Proposed Changes to 340B May Curb Hospital Abuses

Oncology Business News®September 2017

Outpatient branded drug sales in the 340B Drug Pricing Program now amount to almost 8% of the total market, well up from 5.4% in 2012.

Ted Okon

Outpatient branded drug sales in the 340B Drug Pricing Program now amount to almost 8% of the total market, well up from 5.4% in 2012, according to a whitepaper from the Berkeley Research Group.1 The new figure highlights the dramatic growth of 340B and fuels concerns about the abuse that government officials believe is rampant in the program.

Outpatient branded drug sales under 340B will reach $29.6 billion this year, up from $12.8 billion in 2012, according to the whitepaper. Total outpatient branded drug sales are projected to reach $379 billion, up from $238.6 billion.

340B began 25 years ago with noble intentions to improve drug access for poor, uninsured, and otherwise vulnerable patients by offering savings that hospitals could apply to patient care. However, that intent has been corrupted, say critics, who contend that many of the participating hospitals, clinics, and pharmacies take advantage of the program by pocketing the difference between the discounted price they pay for drugs and the full price they charge patients.

The Community Oncology Alliance (COA) calls the program a good idea gone bad. “We’re seeing patient impact,” said Ted Okon, the executive director of COA, adding that ineligibility to participate in 340B puts many community oncologists at a severe competitive disadvantage. “Unfortunately, [the hospitals] look at 340B as more of a business, as opposed to what it should be about—the patients.”

A July congressional hearing on oversight of the 340B program2 included a review of audits performed by the Health Resources and Services Administration (HRSA), the body tasked to oversee participating hospitals and clinics. Due to the lack of regulatory authority over 340B, HRSA is limited in its ability to prevent misuse.

“You have to wonder why a program that has gotten as big as it has, as quickly as it has, doesn’t have more oversight and infrastructure. Certainly that would be part of a long-term sustainability solution. Is it a panacea? It is not, but it is absolutely part of the solution,” said Stephanie Silverman, spokeswoman for the Alliance for Integrity and Reform of 340B (AIR340B), a group aimed at getting the program back on its original track, which includes public health, advocacy, and industry innovation.

In the hearing, elected representatives agreed that faithfulness to the program’s initial purpose must be protected but that greater transparency is needed.

Some have argued that 340B contributes to price inflation because drug manufacturers are trying to compensate for the discounts they have to offer the large number of participants in the program. “Among our many concerns is that the 340B program, because it is not carefully aligned with the interests of patients, and because its oversight is not as aggressive as it could be, is currently driving market prices that are hurting the interests of many patients and, in the case of community physician practices, also a number of physicians,” Silverman said.

With HRSA currently unable to effectively oversee the program by, for example, making hospitals disclose where their savings are allocated, other changes must be made to prevent the hospitals from taking advantage, reform advocates say.

On July 13, CMS issued a proposal for 2018 that would change the payment formula for some of the Medicare Part B drugs that hospitals purchase through 340B. “CMS is committed to transforming the Medicare program and updating our policies to provide high-quality and affordable patient-centered care. These changes require innovative strategies, and we look forward to receiving stakeholder comment and incorporating new ideas in our final rule this fall,” Seema Verma, CMS administrator, said in a statement. “Additionally, the proposed rule takes a critical step toward fulfilling President Trump’s promise to lower the cost of drugs, particularly for Medicare beneficiaries.”

COA applauded the proposal, saying that it would result in significant cost savings for senior patients, Medicare, and all taxpayers. Under the policy, hospitals would be paid the average drug sales price (ASP) minus 22.5%, instead of the current ASP plus 6% that they are paid for most Medicare Part B outpatient drugs, which include two-thirds of oncology drugs, Okon explained. The CMS proposal is “a start to take some of the excesses out of this program, which are just exorbitant,” he said.

Okon also called for Congress to pass legislation to ensure greater transparency of where funds go and more clearly define which patients are eligible for the discounted drugs. Silverman also suggested that Congress address eligibility criteria for institutions to make sure that intended populations benefit from the program.

A few representatives at the hearing were not in approval of the CMS proposal. Representative Diana DeGette (D, Colorado) was troubled by the aspect of reduced payments for Medicare Part B drugs to 340B-participating hospitals. “Unfortunately, I don’t think this hearing nor the rule proposed by CMS addresses the broad problem of high drug prices,” DeGette said.

Efforts will continue to address program abuses. “There’s a belief that 340B is a financial bubble and that it is now costing everybody more, hurting everybody more, because the hospitals have no accountability,” Okon said.


  1. Vandervelde A, Blalock Measuring the relative size of the 340B program: 2012-2017. July 13, 2017. Berkeley Research Group. Accessed August 2, 2017.
  2. The Energy and Commerce Committee. Examining HRSA’s oversight of the 340B Drug Pricing Program. July 18, 2017. E&C website. Published July 18, 2017. Accessed August 2, 2017.
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