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Evidence-Based Oncology December 2015
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Three Proposals to Reform the 340B Drug Discount Program

Rena M. Conti, PhD; Peter B. Bach, MD, MAPP; Michael Kolodziej, MD
The 340B Drug Discount Program has rapidly expanded over the last few years and may be missing its original intent. Here are 3 possible steps that could enhance the programís function and mirror Congressí original intent to enhance access for the poor to essential medical services.

Given that empiric evidence suggests that the pattern of the program’s expansion has been both, towards affluent populations of patients and more expensive drugs—which run contrary to the program’s goals of enhancing access for poor patients to cost-effective, high-value care—we believe it is a good time to consider revising the program. We have contemplated 3 possible steps that would enhance the program’s function and be more consistent with Congress’ original intent to enhance access for the poor to essential medical services.8 

1. Redefine 340B qualification for hospitals and affiliated clinics based on the vulnerability of their outpatient population.

This would address the logical contradiction embedded in the current qualification criteria for disproportionate share hospitals and their affiliated clinics, which is that eligibility is based on the insurance status of their inpatient population, but the 340B discounts apply to drugs administered or dispensed in the outpatient setting. This disconnect creates the perverse incentive for hospitals to expand their reach away from poor patients even as they qualify for discounts, and therefore profits, that are intended to help them serve the poor.  

2. Pass the 340B discount through to payers and patients, regardless of their insurance status. 

The majority of patients currently being treated as outpatients at qualified entities are, in fact, insured. But 340B discounts, enjoyed by these entities, are not translated into discounts for their patients or for payers. If these discounts were passed along to the insurer and to the patient, both would benefit. This reform would improve access, lower patient out-of-pocket expenses, and lower health insurer costs, including those of Medicare. By requiring facilities to pass through the discounts, the profit potential of the program, which is driving rapid program expansion and medical practice consolidation, would be diminished while not disrupting the ability of the hospital to acquire drugs needed to treat poor patients at reduced costs.  

3. Limit the distribution of discounted drugs to those patients who are of limited means, irrespective of their medical provider’s qualification for “safety net” status.

This reform would essentially transfer 340B eligibility from providers to patients. Patients could qualify for a 340B discount based on personal economic circumstances, irrespective of whether they are insured. This approach could employ tools currently used to qualify patients for discounted coverage in exchange plans and other types of government or private-assistance programs. Depending on need, the discounted pricing could be coupled to the current patient-level financial assistance in a single program, providing added help to those who need it the most. By tying the benefit to the patient most in need, the benefits could also travel with them, meaning that they would not be constrained to receive care at specified “qualified” providers if other medical providers in their communities are better for them. 

Although the 340B program’s intent was clearly well meaning, and many 340B providers are doubtless pursuing the goals of the program, it is also clear that the program has become a profit center for participating hospitals, clinics, and contract pharmacies, distorting where patients receive care and driving up care costs, without any demonstrated improvement in quality of care. Given the distortions in the market, altering the program in the manners we have described: outpatient eligibility criteria, pass through of the discounts to patients, and portability of eligibility, are all sensible approaches that should be considered by policymakers.  EBO

Rena M. Conti, PhD, is assistant professor of health policy and economics, Departments of Pediatrics and Public Health Sciences, University of Chicago.

Peter B. Bach, MD, MAPP, is director, Center for Health policy and Outcomes, Memorial Sloan Kettering Cancer Center.

Michael Kolodziej, MD, is national medical director, Oncology Solutions, Aetna.

Address for correspondence

Rena M Conti, PhD
Departments of Pediatrics Hematology/Oncology and Health Studies
The University of Chicago
5841 S Maryland Ave
Chicago, IL 60637



1. Section 340B Public Health Service Act (Pub. L. 102-585). Health Resources and Services Administration website. Accessed November 10, 2015.
  2. US Government Accountability Office. Manufacturer discounts in the 340B Program offer benefits, but federal oversight needs improvement. Published September 2011. Accessed November 10, 2015.
  3. Conti RM, Bach PB. The 340B drug discount program: hospitals generate profits by expanding to reach more affluent communities. Health Aff (Millwood). 2014;33(10):1786-1792. 
  4. Clark B, Hou J, Huang E, Chou C, Conti RM. The 340B drug discount program: outpatient prescription dispensing patterns through contract pharmacies in 2012. Health Aff (Millwood). 2014;33(11):2012-2017.  
  5. US Government Accountability Office. Medicare Part B Drugs. Action needed to reduce financial incentives to prescribe 340B drugs at participating hospitals. Published June 2015. Accessed November 10, 2015.
  6. 340B Drug Pricing Program omnibus guidance. Federal Register website. Published August 28, 2015. Accessed November 10, 2015. 
  7. 5 U.S.C. § 706(2)(A).  Pharmaceutical Research and Manufacturers of America, Plaintiff, v United States Department of Health and Human Services, et al. No. 1:14-cv-01685-RC at 38. Filed October 14, 2015. Accessed November 10, 2015.
  8. Conti RM, Bach PB. Cost consequences of the 340B drug discount program. JAMA. 2013;309(19):1995-1996.
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