The 340B drug pricing program has become one of the most controversial programs in the U.S. health care system. The program was established in 1992 to help safety net providers leverage federal resources to better serve vulnerable populations by allowing eligible hospitals and clinics to purchase outpatient drugs at deeply discounted prices. However, controversies over the program's funding, oversight and misuse have exacerbated decades of conflict between providers, drugmakers and lawmakers.
Some see 340B as a lifeline for struggling hospitals and clinics, others describe it as a loophole that allows health systems to profit from discounts targeted at people with little or no income.
Over time, the 340B program has grown to include many large health systems—many of which are well-capitalized nonprofits. For example, health systems including Ascension, CommonSpirit Health, Geisinger, Penn Medicine and Providence participate in 340B.
The program's opacity is also controversial — hospitals are not required to show how they use 340B savings, further leading critics to question whether the discounts actually benefit patients. Under 340B, hospitals can purchase discounted drugs and then bill insurance companies for the full cost. Drug companies accuse hospitals of taking the difference as profit, with no legal requirement to pass the savings on to patients.
Data shows that large tax-exempt suppliers purchased tens of billions of dollars' worth of drugs through the 340B program, but there is no data showing that ordinary Americans are paying less at the pharmacy counter.
The program is also a huge driver of drug spending in the country. Although these drugs are sold at deeply discounted prices, the program still helps increase overall drug spending because providers are often reimbursed at or near full price. The total value of drugs flowing through 340B now exceeds Medicare Part B and Medicaid, and nearly exceeds Medicare Part D.
Now, reform is finally here – but the new model doesn’t seem to solve the problem or bring about real change.
In January, the U.S. Department of Health and Human Services' Health Resources and Services Administration (HRSA) will launch a pilot program that will allow drugmakers to voluntarily participate in a rebate-based discount system. Providers do not receive discounts upfront at the time of purchase, but rather apply 340B discounts through rebates after purchase, subject to data submission requirements.
The pilot was designed to increase transparency and prevent duplication of discounts, but it also created financial challenges and increased administrative burdens that could disproportionately impact smaller safety net providers that the 340B program was originally designed to help.
Kickback model means cash flow woes and more administrative work
Bill Keaton said the new rebate model will create new cash flow problems, especially for smaller practices. He is the chief advocacy officer for Vivent Health, a national provider of HIV care for low-income patients, and a key figure in Ryan White Clinics for 340B Access, an organization that advocates for the use of the 340B program.
Keaton noted that funding flow problems will be particularly acute for organizations like his, which must purchase extremely expensive HIV drugs. For example, Biktary, the most commonly used drug to treat HIV, costs about $4,200 per month.
Under 340B, clinics pay about half of the cost, Keeton said, but the rebate model could force clinics to bear the entire cost temporarily.
“For many smaller clinics with much lower margins, the opportunity to generate any revenue, whether through grants or reimbursements, is diminished and the ability to purchase these drugs will be significantly challenged,” he said.
He also noted that contract pharmacies may not be able to offer upfront discounts to patients who pay cash, which transfers financial risk to patients and clinics.
The added administrative burden will also be difficult to handle, Keaton added.
HRSA's new model requires providers to submit detailed patient and formulary-level data for each eligible 340B drug, which he said adds another layer of administrative work that could put pressure on already stretched care teams.
Clinics need to hire and train staff to operate Beacon, Keeton explained, and HRSA is using the platform to process rebate transactions, which divert funds away from direct care or addressing social determinants of patient health.
The American Hospital Association (AHA) has also expressed concern about the administrative tasks associated with the new rebate program, arguing that the burden will be far greater than HRSA estimates.
In a Sept. 30 letter to the agency, the AHA noted that HRSA adds an estimated 1.5 million hours of labor to hospitals annually. HRSA's assumption is that each hospital will only need about 2 hours per week to submit the required data, but AHA's member hospitals say that's a very low assumption.
They estimate that each hospital will need up to two full-time equivalent staff, which equates to about 4,160 hours per year per hospital — a number that the AHA notes is much higher than HRSA says.
The AHA also believes compliance costs could range from $150,000 to more than $500,000 per hospital.
