Key Takeaways
- Absence of mandatory federal reporting on 340B revenues and expenditures is viewed as the program’s core governance gap, despite existing audit authority focused on duplicate discounts and diversion.
- Eligibility criteria tied to disproportionate Medicaid/uninsured volume remain contested, with examples showing large academic systems generating far more 340B margin than charity-care outlays compared with public safety-net hospitals.
- Use of savings ranges from keeping small hospitals solvent to subsidizing high-cost service lines, yet lack of spending requirements can incentivize expansion in affluent markets and shift costs to payers.
- Manufacturers are criticized for contract-pharmacy restrictions and demands for claims data, while also allegedly pricing 340B discounts into list prices; limited HRSA rulemaking authority perpetuates litigation.
Does the 340B program help hospitals provide care and other services to low-income patients? Or has the program grown beyond what was initially intended, with undeserving institutions taking advantage of it?
Two industry leaders addressed these questions and more during a webinar sponsored by Managed Healthcare Executive, Drug Topics and the Pharmacy Benefit Management Institute.
Tom Kraus, J.D., chief advocacy officer and vice president of government relations at the American Society of Health-System Pharmacists, argued in favor of the program’s value to patients. “Hospitals are still operating on incredibly thin margins across the board. The average is around 1%; almost half are operating at negative margins. It’s just not true that they’re somehow getting rich off this. They’re using it to provide patient care in communities that need it and to patients that need it.”
But Shawn Gremminger, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, said the program has “grown out of control, and it doesn’t have the guardrails it needs. What 340B has tried to accomplish is absolutely valid; I fully support it. But it’s plainly obvious to anybody that the time is now for Congress and policymakers to get together and say we can make this program actually work.”
The 340B program allows qualifying hospitals and other providers, such as federally qualified health centers, to purchase medications at discounted rates from drug manufacturers and use the difference between the discounted price and the reimbursement from commercial insurers and other payers to fund patient care services.
The 340B program generated roughly $100 billion in discounted drug purchases last year, growing 23%, compared with less than 10% growth in overall U.S. prescription drug spending.
Since its implementation in 1992, more than half of U.S. hospitals participate in the program.
The Health Resources & Services Administration (HRSA), which oversees the 340B program, is currently reviewing comments and determining next steps for a pilot 340B rebate program for drugs that were part of the Inflation Reduction Act’s Medicare Drug Price Negotiation Program.
Here are four key takeaways from the webinar:
1: Transparency and oversight
There is no federal requirement that hospitals report how much 340B revenue they collect or how they spend it. Gremminger argued that this absence of reporting is the program’s central flaw. “The underlying problem with 340B is it creates economic distortions,” he said. “The program is so problematic because it has virtually no oversight. The Health Resources and Services Administration, which oversees nominally 340B, has been found by courts to have basically no ability to actually create rules.”
Gremminger said payers want to know how much hospitals make and what they do with the money. He pointed to states, such as Minnesota, that are beginning to require covered entities to report this information.
Kraus countered that HRSA and manufacturers already have audit authority when there is a specific concern, such as a suspected duplicate discount, and that 340B dollars are not separately traceable once they reach a hospital’s books.
2: What counts as a safety net hospital?
Much of the debate centered on which hospitals should qualify for participation in the program. Gremminger cited Minnesota data showing that M Health Fairview, the University of Minnesota’s academic medical center, netted more than $300 million in 340B revenue last year while providing about $17 million in charity care, compared with Hennepin Healthcare, a public safety-net hospital that made roughly $100 million in 340B revenue against $107 million in charity care. He argued dollars are flowing disproportionately to large, financially healthy systems rather than the rural and community providers the program was designed to protect.
Kraus said that hospitals in the program already treat a disproportionate share of Medicaid and uninsured patients to qualify. “The states have said payers should pay the normal rate, and they want the clinic or hospital to be able to use those dollars to subsidize care in their communities. I think that’s like a reasonable decision that states can make, and I think from my perspective, it helps us provide care to patients.”
3: What services should 340B dollars fund?
Kraus maintained that the law implies, though does not strictly require, that 340B savings support safety net care and noted three-quarters of small participating hospitals use the savings simply to stay open. Additionally, he said large academic centers often house the trauma centers, cancer centers, and emergency departments that require substantial, ongoing subsidy.
“At the end of the day, the program exists in order to subsidize the care of patients by allowing providers to purchase at a lower cost and sell to payers at a higher cost, which is the contracted rate. The program’s not designed to subsidize payers; it’s designed to subsidize providers so that they can survive.”
Gremminger said the lack of any spending requirement means some systems reinvest the 340B margin into facilities in higher-income, better-insured markets rather than expanding services for low-income patients, calling that an economic distortion that raises costs for employers, taxpayers, and working families through reduced Medicaid rebates and higher commercial pricing.
4: Pharma’s role in drug pricing
Both panelists were critical of drug manufacturers, although for different reasons. Kraus said pharmaceutical companies, which he noted operate on roughly 40% margins compared with hospitals’ roughly 1%, have pursued restrictions on contract pharmacy arrangements that have ended up in litigation. Manufacturers such as Eli Lilly are now requiring covered entities to turn over claims data as a condition of receiving discounts, which he characterized as a “fishing expedition” rather than a targeted integrity effort.
Gremminger agreed pharma bears responsibility for high drug prices because companies simply prices 340B’s cost into list prices, which he argued undermines any savings the program is meant to generate. Both agreed HRSA lacks the statutory authority for meaningful rulemaking, a gap they said invites continued litigation between manufacturers and hospitals.
HENRY KOTULA 