The 340B drug pricing program has come under criticism. The program provides hospitals with subsidized drug prices for low-income patients, but that savings is not reaching patients. Critics and pharmaceutical companies blame hospitals, and hospitals blame pharmacy benefit managers (PBMs) and others.

Started in 1992, the 340B drug pricing program was intended to help safety-net hospitals serving low-income uninsured patients by providing discounts on high-cost medicines. This program came about after the Medicaid Best Price rule was put into effect, which ended charitable donations of medicines from pharmaceutical companies. The program provides prescriptions at a 25 percent to 50 percent discount for patients at participating hospitals and pharmacies and participation is a condition of a pharmaceutical company’s drugs being covered by Medicare and Medicaid.

The 340B program was expanded multiple times. In 2010 the Affordable Care Act allowed hospitals in the 340B program to contract with multiple external pharmacies to distribute prescriptions, causing a rapid expansion of the program. This has come under criticism as one of the biggest problems in the 340B system, as the portion of contract pharmacies in disadvantaged areas declined relative to more affluent areas. As hospitals utilize more pharmacies in less disadvantaged areas, between 2014 and 2021, the cost of the 340B system grew from $9 billion to $38 billion generating an estimated $17.7 billion in total profits. How can this happen?

Contract pharmacies began spreading to more affluent areas even as early as 2004. The lack of transparency in the system allowed hospitals to increase their profits by expanding into these areas. The profits are generated from “price spreading,” when the 340B drug is prescribed to someone with public or private insurance which reimburses the hospital for more than the 340B price. While some 340B providers are required to use these profits for serving underserved populations, participating hospitals have no requirements on what is done with 340B savings. The profits generated by this program can be substantial. According to one study, the profit margin for pharmacies on 340B drugs is 72 percent compared to 22 percent drugs distributed by non-340B pharmacies.

Effectively, prescription drugs are being subsidize by the government to help the poor, but some hospitals are recovering these costs from insurers and pocketing the government subsidy.

Healthcare providers have argued back that the expansion was intentional to help address the significant amount of care that goes uncompensated and that funds the 340B system generate help many healthcare facilities stay open, including rural hospitals. Additionally, hospitals argue that the system is meeting its intended purpose. With discounts from 340B products amounting to only 7 percent of the market, the counter argument is that pharmaceutical companies are just trying to maximize their profits.

Read the full Real Clear Policy article, here.

Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.