In 1992, Congress acted to help indigent and uninsured patients gain better access to prescription drugs. It authorized the 340B drug discount program, which lets eligible hospitals and other providers purchase outpatient drugs and receive discounts from pharmaceutical manufacturers.
But today, 340B discounts have left needy patients behind. Health Resources and Services Administration (HRSA), the government agency that oversees the 340B program, has developed the program with a tangle of regulations, non-public private letters, clarifications, and “Frequently Asked Questions.” Aggressive hospital strategies, all technically legal, have stretched the program’s goals beyond recognition. Hidden rebates from pharmaceutical manufacturers are instead subsidizing the operations of highly profitable, multi-billion dollar health systems.
The limited government oversight and foggy regulations let a 340B hospital profit from everyday outpatient prescriptions — drugs that are dispensed by your local pharmacy and are already fully paid by your insurance company. Thus, economic status and degree of need are irrelevant to a hospital’s ability to profit from a 340B prescription.Hospitals grab these 340B rebates through a convoluted process. First, the hospital and its software vendors secretly match personal information from your retail prescription to their internal patient databases. If it is profitable, they convert the prescription to a 340B claim. Then, the retail pharmacy turns over its third-party and consumer payments to a 340B hospital. The hospital pays a fee to the pharmacy and submits a rebate claim for the retail prescription.
What’s more, the hospital benefits without your or your payer’s knowledge. Under existing regulations, the process is entirely permissible. However, it certainly wasn’t considered or intended in the original legislation.
This behavior sharply accelerated after a 2010 regulatory change, which lets hospitals build external networks of community pharmacies. HRSA projects that nearly one-quarter of the country’s 60,000 retail community pharmacies will be part of a 340B network. The biggest player is Walgreens. More than 4,000 of its drugstores act as 340B contract pharmacies.
Unfortunately, we can’t even detect the full scope of this practice. The National Council for Prescription Drug Programs (NCPDP), which set electronic communication standards for pharmacy care, allows easy identification of an individual prescription’s status under the 340B drug pricing program. This voluntary standard is purposely ignored by most hospitals and pharmacies.
Senator Charles Grassley (R-Iowa) has requested that the largest North Carolina hospitals provide details about their use of the 340B program. His work has exposed the small fraction of hospital 340B profits that now target indigent and uninsured patients.
Consider Duke University Health System, which has annual revenues of $2.5 billion and operating profits (revenues minus expenses) exceeding $500 million. Responding to Senator Grassley, Duke disclosed 340B pharmacy profits of $292 million — a 53 percent gross profit margin. Without these discounts, Duke's pharmacy profit margin would drop to 24 percent — comparable to that of a typical outpatient pharmacy. Only 1 in 20 patients served by Duke’s 340B pharmacy is uninsured. The remaining 95% have prescription costs paid by Medicare, Medicaid, or private insurance.
Today’s Congress should improve oversight and tighten 340B participation requirements.
To ensure that the program’s funds are being used appropriately, Congress should require that hospitals fully disclose how they use their 340B pharmacy profits. By allowing hospital’s to retain and then spend all 340B pharmacy profits, neither Medicare nor patients benefit from 340B drug discounts.
To limit abuse and increase transparency, hospitals and pharmacies should also be required to comply with established industry standards for identifying 340B prescription claims. Hospitals’ use of contract pharmacy networks should be scrutinized to be consistent with the program’s true intent.
It’s time to modernize the 340B program and help the neediest patients access valuable medicines.
Fein is president of Philadelphia-based Pembroke Consulting, Inc. He blogs at Drug Channels.
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