaid.
 

Critics argue that although improved care for those groups would be a positive, there are no systems for tracking how the savings are applied to hospital expenses and therefore no certainty that the funds are utilized to improve care. A 2014 report by the Department of Health and Human Services found that some participating providers did not even offer the 340B drugs to their uninsured patients, which flies in the face of the program’s intent.

Studies have shown mixed results, indicating that while some safety-net hospitals use the funds for uncompensated care, others do not. This issue gained traction in Congress recently and has led to increased federal oversight of how these funds are spent.

In addition to oversight concerns, opponents of 340B argue that the eligibility criteria is now much broader than it should be, with over 40% of all providers covered by the program today. They claim that when manufacturers are required to provide a specific discount on list drug prices to so many providers, it could incentivize manufacturers to simply raise the list price.

Another argument to reign in 340B is that by making buying certain, expensive drugs a profitable exchange for providers, the program could incentivize covered entities to buy more expensive drugs on behalf of its Medicare and commercial patients than is necessary or reflective of best practices and ultimately raise commercial member premiums.

Where Are We Now?

The first battle is in court, since CMS slashed 340B payments in late 2017. That move led the American Hospital Association and others to file suit, claiming CMS overstepped its authority when it changed the program's reimbursement rate from 6% over the average price to 22.5% below it, cutting $1.6 billion in 340B payments this year alone. That legal battle will begin in May.

Meanwhile the various bills being considered in both the House and the Senate, if signed into law, would steadily reign in the program to include a much smaller proportion of providers and to hold those providers accountable to providing care to the uninsured -- a requirement which is missing from the law entirely today.
 

Where to Next?

340B is credited by proponents with improving care for the uninsured and vulnerable while being blamed by critics for raising everything from drug list prices and unnecessary utilization to commercial premiums. With manifold results in the studies to date, the proof of what it actually did may only be discovered in its absence: if reigning in 340B reduces drug list prices and commercial premiums go down while population health stays steady, then the critics can have their “I told you so” day. The truth of the program’s effects, good and bad, will take the benefit of hindsight to ascertain. Based on the current political climate, that is a benefit we are likely to experience sooner rather than later.