For more than 25 years, the 340B Drug Pricing Program1 has helped safety-net facilities serving vulnerable or uninsured patients gain access to prescription medicines. Created by Congress under Section 602 of the Veterans Health Care Act of 1992 and enacted as Section 340B of the Public Health Service Act, this program covers clinics, not-for-profit hospitals, and Federally Qualified Health Centers (FQHC), which typically serve underserved rural areas or inner cities.
According to the Health Resources and Services Administration (HRSA), which is responsible for administering the 340B program, enrolled hospitals and other covered entities can achieve average savings of 25% to 50%1 in pharmaceutical purchases. The program has expanded significantly2 over the years, with the number of hospitals nearly tripling from 2005 to 2011 and about one-third of all U.S. hospitals participating.
The 340B Program requires drug manufacturers to provide outpatient drugs to these eligible healthcare organizations at significantly reduced prices, enabling covered entities to stretch scarce federal resources as far as possible, reach more eligible patients, and provide more comprehensive services.3
Manufacturers provide steep, mandatory discounts on medicines, including specialty drugs, to these facilities as a condition of their drugs being covered by Medicaid—and the entity can bill the drugs at the traditional commercial rate.
Program Growth and Backlash
Super discounts of up to 70% are not unusual, so it’s no surprise that many organizations, which must provide a clinical service to patients who are documented in their EMR/EHR system, have gone through the process of becoming eligible or “cover ready.” In fact, this sector has seen exponential growth as a multitude of organizations have created not-for-profit divisions over the last 15 years to meet eligibility requirements. Companies have also emerged with the sole purpose of helping these entities become eligible as new rules surfaced to support program expansion.
While pharmaceutical companies have viewed this growth as opportunistic, the reality is many of these eligible institutions depend on these drug revenues and profits to stay financially viable—and help their underserved patients—because the margins on these drugs range from 30% to 99%. For specialty drugs, this program becomes even more important because the price tag for medications is especially high.
In 2019, discounted 340B purchases reached at least $29.9 billion—up 23% from 2018.4 Since 2014, purchases under the 340B program have tripled. Over the same period, manufacturers’ net drug revenues have grown at an average rate of below 5%. Consequently, the 340B program accounts for more than 8% of the total U.S. drug market and about 16% of the total rebates and discounts that manufacturers provide. While Medicaid rebates directly and transparently lower drug costs for the government, providers fold 340B discounts into financial statements.
In response, pharmaceutical companies are pushing back. Forced to accept a 7x increase over the last decade and watch profits dwindle, they say they have had enough and are now pressuring policymakers to curtail the 340B program.
The Impact on Specialty Pharmaceuticals
Some of the highest profile drugs fall into the specialty category, with a product such as Humira generating $13 billion annually for AbbVie. On the 340B pricing schedule, Humira costs less than $2 a month vs. normal reimbursement at $5,000 a month or $60,000 annually. Essentially, a covered entity can bill for $50,000-60,000 per year, and only have to pay $50 for the product. That translates into 100% profit.
Another good example is hemophilia. Specialty drugs to treat this condition are provided in hemophilia treatment centers, many of which are covered entities. Hemophilia treatment can cost up to $1 million per individual. What’s more, Medicaid health plans can expect to see greater numbers5 of people with hemophilia over the coming years as a result of Medicaid program expansion, enrollment of more men, and the move from fee-for-service into managed care for disabled and dual eligible populations. Without the 340B program, this highly vulnerable population is more at risk for access and costs—with serious health consequences for patients who might be forced to forego treatment.
Another high cost specialty is cancer. Unlike other areas of medicine, oncologists profit from the sale of chemotherapy drugs.6 In fact, a significant amount of their revenue comes from buying the drugs wholesale and selling them to patients at a markup, which has led to prices for some cancer drugs skyrocketing to tens of thousands of dollars a year.
Protecting Vulnerable Populations
Further cuts or defunding of the 340B program could be financially catastrophic for America’s 340B hospitals, leading the millions of patients7 they serve to suffer lasting consequences. These cuts come at a time when the nation’s healthcare system is attempting to improve accessibility to care, especially for ethnic populations and Blacks, and the end of the 340B program would halt medicine desperately needed for the country’s most vulnerable populations.
It’s important to understand who would be impacted. For example, the proportion of Hispanic Americans served by FQHCs grew from 11.2% in 2007 to 13.4% in 2014,8 which was a significantly more rapid rate of growth than that of non-Hispanic Americans.
Sickle cell disease, one of the most common inherited blood disorders, affects about 100,000 Americans, most of them Black. The Food and Drug Administration approved Novartis AG’s Adakveo. This monthly infusion cuts occurrences of sickle cell pain episodes by half but costs approximately $85,000 to $113,000 per year.9
To protect these populations, private sector initiatives are providing viable options that would help to retain the 340B program:
- Leverage telehealth and telemedicine programs to perform clinical services and then integrate this clinical protocol around drugs, such as Humira. The covered entity would perform a critical service with protocols in place for each patient, and this level of service would be entered right into their EMR system.
- Place covered entities into twin networks, getting the appropriate specialty pharmacies contractually organized with those covered entities in a way that takes advantage of this situation. One new program of this type is still in the pilot stage with a few health plans in the D.C. and Philadelphia areas.
While it is highly unlikely anything will change, leadership teams at covered entities are shaken by the possibility of cuts to the 340B program, which has not fallen under such scrutiny until now. This has also left market players unsure about rolling out new programs designed to relieve anxiety around the high costs of specialty care and drugs.