Academic Literature

Cost Consequences of the 340B Drug Discount Program

Unintended consequences of the 340B drug discount program alter physician prescribing habits, widen the disparity in hospital profits, and increase list prices of drugs to compensate for revenue losses.

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Originally published on 05/15/2013 in JAMA Viewpoint

The 340B program is a federal drug discount program that allowed a handful of hospitals that served low-income communities to obtain drugs for reduced prices.

Through a series of expansions, including some enumerated in the Affordable Care Act, numerous other types of entities such as community hospitals and cancer centers that serve both the poor and the well-insured can participate. Between 2009 and 2012 the number of enrolled hospitals doubled, and today the program includes 1679 hospitals, a third of all hospitals in the United States.

The original intent of the 340B program was presumably to enable under-financed care facilities to purchase drugs that would be used for the treatment of medically and financially vulnerable patients they served. The program does not require hospitals to only provide the discounted drugs to patients who are poor and in need, nor does it include a requirement that the savings on drugs be passed on to patients or insurers. Therefore, hospitals can use the discounted drugs with all of their “eligible” patients (except those receiving Medicaid).

When insurers and patients pay for the treatments as if the hospital obtained the drugs at list price rather than at the 340B-based discounted price, the hospital or treating physician practice can keep the profits generated. Likewise, contract pharmacies can retain the profits they obtain when they dispense discounted drugs to patients who are fully insured. A recent report suggests that a single practicing oncologist can generate about $1 million in profits for a hospital by obtaining drugs at 340B-discounted prices and using them to treat well-insured patients.

The 340B program drives down the acquisition costs of drugs but not their reimbursement. Therefore, it may be having paradoxical effects on the costs of patient care, in particular for patients with cancer, for 3 reasons.

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