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340B Spotlight: How much money are hospitals pocketing under 340B and what are they doing with those profits?

Nicole Longo   |     March 28, 2018   |   SHARE THIS

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The once little-known 340B drug discount program, which was designed to help low-income, uninsured or otherwise vulnerable patients access prescription medicines at safety-net facilities, is now a trending topic in health care discussions. Everyone is asking questions – What is 340B, and who participates? Is it really helping patients, or is it being exploited to serve as a profit center? Is the program’s dramatic growth having unintended consequences throughout the rest of the health care system?  

One of the most common questions people ask is what is the total value of the 340B discounts that hospitals and other 340B entities get from the program? To date, the Health Resources and Services Administration (HRSA), which oversees the 340B program, has not published such an estimate. However, based on publicly available data, it is estimated that 340B discounts valued $15.6 billion in 2016.

Let’s break down the numbers step by step.

Step 1: To start, we look at drug sales at the discounted 340B price. According to HRSA, brand and generic drug sales at the 340B price were $16.2 billion in 2016. Program sales have grown more than 400 percent between 2005 and 2015 – a faster pace than hospitals’ total drug purchases. And there’s no sign that program sales are declining, let alone staying at that same level. 

Step 2: Next, we need to determine the 340B discount rate. According to the Congressional Budget Office, under the terms of the program, hospitals and safety-net clinics that meet certain eligibility criteria receive a discount that averages 49 percent off of the list price (Average Wholesale Price or AWP) of outpatient prescription medicines.

Step 3: Now that we’ve gathered all the data, let’s plug the numbers into our equation.

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Answer: In 2016 340B entities received a discount of at least $15.6 billion off of AWP. 

It’s important to point out that these numbers actually underrepresent the true volume going through the 340B program. HRSA’s data only represent sales made through its vendor Apexus and excludes direct manufacturer sales to 340B entities. According to MedPAC’s estimates, that means that 5 to 10 percent of program sales are actually missing from that $16.2 billion number. 

What are 340B entities doing with all the money they generate by participating in 340B? Safety-net clinics like Community Health Centers, Ryan White clinics and Hemophilia Treatment Centers, also known as grantees, have strict rules as conditions of their federal grants for how they must use the money retained from sales of 340B medicines. However, there is no requirement that hospitals or their offsite outpatient facilities meet those same accountability requirements for the profits they generate through 340B. Evidence shows that many 340B hospitals, specifically many disproportionate share hospitals (DSH), may not act as true safety-net providers and instead drive costs of care up through misaligned incentives.

Something has gone wrong with 340B when 80 percent of program sales go to these DSH hospitals – and government officials, patients and payers have no idea how the money is being used.

Members of Congress have taken action to evaluate the program with hearings in both the House and the Senate, and legislation has been introduced in both chambers that, if enacted, would help get the program back on track. Let’s modernize the 340B program so that patients do in fact benefit and it no longer drives up health care costs.

Learn more about the program at PhRMA.org/340B.

Nicole Longo

Nicole Longo Nicole is director of public affairs at PhRMA focusing on Medicare, 340B, importation and more. She previously worked for a D.C.-based public affairs firm where she assisted a wide range of clients with communications efforts on everything from trade policy to agriculture policy to health care policy. Outside the office, Nicole can be found trying new restaurants (usually Italian), taking an occasional barre class and cheering on the Cincinnati Bengals.

Topics: 340B, hospitals, 340B Spotlight

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