Dive Brief:
- A new pharma-backed report is putting a new player besides hospitals in its crosshairs for allegedly profiting off the 340B drug discount program.
- Certain healthcare facilities can purchase drugs at a discount in the 340B program, including federal grantee clinics such as federally qualified health centers. Those grantees on average mark up prescription drugs almost four times from the 340B discounted price and made between $8 billion and $12 billion in margin from the markups in 2020, according to the new analysis conducted by Berkeley Research Group and funded by drugmaker Gilead Sciences.
- Those figures are approximations based on publicly available data, since much of 340B price calculations are confidential. BRG is leaning on them to stump for more transparency in the 340B program, a key priority for drugmakers.
Dive Insight:
The report is the latest salvo between drugmakers and covered entities like hospitals and clinics over the 340B drug discount program, which requires pharmaceutical companies to give discounts on outpatient drugs for providers serving low-income communities.
Such providers usually have narrower margins, meaning the drug discounts from the program, which was established in 1992 to lower drug prices for safety-net providers, can be a financial aid.
Pharmaceutical groups have been increasingly critical of the 340B discounts, which can range from 25% to 50% of the cost of the drugs, cutting into profits. Drugmakers say the program doesn’t require hospitals to account for their savings or ensure they’re reinvested in patient care, a complaint shared by some lawmakers.
Drug lobby PhRMA has fronted research showing the program doesn’t save patients money in the long run and that 340B hospitals have higher drug spending than hospitals not in the program. However, a Medicare Payment Advisory Committee report concluded the program’s effect on pricing was modest.
Much of the conversation around 340B reforms has focused on hospitals, which account for the large majority of 340B sales. But the same financial dynamics apply to grantees, the new BRG report argues.
Federal clinics in the program are reimbursed 3.7 times more than they pay for 340B drugs, the report estimates. BRG said it’s currently unclear what the providers are doing with that margin without reporting requirements, including how much might be retained as profits.
“Without greater transparency it is unclear to what extent federal grantee clinics depend on the drug margin earned from the 340B program to fund their operations, whether patients benefit from these funds and whether this is a sustainable approach to funding these services going forward,” the report says.
A spokesperson for 340B Health, which represents hospitals in the program, argued that 340B hospitals, health centers and clinics invest savings into patient care. In addition, the 340B program requires inflation penalties for drugs that have undergone large price hikes, so drugmakers’ own pricing behavior affects the size of 340B discounts, the spokesperson said.
One key area of contention between drugmakers and providers is covered entities’ use of contract pharmacies, including community and specialty pharmacies, to dispense 340B drugs.
In 2020, some drugmakers stopped giving the 340B ceiling price on their products sold to such providers and dispensed through contract pharmacies. Others limited sales by selling products only after a covered entity demonstrated 340B compliance or shared specific data with them.
Drugmakers argued the increase in covered entities using contract pharmacies was leading to illegal drug diversion and duplicate discounts on the same drug. The HHS ordered them to stop restricting sales, resulting in multiple lawsuits.
Earlier this year, a federal appeals court ruled in favor of the drugmakers over the 340B restrictions.
Concerns about contract pharmacies also apply to federal grantees, according to the new report. The number of contract pharmacy arrangements involving a grantee clinic increased 252% between 2017 and 2022, BRG found.
