May 19, 2017—Allegations of “explosive 340B growth” are not supported by the numbers. The 340B program’s financial impact on drug manufacturers remains small, and the program remains vital for hospitals serving high volumes of low-income and rural patients.
The Drug Channels blog recently reported that, according to the Health Resources and Services Administration, drug purchases made under the 340B program totaled $16.2 billion in 2016, up from $12 billion in 2015. HRSA has not made this new information publicly available, and because Drug Channels provides no details on the data behind the new number, we are not able to evaluate whether it is an accurate reflection of the increase in 340B spending from the prior year.
Regardless, focusing on the size of the 340B discount is a much more useful way of measuring the size of the 340B program, because 340B spending figures do not quantify the financial impact 340B has on manufacturers. HRSA reported earlier this year that 340B covered entities saved approximately $6 billion in 2015. To help put this in context, the drug industry spent nearly $70 billion worldwide on sales and marketing in 2015. 340B savings in 2015 amounted to only 1.4 percent of total drug spending that year. Even when compared to drug spending net of rebates, 340B savings were only 1.9 percent of total drug spending.
340B savings of $6 billion may not be a significant percentage of total drug spending, but it is very significant for hospitals serving low-income and rural patients. 340B disproportionate share (DSH) hospitals spent $23.7 billion on uncompensated care in 2014 and billions more in specialized services in low-income communities. In response to a survey of 340B hospitals, 100 percent of respondents reported that a loss of 340B savings would have a negative effect on their communities, with 78 percent saying drug costs would increase for uninsured and underinsured patients. Seventy-five percent reported using 340B savings to keep their doors open.
340B savings help hospitals meet the needs of their low-income patients. 340B DSH hospitals provide significantly more care to Medicaid and low-income Medicare patients than non-340B hospitals, and although 340B DSH hospitals account for only 36 percent of all Medicare acute care hospitals, they provide nearly 60 percent of all uncompensated care. 340B DSH hospitals are also significantly more likely than non-340B hospitals to offer vital health care services that are often unreimbursed, which include trauma centers, HIV-AIDS services, and immunizations. In addition, compared to non-340B providers, 340B DSH hospitals treat more low-income cancer patients and significantly more Medicare Part B patients who are dually eligible for Medicaid, disabled, have end-stage renal disease, or are a racial or ethnic minority.
Drug Channels also suggests there is explosive growth in 340B by comparing 340B spending increases to growth in total drug spending. But 340B discounts are only available for outpatient drugs. It would be much more meaningful to look at growth in spending on outpatient drugs, particularly high-cost specialty drugs that are driving outpatient spending. Specialty drugs are accounting for a higher share of drug spending in recent years, increasing from 21.8 percent of spending in 2007 to 39.6 percent in 2016 and accounting for 58 percent of spending in non-retail settings. New drugs introduced to the market are also much more likely to be specialty drugs. Spending on specialty drugs increased between 2011 and 2015 by 84 percent. 340B spending over the same period increased 88 percent.