Blogger’s Misleading 340B Numbers

by Admin | May 11, 2018 4:57 pm

[1]May 11, 2018 – In a recent Drug Channels blog post[2], Adam Fein reports that 340B spending has reached $19.3 billion in 2017, and claims that 340B is “a significant and growing part of the [pharmaceutical] industry.” However, that conclusion is not supported by the facts. In fact, Fein’s own numbers suggest a different narrative regarding the size and impact of the 340B program in supporting care for low-income and rural patients. He also overlooks key aspects of the overall scope of the program, including the amount of the 340B discounts provided by manufacturers, the declining growth rate of 340B spending and the growing number of people insured through public programs resulting in increasing unreimbursed costs for hospitals. When one accounts for these key aspects, one sees a different story – that the 340B program is a small share of the overall market but plays a large role in providing healthcare to low-income and rural patients.

340B Program is a Small Share of the Market

When quantifying the size of the 340B program, it is important to understand what comparisons are being made to contextualize its size. In fact, Fein calculates a very important number in this conversation that he fails to mention at all – the total amount of the discounts provided by manufacturers. This number is simply calculated by subtracting Fein’s own numbers of $29.7 billion in the “estimated invoice value” of 340B purchases and the $19.3 billion in observed 340B spending, yielding $10.4 billion in manufacturer discounts. In other words, if manufacturers were not required to discount their prices to 340B providers they would have earned $10.4 billion more. If you compare this number to the very same denominators Fein uses in his calculation, you find that the discounts amounted to 2.3 percent of gross manufacturer revenues and 3.1 percent of net manufacturer revenues. Looking at the full picture, it is clear that the 340B program represents a small share of the U.S. drug market – about 2 to 3 cents on the dollar.

340B Program Growth is Slowing Down

Fein’s conclusion that the program continues to grow rapidly is not entirely accurate, given the very numbers he cites. From 2016 to 2017, the annual growth rate of the program slowed to only 19 percent, which represents a 46 percent decrease in growth from the prior year, suggesting that there is not rapid growth in the program.

340B Hospitals Continue to Provide High Levels of Uncompensated and Unreimbursed Care

Finally, Fein claims the growth of 340B comes at a time of rapid decline in the provision of uncompensated care (bad debt costs and charity care costs). However, Fein looked at uncompensated care levels of all hospitals rather than focusing, as he should, on 340B hospitals alone. A 340B Health review of Medicare cost report data for only 340B hospitals, found that uncompensated care levels for 340B hospitals actually increased between 2014 and 2015. This also ignores the fact that the number of people insured through public programs like Medicaid has sharply increased during the past few years generating increasing public payer shortfalls for hospitals. DSH hospitals qualify for 340B due to their high volumes of Medicaid and low-income Medicare patients, and public payers chronically underpay hospitals. Therefore, it is important to look at Medicaid and other state and local public payer shortfalls, in addition to charity care and bad debt levels. Recently published research[3] shows that when you also account for these unreimbursed costs, 340B DSH hospitals provided $26 billion in uncompensated and unreimbursed care in 2015, which is an increase in the same amount they provided in 2014, and 56 percent higher than the care provided by non-340B hospitals in 2015.

To further contextualize this point, when you compare the $10.4 billion in total amount of 340B discounts provided by manufacturers, it represents just 40 percent of the total amount of uncompensated and unreimbursed care provided by 340B hospitals in 2015.

Conclusion: 340B is Small, But Mighty

As policymakers consider potential changes to the program, it is important to look critically at calculations that only tell part of the story. Looking at Fein’s math in the context of today’s health care marketplace demonstrates that the 340B program continues to provide a significant value to low-income and rural patients and communities at a very modest cost to manufacturers and virtually no cost to the American taxpayers.

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