Exploring Hospital Profitability Through The 340B Drug Pricing Program

The 340B Drug Pricing Program, established in 1992, was designed to help hospitals serving vulnerable and low-income communities by providing discounted prescription drugs. The program has grown over time, with an increase in participating hospitals and sites, and it has been reported that hospitals are making profits from the program. This is achieved by expanding into more affluent communities and charging higher prices, which has led to criticism and calls for regulation to ensure the program benefits underserved patients as originally intended. Hospitals use the savings from the program to provide free care, vaccines, and other services, but there are concerns about the impact on patients' out-of-pocket expenses and the role of contract pharmacies in diverting savings.

Hospitals buy discounted drugs and charge insurers, the uninsured, and cash-paying patients a markup

The 340B program was created in 1992 as a mechanism to enable hospitals that serve uninsured and low-income populations to provide prescription drugs more affordably to patients on Medicare. The program lowers what hospitals pay for the drugs, and does not limit what hospitals can charge insurers. The program's original intent was to help low-income and uninsured patients.

Section 340B of the Veterans Health Care Act of 1992 gives registered “340B entities” such as hospitals and other medical care providers access to deep discounts on outpatient drugs. The definition of “covered entities” includes six categories of hospitals: disproportionate share hospitals (DSHs), children’s hospitals and cancer hospitals exempt from the Medicare prospective payment system, sole community hospitals, rural referral centers, and critical access hospitals.

Hospitals use 340B savings to provide free care for uninsured patients, offer free vaccines, provide services in mental health clinics, and implement medication management and community health programs. Hospitals buy drugs at steep 340B discounts, then charge insurers, the uninsured, and cash-paying patients a markup. The profits pad the hospitals' bottom lines and provide ample capital to take over and consolidate local markets, particularly in cancer care.

The commercially insured patient is responsible for one-third of the total profit earned by the 340B hospital and the contract pharmacy. If the patient had a high-deductible plan, then 100% of the 340B savings would come from the patient. The only way to ensure that 340B functions as intended is by regulating the bad actors who take advantage of the program.

340B hospitals provided nearly $85 billion in benefits to their communities in 2020

The 340B program, or the 340B Drug Pricing Program, was created in 1992 as a mechanism to enable hospitals that serve uninsured and low-income populations to provide prescription drugs more affordably to patients on Medicare. The program achieves this by lowering the cost of drugs for hospitals, without limiting what they can charge insurers.

In 2020, 340B hospitals provided nearly $85 billion in benefits to their communities, a 25% increase from 2019. This was made possible by the savings generated by the program, which hospitals used to provide free care for uninsured patients, offer free vaccines, provide services in mental health clinics, and implement medication management and community health programs. For example, in 2023, Grady provided nearly 900,000 low-cost prescriptions to patients, with no uninsured patient paying more than $5 for any formulary prescription. In the same year, OLOL offered free delivery of medications to low-income neighborhoods in the greater Baton Rouge area.

The 340B program is particularly beneficial for hospitals serving vulnerable communities, helping them to manage rising prescription drug costs. It allows eligible hospitals to stretch limited federal resources to reduce the price of outpatient pharmaceuticals for patients and expand health services to the patients and communities they serve. The program includes six categories of hospitals: disproportionate share hospitals (DSHs), children's hospitals and cancer hospitals exempt from the Medicare prospective payment system, sole community hospitals, rural referral centers, and critical access hospitals.

Despite the benefits of the program, critics want to scale it back or reduce the benefits that eligible hospitals and their patients receive. However, supporters of the program argue that it is essential for hospitals serving vulnerable communities and helps to improve the health and well-being of patients and communities.

Hospitals use 340B savings to provide free care for uninsured patients, free vaccines, and mental health services

The 340B Drug Pricing Program was established in 1992 to enable hospitals serving vulnerable communities to manage rising prescription drug costs. The program requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to healthcare organizations that serve many uninsured and low-income patients.

Hospitals use the savings from the 340B program to provide free care for uninsured patients, offer free vaccines, and provide services in mental health clinics. For instance, the 340B program helps hospitals provide comprehensive ambulatory pharmacy services, medication management, community navigation, and clinics to address substance use and mental health disorders.

The 340B program also enables hospitals to stretch their limited federal resources to reduce the price of outpatient pharmaceuticals for patients and expand health services to the patients and communities they serve. In 2020 alone, 340B hospitals provided nearly $85 billion in benefits to their communities, a 25% increase from the previous year.

The 340B program is especially critical in reducing the financial burden on patients from low-income backgrounds, increasing medication adherence, and preventing hospital readmissions. Additionally, the resources freed up by the program enable hospitals to invest in preventive care and health education initiatives, fostering healthier communities.

Despite the significant benefits of the 340B program, critics want to scale it back or reduce the benefits that eligible hospitals and their patients receive. However, advocates emphasize the need to protect the program and ensure it continues to help providers stretch limited resources and provide comprehensive services to more patients.

Hospitals generate profits by expanding to reach more affluent communities

The 340B program, created in 1992, was designed to enable hospitals serving vulnerable, low-income, and uninsured communities to provide prescription drugs more affordably. The program achieves this by lowering the cost of drugs for hospitals without limiting what they can charge insurers.

However, the program has faced scrutiny from critics who argue that some hospitals exploit these drug discounts to generate profits, rather than investing in programs to help the poor or passing on savings to patients and insurers. These critics point to the fact that hospitals and clinics that registered for the program after 2004 serve wealthier and more insured communities compared to those registered before.

For example, Duke University Hospital, a 340B entity, reported five-year profits of $282 million accrued through its outpatient departments and affiliated clinics. Additionally, it is estimated that a single medical oncologist practicing at an outpatient clinic affiliated with a 340B hospital could generate up to $1 million per year in profits by administering drugs obtained at 340B discounted prices to fully insured patients.

This strategic behavior by hospitals may lead them to expand into areas serving more affluent and better-insured patients, even if it contradicts the program's original goals of improving care for low-income and uninsured patients.

Despite the criticism, the 340B program has provided valuable resources for hospitals to maintain, improve, and expand access to programs that enhance the health and well-being of underserved communities. In 2020, 340B hospitals provided nearly $85 billion in benefits to their communities, a significant increase from the previous year.

Hospitals can earn thousands of dollars from specialty prescriptions that they never dispense

The 340B program, a mechanism created in 1992, enables hospitals that serve uninsured and low-income populations to provide prescription drugs more affordably to patients on Medicare. While the program's profits are small in the context of overall hospital budgets, they are significant when compared to the safety-net care provided to their communities.

The program lowers what hospitals pay for drugs, and does not limit what hospitals can charge insurers. This means that hospitals can make money on outpatient drugs given to seniors, and these profits can be substantial when compared to levels of uncompensated care costs. For instance, a specialty drug with a wholesale acquisition cost (WAC) list price of $5,000 may have a 340B ceiling price that reflects a 75% discount from the WAC list price.

Hospitals can use these savings to provide free care for uninsured patients, offer free vaccines, and implement community health programs. Additionally, the 340B program allows eligible hospitals to stretch their resources and provide additional benefits and services to underserved populations, including children and cancer patients.

However, critics of the program argue that it incentivizes hospitals to merge and increase drug prices. Hospitals can earn high revenues from specialty drugs, which can lead to price markups and negatively impact patients' coinsurance. Despite these concerns, the 340B program has provided valuable resources for eligible hospitals to maintain and expand access to programs that improve the health and well-being of their communities.

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