November 9, 2017

As I have previously written about in Health Affairs, the 340B drug discount program has taken on a life of its own: this invaluable health care program, originally created to improve the health outcomes of vulnerable patients, has been skewed and misused to enrich hospitals’ profits.

The 340B program was created in 1992, with the original intent of assisting low-income, uninsured, or otherwise vulnerable patient populations. 340B functions through pharmaceutical drug manufacturers discounting outpatient prescription drugs 30-50% for various qualifying clinics and hospitals, or covered entities. Yet 340B continues to have fundamental issues with criteria, data, and reporting, all of which destabilize and undercut the mission of the program.

These issues allow many covered entities, particularly disproportionate share (DSH) hospitals, to use the revenue from the 340B discounts for uses outside of the benefits to vulnerable patients.

While many hospitals, particularly those in rural America, are utilizing the funds saved through the 340B program to cover the amount of uncompensated and charity care they provide, many larger hospitals are taking advantage of the program’s lax oversight to simply pad their bottom lines. Our findings show that many hospitals with the highest operating margins were also those that provided the least uncompensated care. And hospitals that provided the most had the lowest operating margins.

Further, more than a third of 340B DSH hospitals provide charity care that represents less than 1% of total patient costs, and approximately one quarter of 340B DSH hospitals provide 80% of all charity care delivered by all 340B DSH hospitals.

Senator Chuck Grassley's assessment is still correct years later: hospitals are allowed to sell their drugs to fully insured patients and not reinvest the savings into care for vulnerable patients, which is “contrary to the purpose of the 340B program since much of the benefit of the discounted drugs flows to the covered entity rather than to the vulnerable patients that the program was designed to help.”

Again, this is not true of all covered entities. The 340B program is critical to true safety net providers, and is failing them as 340B morphs into its own cottage industry. Many rural hospitals don’t have the funds to hire people to take advantage of the program like large hospital systems do.

The current issues with the 340B program merit further attention from governing agencies, Congress, and the administration, in order to implement policy fixes that can deliver it back to its original mission.

A central recommendation for reform everyone should support: timely and comprehensive data collection, leading to greater accountability and transparency in the 340B program. Hospitals should be required to report drug volume, revenue generated, and how they are using the revenue to provide care and services to vulnerable patients.

The criteria surrounding the definition of a DSH hospital in the 340B program also bears further examination. The current DSH calculation is based on the amount of inpatient care a hospital provides, while the 340B program is solely for outpatient prescriptions. While this raises broader questions of how we should define true safety net providers across our health care systems, I recommend a temporary freeze on further DSH hospital designations in the 340B program until the inadequacies of this criteria can be resolved.

Any fixes to the 340B program must protect and bolster the value community health centers, independent clinics, and rural hospitals bring to their patient populations. Clarifying data and reporting measures, enhancing transparency and accountability, and implementing modernized criteria and definitions will stabilize the very foundation of the 340B program, and refocus all participation towards the direct benefit of patients and those who provide for them.

Rena Conti is an associate professor for the University of Chicago’s Department of Pediatrics & Public Health Sciences (Health Services Research).