Hospitals Snap Up Practices Under 340B Drug Program

Tony Berberabe, MPH @OncBiz_Wiz
Published: Wednesday, Aug 20, 2014
Aaron Vandervelde

Aaron Vandervelde

A federal program originally meant to require drug manufacturers to provide significant discounts for outpatient drugs is increasingly being used by hospitals to acquire private oncology practices. Critics claim that this unintended consequence of the program is threatening independent community oncology practices, especially in indigent neighborhoods.

Moreover, hospitals, community health centers, and clinics that participate in the federal 340B drug pricing program are coming under scrutiny from lawmakers and the pharmaceutical industry because of the rise in acquisitions.

Consequently, oncology advocacy groups are casting a wary eye because the additional revenue that hospitals save by participating could be used to acquire more community oncology practices.

A study from the Berkeley Research Group and funded by the Biotechnology Industry Organization (BIO) found that acquisitions of physician-based oncology practices by 340B-covered entities increased significantly from 2009 to 2012; preliminary data in 2013 indicate this trend continuing.

“I think that this is a concern for community oncology practices, at least for those who want to stay independent, because the financial pressures that exist in the community setting do not exist, at least as it relates to the drug cost, in the hospital setting,” said Aaron Vandervelde, a director at BRG and author of the study, “340B Covered Entity Acquisitions of Physician- based Oncology Practices.”1

“That disparity in the cost structure creates an incentive for 340B hospitals to acquire oncologists, whether practices or individual physicians, and as 340B hospitals’ relative market share grows, it puts additional pressure on those community oncologists who have remained independent,” Vandervelde said.

The 340B program is a federal program that requires drug manufacturers to provide significant discounts for the purchase of outpatient drugs by eligible participants in the program.

Eligibility for the program is limited to specified covered entities that meet certain conditions laid out in the statute, including certain public and nonprofit hospitals that serve a disproportionate percentage of low-income patients, children’s hospitals, critical access hospitals, and federally qualified health centers and specialty clinics that receive federal grants to provide care for underserved medical communities. Physicians and physician groups do not qualify as covered entities and are not eligible to participate.


The primary finding of the study was that the volume of acquisitions increased significantly compared with prior time periods. Vandervelde also found that the acquisitions usually involved very large practices. “When we compared the volume of 340B chargebacks at the hospital prior to the acquisition, and then following the acquisition, the total chargebacks almost doubled after the acquisition,” said Vandervelde. “That suggests that the practices that were being acquired were very significant in size, as opposed to solo physician practices. “These were large multiphysician, and in some instances multisite, practices that were being acquired,” he said.

Typically, the effect of the acquisition was immediate, said Vandervelde. “There was a very steep increase in the curve of chargebacks between the first month prior to the acquisition and the 2 months following the acquisition, and then that curve flattened out because presumably 100% of all eligible purchases were now going through the 340B program,” said Vandervelde.

This finding was delineated using the database of the Office of Pharmacy Affairs, the government agency that administers the 340B program.

The third finding from the study indicates that a sizable majority of the physician-based sites were acquired in higher median income locations compared to where the hospital itself was located (see Figure 1). “There is likely to be a percentage of commercially-insured patients in those higher median income geographies, which leads to greater drug product margins,” explained Vandervelde. “For example, if you purchased a practice that was located in a very low income area where a lot of the residents were on Medicaid, the Medicaid reimbursement amount would be much lower than [that for] a commercially insured reimbursement amount. That’s because the 340B program doesn’t affect reimbursement, it just affects costs, and you would have a lower product margin in that lower median income area,” Vandervelde said.

Figure 1. Total Study Eligible 340B Chargebacks at Acquired Site by Difference in Median Income Between Acquired Site and Acquiring Covered Entity

Total Study Eligible 340B Chargebacks at Acquired Site by Difference
in Median Income Between Acquired Site and Acquiring Covered Entity

Note: 47 Acquired Sites are excluded from this analysis because they have the same median income as the Acquiring Covered Entity.

That sentiment was echoed by Brad Tallamy, policy director for the Alliance for Integrity and Reform of 340B (AIR 340B), a coalition of patient advocacy groups, clinical care providers, and biopharmaceutical innovators.

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