“These costs do not include the millions of dollars in interest-free loans that 340B hospitals will provide to pharmaceutical companies through a rebate model. They also do not include the non-monetary burden that patients and communities will suffer that hospitals will subsequently need to treat because 340B-covered entities will have fewer resources for health care services,” the group wrote in the letter.
The AHA said that if accurately calculated, the benefits of HRSA's new pilot program are “unlikely” to outweigh the burden it places on health care providers.
Medical support rebate model
The pharmaceutical industry views the new pilot as a way to increase transparency and accountability in the 340B program. The influential lobby group PhRMA has been a major supporter of the new model.
“We encourage HRSA to move quickly to expand the use of rebates across all 340B-covered outpatient drugs, allowing for broader use of rebates within the program. Expanding this pilot will help strengthen the integrity of the program while preserving critical support for true safety net providers and the patients they serve,” PhRMA said in a statement to it. Medical City News.
So far, eight drugmakers have agreed to participate in HRSA's 340B rebate pilot program: AbbVie, Amgen, AstraZeneca, Boehringer Ingelheim, Bristol-Myers Squibb, Merck, Novo Nordisk and Johnson & Johnson.
Overall, they appear to view the rebate model as a way to enhance 340B oversight and compliance.
AstraZeneca said in an emailed statement that the pilot project will help pharmaceutical companies comply with the Inflation Reduction Act's 340B deduplication requirements, rules designed to prevent drugmakers from offering duplicate discounts on the same drug.
“We believe this pilot program strikes the right balance between efficiency and oversight, ultimately ensuring manufacturers can enforce statutory deduplication requirements in a reliable and transparent manner,” the company said.
A spokesperson for Bristol-Myers Squibb said the pilot project will help advance “a more responsible and sustainable 340B program” through integrity assurance and better data sharing.
Is this a correct fix for the 340B?
Sayeh Nikpay, an authoritative expert in the field of 340B in the United States and a professor at the University of Minnesota, does not strictly label the rebate model as good or bad.
On the one hand, she saw how to improve program integrity, which would benefit drugmakers and payers.
“The problem is that basically every other price concession that manufacturers offer — whether it’s Medicaid drug rebates or manufacturer rebates through PBMs — these are post-transaction rebates,” Nikpay said.
She explained that this could create a problem of “stacked discounts” – where drug manufacturers may inadvertently offer multiple discounts on the same drug.
Nikpay pointed to another integrity issue with the 340B program: As the program has grown, large hospitals and non-safety net providers have dominated program participation. Initially, Congress intended to provide 340B rebates only to health care facilities that serve primarily low-income populations, but now participation is generally expanded to include any nonprofit hospital regardless of the patient population it serves.
Nikpay said two-thirds of nonprofit hospitals participate in the program.
She asserted that how the new rebate system will affect 340B covered entities depends on the type of provider. Essentially, providers that are smaller, rural, or provide care primarily to the uninsured population may struggle with cash flow, but health systems with greater financial resources may absorb this shift with minimal disruption.
The 340B program is critical in helping some providers ensure they can provide care to patients who would otherwise not receive care. But for others, it's a bit of a cash cow.
For example, data shows that Minnesota providers participating in 340B made at least $630 million in profits through 2023, with the vast majority of that revenue going to larger health systems. This only applies to dispensed 340B drugs, not even those administered in the office, which account for about half of all 340B drugs.
Overall, Nikpay believes there are trade-offs and unintended consequences to the 340B program as it currently exists. She illustrates this point with a personal example.
She is not a safety net patient, but her hospital participates in 340B and receives a 340B discount on her medications. However, because the discount was applied, her employer's PBM was unable to claim a rebate for the same drug, reducing the savings that would have been used to lower her insurance premiums.
“In this case, I'm a little annoyed, right? My employer paid the PBM to lower my drug costs, but now I'm not benefiting from it because the 340B discount was applied to me in the first place, and I'm not a safety net patient at all,” Nikpay explained.
It's understandable, then, why lawmakers want to promote better program integrity and ensure patients receive 340B discounts. But it's unclear whether the new rebate model is the best way to fix the program.
Nikpay believes there is a wider problem with 340B than just stacking discounts.
“Manufacturers contribute to high drug costs. They act like monopolies. And there is little market discipline on what providers charge patients and their insurance companies. That is also a problem,” she commented.
Photo: REB Images, Getty Images
