340B Spotlight: New Charity Care Data Shows Most Hospitals with Contract Pharmacies Provide Little Charity Care

New data raises even more questions about how hospitals are using for-profit pharmacies to expand a little known program called 340B. This program was designed to allow qualifying hospitals and clinics receiving certain federal grants to access deeply discounted pharmaceuticals so they can more easily provide medicines for their uninsured or vulnerable patients.

Unfortunately, there are not sufficient safeguards in place to ensure that hospitals qualifying for the program are true safety net hospitals providing a disproportionate share of charity care to low-income, uninsured patients.[1]

Now, new data shows the majority of hospitals that are aggressively expanding use of this program through for-profit pharmacies are actually providing below average levels of charity care.

For-profit pharmacies became officially involved in the 340B program for the first time in 1996, when the Health Resources and Services Administration (HRSA) allowed hospitals or other 340B entities without an in-house pharmacy to extend their ability to obtain prescriptions at 340B prices through use of a contract with an outside pharmacy.

These pharmacies are typically traditional retail pharmacies (including some large chain drug stores) and are known as contract pharmacies. In 2010, HRSA dramatically expanded the 340B program by allowing all 340B entities – regardless of whether or not they had a pharmacy on site – to have an unlimited number of contract pharmacies. HRSA also currently allows these pharmacies and hospitals to keep the profit from patients buying medicines at full cost even though the hospitals received steep 340B discounts for the medicines. There is no current requirement for hospitals to reinvest these profits from the 340B program into programs that help uninsured or vulnerable patients access the medicines they need.

Hospitals qualifying for 340B through their disproportionate share percentage (DSH hospitals) account for more than 80 percent of 340B sales volume.[2] This new data shows the majority of these hospitals taking advantage of the contract pharmacy program provide less charity care as a percent of the hospital’s costs than the average for all hospitals—including for-profit hospitals.

More specifically, 61 percent of 340B DSH hospitals with more than one contract pharmacy provide charity care that is less than 3.5 percent of costs, which is the national average for all hospitals. And almost one-in-five (18 percent) of these hospitals provide charity care that represents less than one percent of costs. This data suggests that some hospitals may be using contract pharmacy arrangements to benefit the hospital, rather than the uninsured or vulnerable patients the program was intended to help.

In addition to this data, a recent Department of Health and Human Services Office of the Inspector General report found most of the 15 DSH hospitals they sampled did not pass along the 340B discounts to uninsured patients.[3] With the majority of these hospitals providing so little charity care and evidence suggesting hospitals and for-profit pharmacies are using the program to generate profits, it is time to ask whether the current contract pharmacy program is working to improve access to prescription medicines for uninsured or vulnerable patients.

[1] Alliance for Integrity and Reform of 340B, "Unfulfilled Expectations: An analysis of charity care provided by 340B hospitals," Spring 2014 (Available at: http://340breform.org/userfiles/Final%20AIR%20340B%20Charity%20Care%20Paper.pdf)

[2] Data from Apexus Update 2015 – 340B Coalition Winter Meeting.

[3] U.S. Department of Health and Human Services, Office of Inspector General, Memorandum Report: Contract Pharmacy Arrangements in the 340B Program, OEI005—13-00431, February 4, 2014.

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