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Revising the 340B Program Guidance

By September 1, 2015Commentary

340B is a federal program designed to help providers that care for low-income people get drugs cheaply.  Its use appears to have spread far beyond the original intent, creating profit opportunities for providers and spurring complaints from drug manufacturers.  The federal Department of Health and Human Services has released a guidance designed to aid in interpretation and implementation of the 340B program.  (340B Rule)   To give you a sense of how far this program has expanded, there are currently over 11,500 covered entities registered with HHS.  HHS enters into the pricing agreement with the drug manufacturers and sets ceiling prices to be charged to the 340B entities.  There are currently agreements with 644 manufacturers.  The prices are low and many of the 340B entities, especially hospitals, most of whom aren’t exactly struggling financially, have figured out how to use the low prices to buy drugs that they then prescribe to people who aren’t low-income and then get reimbursed at higher rates.  So HHS took this issue head-on, right?  Not really.  They did refine the definition of a “patient” of a covered entity.  There are now 6 criteria that all must be met to be a “patient” of the 340B entity.  Most of these are aimed at ensuring there is a real patient relationship.  None, however, really seem to deal with the core question of a hospital or other covered entity buying drugs cheap and getting much higher reimbursement from another payer, particularly in regard to non-low-income patients.

The guidance, in its first paragraph, says that the purpose of the 340B program was to “permit covered entities to stretch scarce Federal resources as far as possible, reaching more eligible patients”.  This clearly indicates that only patients who are in some way covered by federal payments are intended to get the lower-priced drugs.  This would include patients at federally-qualified and supported community health centers, Medicare patients (who have a separate drug program now and who aren’t all low-income) and Medicaid patients.  While many hospitals and other entities get some kind of federal grants, funding or reimbursement, hard to see why they need to purchase low-price drugs other than for use of low-income patients.  I have no sympathy for the very profitable drug manufacturers, but I also don’t see the logic in transferring profits from drug companies to large, financially well-off health systems.  The rules, or the law itself if need be, should be changed to specifically exclude any inclusion of drugs prescribed to patients who already have third-party coverage of any type, including Medicare or Medicaid, with an exception if the patient is low-income and the drug is not a covered drug under the 340B program.  Third-party payers, including Medicare and Medicaid, already have mechanisms in place to control drug prices.  When 340B drugs are used outside of this limited scope, in essence third-party payer premiums are driven up to provide profits to hospitals and other 340B entities.

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