340B Won’t Save Rural Hospitals Either

Rural hospitals across America are struggling financially. Low patient volumes and reimbursement rates and difficulty recruiting and retaining health care providers are just a few of the causes. Many touted Medicaid Expansion as the solution, but the numbers show that may have made a precarious position worse for rural hospitals. Now some policymakers are looking to the federal 340B program to save the day.

The federal 340B program was created to help Americans struggling with the cost of prescription drugs to access affordable medicines by aiding providers in low income and underserved areas. These hospitals, called “covered entities” are often located in rural areas and serve large numbers of uninsured and economically vulnerable patients. Assisting these providers by selling them drugs at a steep discount was supposed to help them to improve and expand their services.

340B is not a new program. Rural hospitals have been benefitting from the 340B program since it was initiated in 1992 and will continue to do so. However, some states are looking to expand the program past its intended purpose to try to save these rural health care providers by forcing drug manufacturers to sell to contract pharmacies at 340B discounted rates.

Hospitals that participate in the 340B program benefit financially by prescribing a patient prescription drugs (acquired at the 340B price) and charging the patient or their insurance (public or private) the regularly negotiated price. The difference between the 340B price (acquisition cost) and the regular price is divided between the hospital, the pharmacy and often a pharmacy benefit manager (PBM).

Several states have attempted to force pharmaceutical manufacturers to sell to all contract pharmacies at 340B discounted prices—a controversial measure which is the subject of litigation. Proponents of one such measure in Missouri claim this will help save rural hospitals. It is true that rural hospitals often participate in the 340B program, but to say the program is a solution to the financial challenges rural hospitals face is beyond misleading.

Declining usage is driving a large portion of rural hospital closures. A 2020 study found that 76% of patients living in rural counties left their areas to receive care elsewhere. Alleged fraud or mismanagement, low reimbursement rates, natural disasters, and staffing concerns are commonly cited contributors to hospital closures. These hospitals often lack the financial ability to keep up with innovation and new treatment options.

Those hoping to use 340B profits to save rural hospitals will be sorely disappointed to discover a large percentage of these profits are going to pharmacies and PBMs—one study estimated $2.58B in 340B savings went to PBMs in 2021. To believe the 340B program as a solution to rural hospitals’ financial woes is, at best, misguided.

Rural hospitals are facing difficult challenges, but depending on the 340B program to solve their problems is unrealistic. 340B was intended to help patients and aid hospitals in underserved and poor areas to provide better care. It was not intended to bail out hospitals or boost the profits of pharmacies and PBMs. The problems rural hospitals face have no easy solution, but more dependence on government subsidies is not the answer.