Taking the Chains Off of 340B

By Brian Duffie

Regulators have taken an important first step towards reforming one of the federal government’s most widely-abused health initiatives: the 340B Drug Pricing Program. The Health Resources and Services Administration just released a guidance proposal that could, at long last, strengthen oversight for the program.

HRSA’s attempted reforms come as promising news to independent pharmacies, which have suffered from large healthcare providers’ abuse of 340B in recent years.

The program was initiated in 1992 to increase low-income and uninsured patients’ access to prescription drugs. Under 340B, pharmaceutical manufacturers are required to provide considerable discounts on drugs sold to certain clinics and hospitals known as “covered entities.”

Alarmingly, although 340B caps the amount hospitals have to pay for certain drugs, the covered entities themselves are under no obligation to pass those discounts along to eligible patients. There’s nothing to prevent hospitals from selling discounted drugs at full price to non-340B patients.

A recent Senate inquiry revealed that hospitals are, in the words of Sen. Charles Grassley (R-IA), “reaping sizeable 340B discounts on drugs and then turning around and up-selling them to fully insured patients in order to maximize their spread.” The problem has grown worse due to changing regulations involving the pharmacies which dispense the hospitals’ discounted drugs.

Originally, covered entities were expected to dispense outpatient drugs through in-house pharmacies. But many health-care providers don’t have pharmacies of their own. And so, in 1996, regulators empowered hospitals and clinics to extend their 340B discounts to a single outside “contract” pharmacy.

In 2010, HRSA went even further, allowing covered entities to offer their manufacturer discounts to an unlimited number of contract pharmacies. This change has left the program vulnerable to abuse, particularly by chain pharmacies and hospitals seeking to cash in on generous 340B discounts.

Since the new rules took effect, the number of contract pharmacies has grown by 770 percent, according to the Department of Health and Human Services Office of Inspector General (OIG). And chain pharmacies account for the lion’s share of this expansion.

Back in 2010, 83 percent of contract pharmacies were independent. By 2015, these small businesses represented just a quarter of 340B contractors. Among chain pharmacies, Walgreens has benefited the most. Today, the company accounts for around 60 percent of 340B chain-pharmacy contracts.

Disproportionate share hospitals (DSH), which serve a wide variety of patients, have been a significant driver in the growth of chain pharmacies with 340B contracts. Indeed, 82 percent of DSH contracts are with chain pharmacies.

It’s also telling that safety-net clinics — precisely the sorts of institutions that 340B was intended to serve — have been far less aggressive in expanding their contract-pharmacy networks. Among these providers, fewer than 2 percent have 340B networks of 20 or more pharmacies.

The 2010 reforms, in other words, have transformed 340B from a program intended to funnel cheap drugs to poor patients into a subsidy for hospitals and chain pharmacies.

As the program grows, independent pharmacies are being squeezed out of the market, as hospitals steer patients towards contract chain pharmacies.

Worse, it’s now common for contract pharmacies to unintentionally deny discounts to 340B-eligible patients. In a letter to the New York State Department of Health, 340B Health, the trade association for hospitals covered by the program, explained that “the overwhelming majority of [contract] pharmacies do not know at the time a claim is processed whether or not it relates to a 340B drug.” Thus, they might not pass on discounts to patients.

The chief victims of 340B’s derailment are, of course, low-income patients. But independent pharmacies have paid a high price as well. The latest attempt by HRSA to impose stricter oversight is a chance to reestablish 340B as a tool for helping poor patients, and not to enrich hospitals and pharmacy chains.

Brian Duffie is the owner and head pharmacist of Wingard’s Pharmacy, an independent pharmacy in Greenwood, SC.