The Controversy Surrounding 340B Program

Prescription drug prices have faced a lot of controversy over the past few years, most recently with the federal 340(B) program. Under Section 340(B) of the Public Health Service Act, drug manufacturers who participate agree to provide a discount to eligible hospitals and other “covered entities” who serve low-income individuals not covered by Medicare and Medicaid. The purpose is to pass along the discount to these uninsured individuals. Hospitals which maintain their own in-house pharmacies easily participate. However, some hospitals have contracted outside private pharmacies to provide pharmaceutical coverage for their 340(B) eligible patients based on guidance from the Health Resources and Services Administration (HRSA) in 1996. In 2010, HRSA regulations began to allow providers to contract more than one pharmacy and still remain eligible for the 340(B) discount.

In the summer and fall of 2020, six drug manufacturers announced that they would no longer provide the 340(B) discount to entities who used contract pharmacies if they have an on-site pharmacy as well. Their reasoning involved concerns over these contracted pharmacies violating the law and receiving duplicate discounts from both 340(B) and Medicare or Medicaid. As policymakers and others began to look more closely at 340(B), it became clear that was just one of the problems with the program. Fraud, a lack of transparency, and failure to pass savings along to the patient are all areas that need to be addressed.

Often pharmacies do not know at the time of purchase if the patient is 340(B) eligible or not. One way of addressing that problem are claims modifiers. A claims modifier is an electronic “tag” that allows providers and pharmacies to determine a patient’s 340(B) eligibility. Without a claims modifier, patients frequently pay the full list price for their prescription instead of the discounted rate. In fact, a 2015 GAO report found that less than 50% of the pharmacies pass the discount along to the patient.

Last year Arkansas passed legislation mandating drug manufacturers sell to all contract pharmacies at the 340(B) rate and preventing claims modifier requirements. Essentially the state was expanding the 340(B) program beyond what is in the federal statute, which does not address contract pharmacies. Despite several lawsuits to clarify the requirements of the federal statute and the issue of contract pharmacies, other states have tried to pass similar legislation this year.

Requiring manufacturers to sell to contract pharmacies at the 340(B) discount is price-fixing. Unfortunately, many legislators on both sides of the aisle don’t see it that way. Government fixed prices of prescription drugs will not benefit the patients. Instead, it will cost us cures,  innovation, and research from the pharmaceutical industry. Find out more about that here.

History tells us time and again that government solutions to problems rarely have the intended effect. Legislators understandably worry about the cost of prescription drugs and making sure their constituents have access to the medicines they need; however, fixing the price of drugs is not the way to accomplish that goal. Opportunities for meaningful reform exist for policymakers to consider methods to provide rebates directly to patients, rather than pharmacies. As to 340(B), policymakers should look to the supply chain and ways to keep companies from hoarding the savings derived from discount programs. Affordable medicine is essential for the well-being of society, but a careful balance must be struck to guarantee that manufacturers will continue to invest and produce.

In Depth: Health

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