A bipartisan group of U.S. Senators is seeking feedback on a controversial program that requires drug makers to sell discounted drugs to hospitals and clinics serving low-income areas.
A “discussion draft” of the SUSTAIN 340B Act, unveiled on February 2, aims to clarify provisions of the drug discount program that critics say are riddled with waste and abuse. The 340B program was established by the 1992 Health Services Act and is administered by the Health Resources and Services Administration (HRSA), an agency within the Department of Health and Human Services (HHS).
The measure’s future is uncertain as the stakes for hospitals and pharmaceutical companies are high. However, at a time of deep partisan divisions on Capitol Hill, the bipartisan draft to fix 340B could indicate mounting concerns with the program.
‘Rebates Result in Profits’
In a November 2022 study for the Pacific Legal Foundation, Wayne H. Winegarden pointed to one of the program’s most frequently cited unintended consequences.
“The program has turned into a large profit-generator because 340B hospitals pocket the difference between their costs—based on discounted prices from drug manufacturers—and reimbursements from Medicare or insurers based on undiscounted prices,” Winegarden wrote. “These rebates result in profits that can be more than 9 to 10 times those earned by non-340B providers for administering the same drugs.”
The discussion draft is a critical first step in reforming the program, says Moshe Chasky, M.D., an oncologist with Alliance Cancer Specialists, which claimed in a lawsuit that 340B was a reason a large hospital system canceled the group’s doctors’ admitting privileges (see related article).
“It is encouraging that attention is now being paid on both sides of the aisle to the abuses of the 340B program,” said Chasky. “340B was intended to be used to care for impoverished communities and has gone off the rails, now being used unabashedly by many institutions as a profit center even in well-heeled communities.”
‘Statutory Clarity’ Needed
While acknowledging several “concerns from stakeholders” about various aspects of the program, the “discussion draft” lacks concrete proposals. Instead, the draft identifies areas where “statutory clarity” is needed and seeks stakeholder input on ways to improve 340B. This can be seen in the discussion of “contract pharmacies” in the draft.
“Since the inception of the 340B program, covered entities [340B hospitals] have often used contract pharmacies to expand the locations and hours at which patients can access 340B drugs, particularly if they have no in-house pharmacies or cover a large service area. …Due to lack of statutory clarity, there has been ambiguity over the use of contract pharmacy arrangements which has led to litigation,” the draft notes.
“Some stakeholders have expressed concern about the number of contract pharmacies used by some covered entities,” states the draft. “The number of contract pharmacies used by individual covered entities ranges from 0 to 439 with the average covered entity who uses contract pharmacies who utilizes a contract pharmacy using 12. We would appreciate stakeholder feedback on how to achieve the correct balance of patient access, accountability, and program integrity in the use of contract pharmacy arrangements.”
Confusion also exists over what constitutes a 340B patient. “The 340B statute does not include a definition of patient,” the draft points out. In 1996, HRSA proposed a definition but later withdrew it, and Congress failed to provide a definition.
Transparency and Integrity
When it comes to the 340B program’s transparency and integrity, however, the discussion draft is prescriptive.
“We believe that requiring covered entities to report detailed information regarding their program savings, policies, patient and prescription information and then enabling that information to be publicly available by the Secretary [of HHS] will help ensure all stakeholders have trust and confidence that the program is being used as intended,” the draft states.
The language is equally tough when it comes to 340B program integrity. “We propose language that would require the Secretary to issue additional guidance regarding audits in the program and provide appropriate consequences if a covered entity does not meet compliance requirements,” the draft states.
‘Reason to Bully’ Doctors
Ge Bai, Ph.D., CPA, a professor of accounting at Johns Hopkins Carey Business School and professor of health policy and management at Johns Hopkins Bloomberg School of Public Health, says hospitals are taking unfair advantage of the 340B program.
“This ‘buy low, sell low’ program for safety-net hospitals has evolved into a ‘buy low, sell high’ program for eligible, tax-exempt hospitals, who can generate substantial profits by providing these drugs to well-insured patients,” said Bai.
“We cannot continue to have hospitals use 340B as the reason to bully out independent practices for the sole purpose of profiteering in high-cost centers,” said Chasky.
“The program is driving up the cost of drugs and care overall. As an independent practice without 340B, we have never turned away a patient and have always treated every patient no matter their ability to pay,” said Chasky. “Our community has always depended on our group and because of this abused program, our hospital privileges in Oncology and Hematology were rescinded.”
Bonner Russell Cohen, Ph.D. (bcohen@nationalcenter.org) is a senior fellow at the National Center for Public Policy Research.
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