Inequities of 340B Drug Pricing Program May Last Despite Rising Concern

Oncology Business News®May 2015
Volume 4
Issue 4

Frustration is mounting with a federal program that was originally designed to allow hospitals that care for underserved people to purchase outpatient drugs at discounted prices.

Gina Villani, MD

Frustration is mounting with a federal program that was originally designed to allow hospitals that care for underserved people to purchase outpatient drugs at discounted prices. Just ask Dr Gina Villani, an oncologist in Harlem, New York City. Eighty-five percent of her patients are insured through Medicaid, but her clinic does not qualify for 30B Drug Pricing Program discounts. It is owned by Memorial Sloan Kettering (MSK) which, as an institution, doesn’t meet the 11.75% Medicaid patient requirement. As a result, Villani’s Ralph Lauren Center for Cancer Care and Prevention relies heavily on charity to subsidize the cost of treatment.

“If you want to take care of the poor, then you have to go beg people to help you out, and we’re not getting the benefits other places are getting,” Villani says.

Villani is among the population of physicians who feel that the 340B program, created in 1992, needs an overhaul, particularly in order to better serve the indigent and underinsured patients for whom it was intended. A loose definition of which patients are eligible is widely blamed for the extension of program benefits to populations who don’t need them.

A House Energy & Commerce Subcommittee on Health hearing in March on the apparent abuse of the program and the need to institute reforms has fueled hopes that the will to institute change is rising in Washington, DC. Officials from various government agencies reviewed audit information on the program and discussed the shortcomings of efforts to reform 340B. Hearing participants also heard about forthcoming guidance on how the 340B program should operate in future for better results.

“I think the hearing indicates that Congress is waking up to the very serious need for possible change in the program,” says Stephanie Silverman, spokeswoman for the Alliance for Integrity and Reform of AIR 340B, a consortium of oncologists, healthcare companies, and drug manufacturers. “There is a lot of pent-up interest across the ranks of the subcommittee for getting to what’s ailing the 340B program.”

Numerous Deficiencies and Inequities

In the testimony March 24, an official with the Office of Inspector General (OIG) in the Department of Health and Human Services identified numerous inefficiencies and inequities in the 340B program.1 Assistant Inspector General for Evaluations Ann Maxwell said that in many cases 340B program participants have not passed along savings to their disadvantaged patients. In addition, Maxwell said, a lack of transparency in drug billing and manufacturer pricing has caused widespread inconsistency in the discounts that are applied to purchases, owing to regulatory provisions that have prevented the free flow of information that was intended to be shared.

“Without access to ceiling prices, 340B providers cannot ensure that they are being charged the appropriate amount by drug manufacturers. OIG’s work has shown that 340B providers have, in fact, been overcharged for 340B-purchased drugs in the past: we found that 14% of drug purchases under the 340B program in June 2005 exceeded applicable ceiling prices. As a result, 340B providers overpaid by a total of $3.9 million during that month,” Maxwell said.1

In order to ensure proper compensation under the 340B program, states have been forced to do costly payment audits to compensate for the lack of information on ceiling prices, she said.

Maxwell also expressed concern about the rise of contract pharmacies, which have expanded rapidly and are handling an increasing share of 340B prescription business. These pharmacies make their determination about patient eligibility at the drugstore counter rather than at the doctor’s office, Maxwell said, and having no way of knowing who is eligible when the prescription is filled, make their determinations later. Each has its own system for making those determinations, he explained, and there is wide variation, some of which could be construed as “diversion” of 340B funds to unacceptable uses.

Exponential Growth of Contract Pharmacies

Meanwhile, growth of the contract pharmacy sector has been exponential. In a 2014 report, the OIG stated that the percentage of 340B providers that use contract pharmacies had risen to 22% from 10% in 20102 and that the number of “unique” pharmacies serving as 340B contract pharmacies had grown by 770%.

Another flaw in the 340B design is that there is no stipulation for how savings from the program must be used, meaning entities are not required to pass those savings along to patients, Maxwell said. Patients who ought to receive discounts sometimes end up paying full price at the pharmacy, she said, either out of pocket or through their insurers.

