September 7, 2018—Healthcare economist Austin Frakt recently wrote in The New York Times that the 340B drug discount program includes hospitals “that don’t need the extra help” and don’t use the program to benefit low-income patients. That’s a one-sided view that ignores research showing 340B is working as Congress intended.
The research Frakt overlooks includes findings that 340B hospitals care for a higher proportion of low-income patients, provide more uncompensated and unreimbursed care, and are more likely to provide critical but often underpaid services. Frakt also ignores research showing that 340B hospitals provide more charity care and operate on lower margins, and that the 340B program continues to represent less than 2 percent of U.S. drug spending and of net manufacturer revenues. Policymakers thinking about making changes to 340B need to weigh these facts.
Frakt says in the article that 340B hospitals may charge “public programs like Medicaid and Medicare more for the drugs than they paid for them and keep the difference.” That’s wrong. In fact, both Medicare and Medicaid programs have approximate cost-based reimbursement for 340B-participating entities, which is less than the reimbursement provided to non-340B providers.
Contrary to studies Frakt selectively cites, the evidence is overwhelming that 340B hospitals provide care to a disproportionate share of low-income and rural patients. In a review of 2015 Medicare cost report data, researchers found that low-income patients represent 42 percent of 340B hospitals’ patient load versus only 27 percent for non-340B hospitals. The study also found that 340B hospitals were responsible for 60 percent ($26 billion) of all uncompensated and unreimbursed care in 2015 while representing only 38 percent of acute care hospitals in the country. Additionally, it found that 340B hospitals are more likely non-340B hospitals to provide critical services that are often underpaid or are unprofitable such as HIV/AIDS treatment, trauma services, and outpatient alcohol/drug abuse services.
Indeed, the JAMA Internal Medicine study cited by Frakt found that 340B hospitals, on average, provided more uncompensated care than non-340B hospitals, while operating on lower margins. A 2018 report by the Government Accountability Office (GAO) evaluating the characteristics of 340B hospitals reached a similar conclusion. GAO researchers found that 340B hospitals provided 63 percent more charity care and on average have 31 percent lower margins compared to non-340B hospitals.
Frakt writes that 340B “has grown considerably, most recently as a result of an expansion included in the Affordable Care Act.” While it is true that participation in 340B has grown in recent years, much of that is a result of small rural hospitals added under the ACA. Despite this growth, researchers at The Pew Charitable Trusts have found that the program continues to represent less than 2 percent of U.S. drug spending and of net manufacturer revenues.
Policymakers are currently debating making changes to the 340B program that would curtail its benefits to hospitals that rely on their savings to provide care for their low-income patients. In a 2017 survey conducted by 340B Health, hospitals unanimously reported using their program savings to provide critical services, including uncompensated and unreimbursed care, for their low-income and rural patients. Despite this and other evidence, the Centers for Medicare and Medicaid Services recently cut payments to 340B hospitals by nearly 30 percent, resulting in a significant loss of savings to the safety-net providers that participate in the program. In response to these significant cuts, researchers at Pew noted that “reducing the size of the [340B] program will not impact overall drug spending; rather, any changes to the program will simply reallocate the $6 billion in 340B discounts between hospitals and manufacturers.”
The 340B program was created through a bipartisan effort in Congress and was designed to allow healthcare providers that treat high levels of low-income patients to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” The 340B program is a critical resource for hospitals to serve their high numbers of low-income and rural patients. Policymakers and other stakeholders need to consider all the evidence before making any changes to this vital program.