Oncology Drug Debate Heats Up Over 340B Discount Program

In this age of sequestration and health reform, 340B is getting a closer look by lawmakers-causing critics and advocates to line up to debate its merits.

More than 2 decades ago, an obscure program embedded in the Public Health Services Act, the 304B Discount Program, allowed hospitals and healthcare systems to purchase highly discounted outpatient drugs for Medicaid patients. The program was administered through the Health Resources and Services Administration (HRSA). The program was originally meant to provide low-income and uninsured patients with greater access to prescription medications. Its intent was not specifically geared toward oncology drugs but over time, hospitals and the oncology practices they purchased have benefitted from the financial windfall.

In this age of sequestration and health reform, 340B is getting a closer look by lawmakers—causing critics and advocates to line up to debate its merits. Covered entities that purchase drugs under 340B receive the discounted price and treat their patients, but can charge private payers the full rate of the cost of the drugs. Oncology drugs are coming under scrutiny because there typically is a higher spread or margin involved in their use.

It’s estimated that a third of US hospitals participate in the 340B program. Annual drug purchases under the program are projected to double—from $6 billion in 2010 to $12 billion in 2016. Drug discounts range from 20% to 50%. The profits for eligible hospital are enormous.

In “The 340B Drug Discount program: Oncology’s Optical Illusion,” David Eagle, MD, writes that, “just one oncologist employed by an eligible hospital can create up to $1 million of profit under the program through typical use of chemotherapeutic and supportive care drugs.” That number only goes up with the size of the healthcare system. And while hospitals may use this profit to care for the indigent, there is no language in the program that dictates where and how the profits are actually deployed.

Not surprisingly, the American Hospital Association is opposed to any efforts to scale back the 340B program, arguing that the program “is essential to helping safety-net providers stretch limited resources to better serve their communities.” The group supports extending the 340B discounts “to the purchases of drugs used during inpatient hospital stays, expanding the program to certain rural hospitals, and eliminating the orphan drug exclusion for certain 340B hospitals.”

Senator Charles Grassley of Iowa, a notable critic of the program, sent a letter to the HRSA administrator inquiring whether the HRSA is collecting and analyzing data on hospital revenue realized from 340B drugs and how that revenue is being used by the hospitals.

“Even if the 340B program allows this kind of upselling, that doesn't make it right,” Grassley said in a July 9 statement. “It also isn't right that we don't know how hospitals are reinvesting 340B revenue. Nothing that I know of requires 340B hospitals to report how they use program savings and revenue. They could use the money for uninsured patients or they could use the money toward building a new wing.”

The debate over 340B rages on. Stay tuned.