Even as health reform dominates much of the media landscape and the policy arena in Washington, there are many health policies and programs that have a large impact on the U.S. health system that are not getting the attention they deserve. The 340B drug discount program, created in 1992, is a prime example of a well-intentioned program that is no longer performing as Congress intended: to assist safety net providers and the vulnerable populations they serve.  It is time to evaluate this program that is not putting patient needs first.

The 340B program was created to provide discounts on outpatient drugs to assist federal safety-net providers (the “grantees”) and safety-net hospitals care for uninsured patients to help offset the costs of providing access to needed medications for vulnerable patients, including free medication. Savings on medications provide the grantees and hospitals the opportunity to invest in other needed services for their patients, i.e., nursing programs and outreach missions to the homeless.


NEEDED: Transparency and Accountability

The program and its intent are admirable, and there have been remarkable success stories about its implementation by many providers. These are good actors, many of them the grantees for whom the program was originally written, and who must report to the federal government on how they use the program as part of the agreement.

However, a fundamental problem with 340B is that it lacks sufficient oversight, and allows potential bad actors to pocket the savings instead of utilizing them to better serve patients; while every hospital and grantee must meet certain eligibility criteria to get 340B discounts for outpatient medicines, the guidelines on how to use revenue generated from the program are less clear.

This lack of clear guidelines for participants merits change because the fundamental question must be answered by all 340B participants: “How well did you use the benefit the program afforded you (in this case, significant discounts on medications) to achieve the aim of the program?”

For a program intended to benefit patients, particularly a federal program, there needs to be mechanisms in place that show what the program is doing.


The Good, the Bad, and the Opportunity to Improve

In addition to needing guidelines that promote transparency and accountability, grantees and hospitals are held to two different standards. Grantees, such as community clinics and other specialized care facilities, are under far more scrutiny than large hospitals that participate in the program.

Given the disparity in oversight, this has indeed led to a mixture of responsible and irresponsible participants in the program, and makes any reform of the program more complicated, such as having better guidelines on the use of 340B savings to achieve transparency and accountability, making sure that participants are held to similar standards, and making sure that the program is not being abused.

Limited oversight of hospitals and lax rules mean there is no way to ensure the program is benefiting patients. In fact, a 2016 Avalere report showed that in more than a third of the 340B hospitals studied, charity care represents less than one percent of total patient costs.


340B Moving Care From Community Practices to Large Hospitals

There are other ramifications 340B has as well. Some hospitals increase the profits achieved through the program by acquiring independent physician practices and converting them to hospital facilities from which to administer even more 340B qualifying medications. This leads to significant consolidation of care facilities in the country; it is changing the landscape of care from private practice doctors, clinics, and other smaller providers, to big hospitals.

Hospital care is more expensive, and this consolidation translates into higher medical bills for patients and taxpayers alike and bigger profits for hospitals. A paper in The Oncologist Journal recently stated that United Healthcare’s average payment to physicians is 28 percent above the average sales price to administer cancer drugs in their offices, but they pay 152 percent above the average sales price for the same drugs to be administered in a hospital. Additionally, an April 2016 study found that for a $1 drug, a 340B hospital receives more than $2.50, a non-340B hospital gets just over $2, and a doctor’s office only receives about $1.50.

Worse yet, as a result of consolidations, patients, especially those in rural areas, have fewer options for care and are forced to travel further distances to hospitals to receive treatments. Rather than protecting patients, 340B’s backwards incentive structure leaves patients with more expensive and less convenient care.


Unchecked Growth

Given all the consolidation occurring and the limited oversight of the program, 340B is rapidly expanding. It is estimated that sales at the 340B discounted price grew more than 400 percent between 2005 and 2015 and reached $16 billion in 2016.

Hospitals represent 80 percent of program sales and continue to be the largest growing sector of the program, despite the fact that hospitals comprise only nine percent of total 340B entities. If the program is not reformed, 340B sales are projected to reach $23 billion a year according to a Berkeley Research Group report.  Growth itself is not necessarily bad, but taking into account the lack of oversight, the uneven standards grantees versus hospitals are held to, and how the program is already contributing to a more expensive care delivery system? Rapid growth requires an even more rapid response to reform the program.


“Reform” Does Not Mean “Repeal”

Despite abuse from bad actors, there are good actors who rely on 340B and are doing admirable work. Most importantly, millions of vulnerable patients do rely on 340B, making it a critical health care program in our country.

To ensure that patients, particularly those from underserved communities, are able to attain convenient and affordable care, the program must be reformed to implement the basic transparency and accountability any far reaching program has, and to eradicate the incentives that have driven some hospitals to place profit before patients.

When they work well, they are a benefit to the system’s goal of improving care and keeping costs efficient. When they don’t – through inefficiency, lack of accountability, unmanaged growth or other reasons – they become a burden on the system that hampers that original goal. Consumer groups, doctors, hospitals, drug manufacturers, insurance plans, and other stakeholders have roles to play in making these programs work.

As Congress reviews health care policy holistically, we urge it to examine and reform 340B so that it becomes the beneficial, patient-centered program it was originally intended to be.