What is 340B and how does it impact hospitals' bottom line?

Yahoo

14-04-2025

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A somewhat obscure federal program designed to reduce drug prices for health providers is getting scrutiny from lawmakers this year, with many questioning whether those savings are being used effectively for underserved patients.
As designed, the 340B program requires participating manufacturers to sell discounted drugs to providers seeing low-income and underserved populations. Between 2005 and 2023, the program's total drug purchases grew from $2.4 billion to $66.3 billion — with the explosive growth exposing a rift between the pharmaceutical companies supplying the discounts and the hospitals receiving them.
In response, state legislators are considering a bill to establish reporting requirements on qualified 340B entities, with a special focus on the dozens of hospitals accessing low-priced medications.
'Transparency has been kind of a key word for everything we've done this session — for the last couple of sessions — and this is focusing a light,' said Sen. Ed Charbonneau, who authored the proposal. 'What's going on is legal, but it is far askance from the purpose of what the whole thing was — to provide low-cost medications to the indigent people needing help.'
Senators opted not to concur with House amendments, sending Senate Bill 118 to a conference committee to finalize negotiations. But the latest version would require certain health providers under the program report: aggregate drug acquisition costs and payments, pharmacy dispensing payments, claims, how 340B savings were used, patient makeup and more.
But for some of the small hospitals using the program, every dollar saved is vital to continue their services.
'We don't have the economies of scale that larger tertiary centers have. We have to make do with very little oftentimes,' said Brenda Reeta, the CEO of the Greene County General Hospital. 'The cuts are getting deep enough now that it's going to be bordering on … not just cutting service lines but, 'Can we even stay open?''
In committee testimony, much of the program's criticism can be summarized by William S. Smith, a senior fellow overseeing life science initiatives at the Pioneer Institute think tank in Boston.
Smith presented roughly 15 slides before both Senate and House committees in January and March describing how hospitals, clinics and pharmacies can acquire medications at a 'deep, deep' discount and then bill private insurers the full price — keeping the difference in a practice known as arbitrage.
'Arbitrage drives this and that creates all sorts of bad incentives for the program because hospitals have every reason to bring in fully insured patients and not to treat uninsured patients,' Smith told senators in January.
As evidence of this practice, Smith pointed to the opening of contract pharmacies affiliated with 340B entities in wealthy communities with high rates of private insurance.
'Jeff Bezos could walk into a 340B pharmacy and get a 340B drug,' Smith said. 'It should be targeted for low-income patients or uninsured patients, in my view.'
An Indiana one-pager from Pioneer concludes that more than half of these contract pharmacies are in affluent neighborhoods, dispensing drugs on behalf of 340B entities. Some of the state's largest nonprofit hospitals use contract pharmacies based in California and Hawaii, a point of contention for Pioneer.
Additionally, Smith criticized a decline in reported charity care. Lawmakers have amended the bill to exclude reporting requirements for 340 entities like Health Resources and Services Administration clinics. Programs under that umbrella include programs like the Damien Center's services for Hoosiers with HIV or the Indiana Hemophilia and Thrombosis Center.
Such clinics testified that they are already subject to stricter reporting requirements and auditing than hospitals.
'I think clinics are different than hospitals. The clinics, generally, run things better. They're audited on their charity care,' Smith said. '… and some hospitals are under-reimbursed by Medicaid and they really depend on 340B. That's why I like (Senate Bill 118) because it doesn't undercut the program. It just says, 'What's going on? How much money are you making?''
Before House lawmakers in March, Smith doubled down, targeting larger hospital systems for additional scrutiny.
'They're cutting back on their charity care and … collecting tens of millions of dollars in revenue from 340B. I'd like to find out which hospitals are doing the right thing and which ones are not and a little transparency would help,' Smith said.
Such concerns have reached Gov. Mike Braun as well, who issued an executive order in January ordering Health and Family Services Secretary Gloria Sachdev to examine the program and determine what oversight the state could pursue. Such a review is set to be finalized by the end of October.
Pushing back, hospitals said the savings from 340B weren't ever meant to go directly to patients — something Smith also said. But rather, hospital administrator said, it offsets other programming.
'If we focused on charity care, it suggests that our savings should be solely used to support charity care versus stretching scarce resources,' said Dawn Moore, a vice president and chief pharmacy officer with Community Health Network testifying on behalf of the Indiana Hospital Association.
Moore additionally noted that charity care 'only' considered services that were billed and then written off, leaving out free clinics, patient navigation services and more. 340B savings were generated when billing a private insurer, since the program can't be applied to medications under Medicaid — hence why contract pharmacies may not be located in low-income areas.
An obscure drug discount program stifles use of federal lifeline by rural hospitals
'We set up or provide services all throughout. However, because we generate a savings from locations where we have commercially insured patients, we take those savings and reinvest them where they're needed,' Moore said.
Reetz, with the Greene County hospital, estimated that her hospital got roughly $500,000 in benefits from 340B but spent nearly half of that on self-auditing and administration. Though comparatively small, having that cushion allowed her system to keep its obstetrics and gynecology service lines open as well as cardiopulmonary rehabilitation.
'We are one of the few rural communities that still has full OB services … It's very costly to keep an OB department open and we have chosen to do that because, for us, it would be over an hour away for most of our community members to travel to deliver a baby,' said Reetz. 'Within the last couple of weeks, we had a person come in that did not plan to deliver at our hospital but the baby was coming right now.
'It was a complicated pregnancy and had she not been able to have an emergency (caesarean) section right then and there, the baby would have most definitely not made it. And most likely the mom too,' Reetz continued.
Additional reporting requirements could eat into that money recouped from 340B, Reetz worried, on top of the other reporting and transparency requirements imposed on hospitals. Unlike other programs, no tax dollars are spent under the 340B program.
'I don't necessarily get why they're trying to push for more transparency, because I believe it's already as transparent as we can possibly be with it. It is just going to further dip into how much we actually are able to benefit from the program by making the administration of it even more costly,' Reetz said.
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