About the 340B Program

Congress created the 340B program in 1992 to help certain healthcare “safety net providers” that serve many uninsured or vulnerable patients reduce outpatient prescription drug costs. The 340B program requires prescription drug manufacturers to provide discounts to specified federally-funded clinics and certain hospitals, otherwise known as “covered entities,” as a condition of participation in the Medicaid program. Since its inception, the program has grown exponentially, yet patients have not always seen the benefits of that growth.

In fact, today, about 45 percent of all Medicare acute care hospitals participate in the 340B program. Sales at the 340B price were estimated to be $16 billion in 2016, and research shows that the program is forecasted to exceed $20 billion by 2019 and $23 billion by 2021 (measured at discounted 340B prices). This growth has continued in recent years despite declines in the number of uninsured and lower charity care burdens for hospitals. The major drivers of this growth are threefold: 1) new entity enrollment, such as hospitals and grantees; 2) 340B hospital acquisition of physician practices and the creation of new referral networks; and 3) contract pharmacy expansion.

In 2015, HRSA released a proposed omnibus guidance, addressing several issues, including the definition of a 340B-eligible patient. The guidance went through a notice and comment period and was withdrawn in early 2017. The proposed guidance would have more clearly defined when hospitals can obtain 340B discounts by clarifying who meets the definition of a 340B patient. Under the proposed guidance:

  • Simply providing a referral from a covered entity to an outside provider is insufficient to qualify the drugs prescribed by the outside provider for a 340B discount;
  • The dispensing or infusion of outpatient drugs to an individual at a covered entity would not be enough to establish that the individual was a patient of the covered entity;
  • Employees of a covered entity are not considered to be 340B patients unless they otherwise meet the patient definition; and
  • A provider merely having privileges or credentials at a covered entity would not be enough to demonstrate that a patient treated by that provider is a patient of the covered entity.

The clarifications included in previously released proposed guidance would have been an important initial step toward increasing oversight and accountability in the 340B program. Beyond a strong patient definition, additional reforms will be needed to address other key aspects of the program.

  • New policies are needed to address the dramatic growth of contract pharmacy arrangements between 340B entities and for-profit pharmacies.
  • Reforms are needed to curb the financial incentives driving 340B hospitals to acquire community-based physician practices, particularly given the substantial increase in health care costs associated with the site of care shifting from physician offices to hospital facilities in the last decade.
  • Congress should also revisit whether the current hospital eligibility criteria in the 340B law are appropriately targeting the program to true safety net hospitals.
  • HRSA also should strengthen eligibility standards for non-public hospitals and work with the Centers for Medicare & Medicaid Services to develop new policies to prevent duplicate discounts.
  • Hospitals that participate in the 340B program should be required to have a sliding fee scale for prescription drugs for low-income or uninsured patients.

These reforms will help put the 340B program on a more sustainable path going forward and ensure that the program can continue to serve true safety net facilities and the patients who depend on them.