In a turbulent and divided political environment, few issues enjoy bipartisan support. Among the issues most deserving of common action are reforms to the 340B Drug Pricing Program, a massive federal creation that has been captured by vendors interested in profits rather than serving vulnerable populations. Initially established to support low-income and uninsured patient populations, 340B has evolved into a profit center for large hospital systems and for-profit pharmacy benefit managers in the absence of necessary reporting and oversight mechanisms. In order for 340B to function properly and serve the most vulnerable across the country, members of Congress across both sides of the aisle must increase transparency into the program and realign 340B with its original purpose for patients.
Established in 1992, the 340B program is a federal safety net program created to benefit uninsured and low-income patients who are struggling to afford and access prescription medications. By allowing qualifying entities, such as hospitals and community health centers, to purchase drugs at a discounted price, 340B was designed to ensure that vulnerable populations could more easily access healthcare treatments. However, thirty years later, the program looks very different than its founders intended as a result of hospitals, clinics, and for-profit pharmacies arbitraging drug discounts to increase revenues.
Due to a lack of clarity in the initial statute and an update to guidance from the Health Resources and Services Administration (HRSA), the agency that oversees 340B, covered entities can contract with an unlimited number of pharmacies. As a result, the use of the program has exploded since 2010. The number of contract pharmacies has increased by over 4000% and the number of covered entities has reached more than 3,000 in contrast to just 550 in the program's early years. Many of these 340B pharmacies are located in affluent districts, out-of-state, and far away from the patients of the covered entity they contract with. For example, one Florida-based pharmacy has contracts with over 1,000 covered entities. Of these entities, only 18 are located in Florida, while 73 are based in Iowa, over 1,000 miles away. Pharmacy geography is not the only problem; ten out of the top 12 pharmacies with the most 340B contracts are owned by pharmacy benefit managers (PBMs) - making 340B another profit-maximizing PBM hoax preying upon taxpayers, similar to rebate contracting or spread pricing.
Here lies the root of the problem. The original statute does not define which patients are eligible for drug discounts, require covered entities to be located in areas that serve a high percentage of uninsured and low-income patients, nor ensure that revenue generated from the program be used to provide charity care for these populations. Due to these gaps in the program guidance, covered entities are incentivized to serve wealthier, insured populations to turn a profit, while the patients the program was designed to serve continue to struggle to access care.
While some hospitals are carrying out the program's original goal – using significant savings from discounted drugs to provide high-quality care to patients in need – there is irrefutable data demonstrating that some covered entities are turning away from charity care and fixating on the program’s potential profits instead.
Today, 69% of 340B hospitals provide charity care at rates lower than the national average and typically at less than one percent of their operating costs. This decline is not limited to states run only by Democrats or Republicans – lower rates of charity care are impacting vulnerable patients in red and blue states alike. The Ochsner Clinic Foundation, one of the wealthiest covered entities in Louisiana, has a charity care rate of just 0.5%, meaning that they spend only a tiny fraction of their multi-billion dollar operating budget on charity care. In Massachusetts, the state’s two largest hospitals – Massachusetts General Hospital and Brigham and Women’s Hospital – have charity care rates of 0.6% and 0.3% respectively.
Pioneer Institute conducted research highlighting changes in the rate of charity care that hospitals provide since the passage of the Affordable Care Act (ACA). In 2015, charity care rates in the U.S. dropped to a 25-year low and have dropped even further since, hitting 2.29% in 2021. Just a quarter of 340B hospitals are responsible for providing 80% of all 340B charity care.
A November 2023 court case against HRSA focused on the definition of a “patient” under the 340B program, with the court’s decision potentially enabling broader use – and abuse – of the program. After multiple 340B entities announced record-setting profits, the Senate Health, Education, Labor, and Pensions (HELP) Committee opened an investigation into the use of revenue generated by the program. These activities lay bare the urgent need for clarity around the core elements of the program. Clearly defining what constitutes “charity care” and ensuring that covered entities report on the amount of charity care they provide using savings from 340B discounted drugs is a logical first step.
Abuse of the 340B program is not a partisan issue. In communities across the country, in both red and blue states, there are millions of underserved patients whose health outcomes would benefit if they could access inexpensive care that the program is intended to provide. The original 340B program serves a noble purpose. Congress must work on a bipartisan basis to institute increased transparency within 340B and help it return to its goal of supporting vulnerable patient communities.
William S. Smith is a senior fellow and director of the Life Sciences Initiative at the Pioneer Institute. Robert Popovian is a senior visiting health policy fellow at the Pioneer Institute.
