Outpatient Practice

340B Programs

pills-2Ohio State is about to expand its 340B program to include a free-standing pharmacy and the outpatient infusion centers. It gave me a chance to brush up on what a 340B program is. The 340B program was created by the federal government in 1992 as a way to provide discounted outpatient drug pricing to healthcare institutions that care for the poor. There are 6 categories of hospitals that are eligible that largely have in common that they are tax-payer funded to care for low-income and uninsured patients:

  1. Disproportionate share hospitals
  2. Children’s hospitals
  3. Cancer hospitals exempt from the prospective payment system
  4. Sole community hospitals
  5. Rural referral centers
  6. Critical access hospitals

In addition, hospitals have to either be state/government-owned, be a private not-for-profit hospital that has been granted governmental powers, or be contracted with the government to provide care to low income patients. In addition to hospitals, there are certain outpatient clinics that are also eligible to participate. As of 2014, there were 2,140 hospitals in the program, 90% of which are either critical access hospitals or disproportionate share hospitals.

The way the program works is that the Health Resources and Services Administration (HRSA) sets the maximum amount that drug companies can charge for outpatient medications – on average this is about a 22.5% discount. Medicare part B covers some outpatient medications (eg, cancer chemotherapy and rheumatoid arthritis infusion drugs); however, the hospitals participating in the 340B programs get paid the same from Medicare part B for these drugs as they would if they were not in a 340B program. Therefore, the hospital stands to make money on 430B drugs. On the other hand, drug manufacturers have to sell the hospitals their drugs at the discounted 340B price and so they would like to limit 340B programs so that they can have a higher profit.  All told, 340B programs save about $4 billion per year in drug costs. There are about 7,000 different drugs in the 340B program.

Ideally, hospitals participating the 340B programs use the increased margin that they get from the 340B programs to help support the care of lower income patients. For example, using profits to pay for rheumatoid arthritis infusion drugs for patients who are low income and have no health insurance and otherwise would not be able to buy these rather expensive medications. The danger is that there is the potential for some hospitals to expand chemotherapy and infusion clinics since they can make a higher margin on the chemotherapy and infusion drugs. Overall, 340B sales account for about 2% of total drug sales in the United States so it is not an enormous amount but 340B pricing is disproportionately affecting high cost chemotherapy and rheumatology biologic medications.

I can see both sides of the argument for the 340B programs but at least for our hospital, it will allow us to treat patients who previously were too poor to be treated for conditions like rheumatoid arthritis and inflammatory bowel disease in the past.

October 5, 2016

By James Allen, MD

I am a Professor Emeritus of Internal Medicine at the Ohio State University and former Medical Director of Ohio State University East Hospital

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