As a safety-net for the poor, Congress started a drug rebate program in Medicaid in 1990 to provide pharmaceuticals to the most vulnerable enrollees. Section 340B of the Public Health Service Act requires drug companies that participate in the Medicaid entitlement to sell outpatient pharmaceuticals to various medical facilities that provide care to low-income patients. The program began in 1992 and was essentially an extension of the original drug rebate plan.
Drug companies give outpatient medicines at a discounted price to facilities called “covered entities” that serve the poor or uninsured. However, covered entities can sell the drugs to anyone, not just the poor, regardless of their insurance or ability to pay.
In other words, these facilities obtain drugs at a mandated discount price through the 340B program, sell them at higher prices to insured and paying patients and then collect the profits between the full retail price and their discounted price. Bottom line, the program has changed from assistance to the poor into a money-maker for these facilities and an additional cost, or tax, for the drug manufacturers.
The definition of a covered entity has expanded several times since 1992, but Congress and newly passed laws, such as the Affordable Care Act, increased the number of qualified facilities dramatically. Obamacare added outpatient cancer clinics, rural clinics, sole community hospitals, and critical access hospitals to the list. Plus, the ACA increased Medicaid significantly. No surprise, the American Hospital Association has lobbied extensively for a continuation and expansion of the program.
As of 2021, the 340B program accounted for 7.2 percent (approximately $44 billion) of all prescription drugs sold in the U.S. By 2022, the amount increased to $54 billion. A total of 53,000 medical facilities participate in the 340B plan, which is almost double the number of facilities in the program in 2014. The average profit margin on the sale of prescription drugs not obtained in the 340B program for medical facilities is 23 percent, compared to profits of 72 percent for drugs obtained in the 340B program.
Over 40 percent of all insured patients in the United States are in the government programs of Medicare and Medicaid, both of which began in 1965. Since the 1980s, provider payments have gradually, but relentlessly, gone down. This has caused doctor and hospital consolidation so that medical providers could survive financially.
Unfortunately, medical facilities use the 340B program as another income source. Elected officials argue that the money comes from drug manufacturers and not taxpayers, so why not expand the program.
Although it began with the goal of helping the poor, the 340B program has morphed into a supplemental income plan for the participating medical facilities. The poor are not being helped as originally intended. The other untoward consequence of the program is the financial burden placed on the pharmaceutical manufacturers. Instead of more money for the research and development of life extending and life saving drugs, the companies are subsidizing medical facilities that the government can’t financially support.
The 340B program either needs serious reform to actually support the most vulnerable patients or it should be closed. It definitely should not be expanded in its present form.
Dr. Roger Stark is a visiting fellow with Mountain States Policy Center. A retired surgeon, Dr. Stark has authored three books including “Healthcare Policy Simplified: Understanding a Complex Issue,” and “The Patient-Centered Solution: Our Health Care Crisis, How It Happened, and How We Can Fix It.”