Affordable healthcare in the U.S is rare, with rising costs of prescription drugs frequently preventing patients from gaining access to life-saving medications. However, some initiatives like the congressional 340B Drug Pricing Program have resulted in increased prescription affordability for Medicaid-sponsored patients, ensuring healthcare access for those who are underinsured or uninsured. The 340B program was created to protect pediatric hospitals, critical access hospitals, oncology clinics, and rural facilities from rising prescription costs, helping them serve low-income patients and population groups across the U.S. However, the 340B program also faces several critiques that question its effectiveness, raising questions about potential reform.
Origin, Purpose, and Benefits
The provisions of the 340B program help safety-net providers stretch scarce federal resources within the Medicaid program. Created through the Veterans Health Care Act of 1992, the 340B program required drug manufacturers to maintain their Medicaid eligibility by providing discounted outpatient drugs at 20-50 percent off to eligible healthcare providers (HCPs). If manufacturers fail to participate in the program, safety-net providers would lose discounts and would not be featured in the Medicaid formulary, which is a list of covered medications.
The beneficiaries of the 340B program are low-income, uninsured, or medically underserved individuals; 90 percent of beneficiaries are low-income, 65 percent are people of color, 42 percent reside in rural communities, and 35 percent have increased risk of chronic conditions. Data from the National Association of Community Health Centers indicates that the 340B program has helped Federally Qualified Health Centers (FQHCs), which provide healthcare services to approximately one in eleven individuals in the United States. The 340B program aims to ensure that every patient has a fair and equitable chance to receive the care they need, regardless of where they are being treated.
In providing medication services, the program distributes 340B outpatient medications to beneficiaries through safety net providers, including disproportionate share hospitals (DSHs), independent cancer and children’s hospitals, and rural referral centers. The Health Resources and Services Administration’s (HRSA) Office of Pharmacy Affairs oversees the program and negotiates pricing contracts with manufacturers.
While the exact discounts on wholesale medications are not publicly available and are determined internally using formulas assessing market competition, negotiations for pricing occur through the Prime Vendor Program. Covered entities can dispense discounted drugs through their own or contracted pharmacies.
340B Program Growth
Since the program’s inception in 1992, the number of covered entities has expanded. In 1998, they included family planning centers as an eligible covered entity, meaning that these facilities are approved for the 340B program. In 2006, pediatric hospitals were added as an eligible covered entity through the Deficit Reduction Act. In 2010, critical access hospitals, community hospitals, rural referral centers, and oncology centers were added as eligible covered entities, and the expansion of contracted pharmacies was implemented.
The program has grown exponentially and has been financially fruitful for safety net providers and facilities. As of 2023, the 340B program lowered medication costs to 66.3 billion dollars from their list price of 124 billion dollars; however, this was a 12.6 billion dollar increase from the previous year’s discounts. Over time, the amount of 340B spending has exceeded Medicaid’s by 40 percent, and the 340B program’s spending has increased by 87 percent.
At the root of it, the program justifies itself in the savings and discounts it provides to patients and how covered entities reinvest those savings. Some of the 13 percent of the discounts get reinvested into free or discounted care, community health programs, and creating an accessible path to serve underserved patients. This program supports 30 million patients who would otherwise receive unequal and insufficient healthcare. Advocacy groups argue that the program enables them to maximize the use of federal resources and provide care for vulnerable populations.
However, there is no federal regulation governing how savings are used. Congress has not established legal parameters to track or report how the program’s resources are utilized or the provision of charity care to patients. The scale of the program has grown to modernize it and work with various stakeholders; yet, at its current size, it seems more complicated to regulate properly, and whether it is meeting its intended goal remains unclear.
Critiques of 340B: Costs
Trade associations such as Pharmaceutical Research and Manufacturers of America have conducted research citing evidence the program actually drives up healthcare costs. 340B facilities may generate higher revenue per prescription compared to independent healthcare provider offices, particularly for patients with commercial insurance. PhRMA has also found that outpatient medicines at 340B facilities can cost more on average than at non-340B facilities, potentially contributing to higher out-of-pocket expenses for self-insured employers.
For instance, 340B safety net facilities prescribe more expensive drugs, resulting in costs 150 percent higher than commercially funded plans at a non-340B facility. These prescribing behaviors can increase a 340B cost share and potentially lead to higher premiums for commercially financed plans. These covered entities prescribe biosimilars, drugs nearly identical to their brand-name counterparts, less frequently than brand-name medications, resulting in higher out-of-pocket costs for patients rather than patient savings.
Lastly, even if an individual is insured through their employer and not actively utilizing 340B drug discounts, there is an indirect cost to those individuals. Since the 340B program showed an increase in employer and patient costs of 5.2 billion dollars due to these upcharges, their medications were 4.2 percent higher on average.
Additionally, questions have been raised about the program’s impact on health equity. While many hospitals participate in the 340B program, a significant portion of hospitals provides less charity care than the national average. Data indicates that a relatively small percentage of eligible brand-name prescriptions dispensed through contracted pharmacies result in discounts that directly reach patients.
Subsequently, these practices show the lack of commitment to the purpose of the program; these inherent practices prompt us to evaluate whether our policies truly support all types of patients seeking equitable healthcare.