What Plan Sponsors Should Know About the 340B Drug Pricing Program

The 340B Drug Pricing Program was established to help healthcare entities offer affordable medications to underserved populations. However, its expansion over time has led to challenges for commercial health plan sponsors and participants, including higher drug costs and limited transparency. This blog explores the program’s origin, its impact on benefit plans, and the need for reform.

The Origins of the 340B Program

Before the emergence of the 340B Drug Pricing Program in 1992, the U.S. Congress enacted the 1990 Medicare Drug Rebate Program. The program required pharmaceutical manufacturers to offer state Medicaid programs their “best price” for prescription drugs. This inadvertently resulted in safety-net providers—those serving vulnerable populations—to no longer be able to access deeply discounted prices from pharmaceutical manufacturers. Instead, manufacturers offered providers the same “best price” they used for state Medicaid programs.

To address this issue, the U.S. Congress enacted section 340B of the Public Health Service Act under the Veterans Health Care Act of 1992.

The bill, commonly referred to as the 340B Drug Pricing Program, was designed to ensure certain safety-net providers could continue to purchase outpatient drugs at a discounted “ceiling price.” Providers could then sell the drugs to patients at their market rate. The program specified the six types of eligible providers, or “covered entities,” as being: children’s hospitals, critical access hospitals, disproportionate share hospitals, freestanding cancer hospitals, rural referral centers, and sole community hospitals.

Growth and Expansion of the 340B Program

Over time, the 340B program expanded far beyond its original scope. From 1992 to 2011, it remained relatively focused on its safety-net origins. However, as the Medicaid program grew, the criteria for eligibility widened, and more healthcare providers began qualifying. In 2011, the addition of eligible hospital types, the Affordable Care Act (ACA) Medicaid expansion, and the inclusion of contract pharmacies, expanded the program’s reach exponentially. With the ability for hospitals to contract with outside pharmacies, pharmaceutical chains, and third-party administrators like pharmacy benefit managers (PBMs), the dynamics of the 340B program changed.

How 340B Affects Plan Sponsors and Participants

When providers purchase drugs at 340B discounted prices and dispense them to patients, they often charge a marked-up price, retaining the profit margin between the 340B acquisition price and the retail price. This practice leaves plan sponsors and participants paying higher costs. The same applies when providers use contracted pharmacies or pharmacy chains, sharing a portion of the profit margin with these entities.

340B prescriptions do not generate rebates under PBM arrangements. When prescriptions are flagged as 340B, they bypass the usual PBM rebate mechanisms, meaning no manufacturer rebates are passed through to the PBM. As a result, plan sponsors and participants often pay the full retail price for 340B prescriptions, while the provider benefits from the substantial statutory discount through the 340B program. PBMs often contract with pharmacies participating in the 340B program and likely retain a portion of the price mark-up through these agreements.

These arrangements can incentivize both providers and pharmacies to fill a higher volume of prescriptions through the 340B channel and, in some cases, favor higher-cost medications. Participants receiving prescriptions from eligible 340B providers are often unaware that their prescriptions are being filled through the 340B program. This dynamic significantly affects overall prescription costs and access for plan sponsors and participants.

The Need for Reform

Providers are not required to disclose how much they make from 340B or how the funds are allocated. States and advocacy groups have begun demanding more transparency, with some pushing for laws that require providers to disclose their 340B earnings. In one case, it was found that a hospital in Minnesota reportedly earned more from 340B than all the state’s health resources and services administration grantees combined.

Comprehensive reforms are necessary to ensure the program continues to serve its intended purpose of supporting safety-net providers and providing financial relief for low-income patients.

The 340B Program is one of the major health policy reform focuses of the National Alliance of Healthcare Purchasing Coalitions. The National Alliance is a nonprofit, network of coalitions who leverages their collective voice to accelerate improvements in the quality, affordability, and equity of healthcare across the United States. Shawn Gremminger, President and CEO of the National Alliance, recently spoke to National CooperativeRx’s members and partners about the 340B program during our “Benefits Break” webinar series.

Shawn provided insight into what 340B reform should focus on to help fulfill its intended mission:

• Refocusing on Core Safety-Net Providers: The program should return to its original intent of supporting hospitals that primarily serve low-income and uninsured populations.
• Ensuring Financial Relief for Low-Income Patients: It is critical that low-income patients benefit directly from the discounts provided by 340B, with guaranteed financial relief at the point of purchase.
• Stopping PBMs and Other Third Parties from Profiting Off 340B: The focus should be on ensuring that the savings directly benefit the patients and providers serving vulnerable communities.
• Guaranteeing Full Transparency: Providers should be required to report their 340B earnings and how those funds are used, to ensure that the program’s benefits are being directed toward patient care.

National CooperativeRx’s Stance

At National CooperativeRx, we educate and advocate for solutions that balance affordability, access, and transparency. Reform is needed to restore the 340B program’s original purpose and ensure that it continues to benefit society in a way that promotes sustainability and fairness.

Our recent membership in the National Alliance of Healthcare Purchaser Coalitions supports this stance. This partnership allows us to amplify our voice and stay informed about the latest developments in health policies. For Cooperative members interested in staying connected with reform efforts or lending their voices, National CooperativeRx can facilitate connections with the National Alliance.

Members and partners who want to learn more about the National Alliance’s reform initiatives or explore their 340B employer resources can click here to be directed to the National Alliance of Healthcare Purchasing Coalitions website.