The Growth of the 340B Drug Pricing Program

Incentives in the 2010 health care law have encouraged consolidation in the health care marketplace toward a more cost-conscious managed health care market.

In past articles, we have detailed the growing trend toward consolidation in the health care marketplace. From Accountable Care Organizations (ACOs) to the aggressive purchasing of physician offices by large hospital systems, incentives in the 2010 health care law have only further encouraged this trend toward a more cost conscious managed health care market.

One result, whether intended or not, is that thousands of new entities around the country are quickly realizing a major cost saving benefit of this integration strategy: greater access to low-cost drugs through the 340B Drug Pricing Program (“340B Program”). The extension of 340B pricing to entities beyond the intended beneficiaries of the program (generally, federal grantees, federally qualified health centers, qualified disproportionate share hospitals, and their respective patients) has the potential to generate significant cost savings for hospitals and other outpatient facilities. At the same time, this expansion is likely to result in a major backlash from the pharmaceutical industry, which may view this growth as unnecessary and undeserved.

In the middle of this potential battleground sit the specialty pharmacists who will want to ensure continuous and uninterrupted access for their patients to the lifesaving medications they provide. As the issue of 340B pricing on drugs is only likely to grow in its fervor, the specialty pharmacy community should stay abreast of new developments in this area.

In general, the 340B program “limits the cost of covered outpatient drugs to certain federal grantees, federally qualified health center look-alikes, and qualified disproportionate share hospitals.” The program has resulted in significant savings, estimated to be 20% to 50% of the cost of pharmaceuticals for safety-net providers.

Over the years, the program has expanded, including a major expansion of the entities eligible for 340B pricing in the 2010 health care law. Through the enactment of the Patient Protection and Affordable Care Act, Congress expanded the definition of “covered entity” to include the following entities as eligible for 340B price discounts: certain children’s hospitals excluded from the Medicare prospective payment system, certain free-standing cancer hospitals, critical access hospitals, certain rural referral centers, and certain sole community hospitals.

As mentioned, increased consolidation in the health care market has meant a growth in the number of entities eligible to receive 340B pricing on covered outpatient drugs. Specifically, as hospitals buy up outpatient facilities in their surrounding areas, these facilities often become eligible for 340B pricing on the drugs provided to their patients. This is because regulations provide that entities—such as remote locations of hospitals, satellite facilities, and other facilities—may be determined to have provider-based status for payment purposes if they meet certain requirements. These requirements include licensure, integrated clinical services, financial integration, and public awareness.

The growth of models that encourage this integration—such as ACOs—means that we are likely to see even further growth in the 340B program in the next several years. At the same time, opposition to how far the program has been expanded is also likely to rise. In the near future, we can expect the agency responsible for the administration of the 340B program, the Health Resources and Services Administration, to further develop the regulations allowing “provider-based entities” to qualify for 340B pricing on drugs. Those entities receiving this favorable pricing, as well as those manufacturers paying the price, will be watching closely.

SPT

Ross Margulies, JD, MPH, is a health policy specialist at Foley Hoag LLP with expertise in federal and state health law and policy issues including Medicare and Medicaid, community health, and the impact of health care reform.Jayson Slotnik, JD, MPH, focuses on health regulatory issues. He was formerly the Director of Medicare Reimbursement and Economic Policy at the Biotechnology Industry Organization in Washington, DC. Mr. Slotnick is a member of the Specialty Pharmacy Times Editorial Board.