This may happen either because pharmacies lack policies that force them to make 340B determinations at the register, or because they make those determinations too late in the process, after the patient has already paid full price, Maxwell said. “Several 340B providers in OIG’s 2014 report did not offer the 340B price to their uninsured patients at contract pharmacies.”

The Health Resources and Services Administration plans to issue wide-ranging 340B program guidance in June 2015 that will address patient definition and other contract pharmacy issues, Maxwell said.

In an official statement, ASCO, the nation’s largest association of oncologists, blasted the 340B program architecture as loosely written and capable of such broad interpretation that it has become an engine for growth and maximization of revenues by hospitals and other healthcare entities, rather than a well-controlled vehicle for delivering drugs into the hands of the underinsured and indigent.3

Oncology practices acquired by 340B covered-institutions may qualify for participation in the 340B program and share in the wide “spreads” between wholesale and retail drug prices that are available, but many practices are not involved, and they are forced to compete against the high-octane growth of 340B-qualified entities, according to ASCO. The problem is magnified because drugs play such a huge role in cancer care. “The impacts—both intended and unintended—of the program are profound in cancer care because of the integral role that drug therapies continue to play in anticancer treatment regimens.”

New Definition Required for Eligible Patient

ASCO recommended that the government redefine the meaning of an eligible “patient” under the program to eliminate the ambiguity in the current language that allows for tremendous latitude in interpretation; and additionally, that the Disproportionate Share Hospital (DSH) formula, another measure of 340B eligibility, be replaced with something more effective.

Villani, who serves as chair of the ASCO Health Disparities Committee and was a coauthor of an ASCO 340B position paper, says having 340B eligibility at her clinic would make a huge difference because doctors there have a tight budget and very few privately insured patients. “Our margins are next to nothing. We’re working off 2 or 3 percent at best. If there were a couple of drugs whose cost wasn’t covered, there goes our margin for the month.”

She estimates that 40% of her budget comes from philanthropy, namely MSK and the Ralph Lauren Pink Pony Fund. Although donations are one way to cover expenses, Villani says, a “level 340B playing field” would go much further, providing revenue for service enhancement as well as a measure of dignity. “We’re running a business. We’re giving patients high-quality care. The current model is fee for service. Why should we even have to have philanthropy to run our operations?”

Beyond extending 340B coverage to where it can do more good, there is the need to gain control over the program, Silverman says.

“We heard government officials testify at the subcommittee hearing that there is no rule that requires institutions to be accountable for how they use the funds. Even though legislative history tells us that the program is intended for the benefit of underserved, needy patients, there isn’t an accounting that the law requires. And so it is hard to fault institutions that are trying to make ends meet for also trying to find as many additional economic resources as they can.”

340B Is Worthy of Salvage

She believes 340B should be salvaged, not scrapped. “There is no interest, at least from our group, in eliminating 340B, but I think there is tremendous interest in finding ways to get back to the origins of the program to serve the patient. What’s happening now certainly wasn’t intended. It has been a patchwork of nonregulation and then legislation, and then there has been a patchwork of activities, none of which has created a coherent whole,” she said.

Kavita Patel, a health policy scholar and managing director at the Brookings Institution, thinks that 340B reform will take more determination than Congress has right now, given that it has recently completed a repeal of the Sustainable Growth Rate formula and other healthcare action. “My overall sentiment is that 340B will continue to be a target in terms of scrutiny by Congress, but whether Congress has the ability to act on it is a totally different matter.”


  1. Maxwell A. Examining the 340B drug pricing program. Committee on Energy & Commerce. Accessed April 22, 2015.
  2. Wright S. Contract pharmacy arrangements in the 340B program, OEI-05-13-00431. Department Health and Human Services, Office of Inspector General. Accessed April 22, 2015.
  3. Tompkins J. Policy statement on the 340B Drug Pricing Program by the American Society of Clinical Oncology. J Oncol Pract. Published April 15, 2015. Accessed April 25, 2015.

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