The Battle Over 340B

by Maggie O’Brien

On August 27th, the Health Resources and Services Administration released an omnibus guidance on the 340B Drug Pricing Program. The notice offers “proposed guidance” for hospitals and other organizations enrolled in the program, as well as for the drug manufacturers that are required to comply with its requirements. Interested parties have until October 27th to submit comments regarding the new guidelines, which will be considered before the guidance is finalized.

Clarification regarding the 340B drug pricing program has been long-awaited by stakeholders within the pharmaceutical industry for a variety of reasons. The program, established as part of the Public Health Services Act in 1992, was created to improve access to medication for uninsured indigent patients. Currently, the program works by requiring manufacturers to provide discounted outpatient drugs to certain qualifying hospitals and clinics. These discounts are difficult to calculate, but they result in 340B prices that are approximately one-half of Average Wholesale Price (AWP) and ~20% less than Medicaid prices. An institution must be an eligible hospital or belong to federal grant program category and serve a majority low-income population to qualify. Though established with good intentions, the program has been subject to numerous criticisms over the years, from its limited direct impact on patient care (as cost discounts are not pushed along to patients) to its tendency to incentivize overprescribing (as eligible institutions make very large margins on 340B drugs).
Concerns have grown due to the expansion of the size and influence of the program since its inception, and especially since the passage of the Affordable Care Act (ACA). The program has increased its scope several times, including the incorporation of children’s hospitals and family planning centers as eligible entities. With the passage of the ACA, the program underwent a further expansion. First, critical access hospitals, cancer centers, sole community hospitals, and rural referral centers were added to list of eligible institutions. Second, expansion of Medicaid impacted the calculation of low-income patients served by a given hospital, increasing the number of eligible sites. All together, these changes have led to a dramatic increase in the number of qualifying institutions over the past 10 years. In an era of increasing cost pressures, it’s easy to understand why drug companies are raising questions about the long-term impact of the program.


In addition to the issue of increased hospital participation, industry also has questioned the definition of an eligible patient. The new omnibus guidance aims to clarify this definition by providing a six-element test to determine if an individual is an eligible patient. This test is significantly stricter than the existing definition, requiring that patients of covered entities must have a “patient to provider encounter” that goes beyond the dispensing or infusion of a drug alone. Additionally, under the new definition a physician/institution could only access 340B pricing if they are treating the patient for the specific condition for which the drug is being used; the old definition allowed physicians/institutions to access this pricing for all drugs the patient may be taking.

It is not yet clear whether these changes and the others proposed by the omnibus guidance will be acceptable to stakeholders – and which of the various competing interest groups will have the influence to get their desired changes implemented. Just recently, U.S. District Judge Rudolph Contreras ruled that orphan drugs are excluded from 340B discounts, regardless of whether the drug in question is used for an orphan indication. Because this ruling reversed a previous HHS interpretive (rather than traditional legislative) rule, it may open up for judicial review of some provisions of the proposed omnibus guidance that make similar interpretive liberties, like the revised definition of a eligible patient. This scenario may put more pressure on Congress to intervene and either clarify statutory definitions or expand HHS authority. Like most issues involving the government and their bureaucracy, we will have to wait to see what the final outcome will be.

Maggie O’Brien is an analyst at Health Advances.

Opinions expressed here are solely those of the authors and do not reflect the views of Health Advances LLC, its management, or affiliates


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