The 340B Program has evolved into a source of major profit for some covered entities. Pharmaceutical manufacturers know this, but do payers?
The 340B Program is a federal program designed that requires drug manufacturers to provide outpatient drugs to certain health care organizations that serve a predominantly indigent population at significantly reduced prices even though these organizations (referred to as covered entities) are able to bill payers at the full price. Due to various market dynamics such as the Affordable Care Act and the business acumen of hospitals the number of 340B-covered entities boomed and they are profiting—really profiting. According to the Office of Inspector General (OIG), gross profit margins can reach approximately 60% for 340B-eligible outpatient departments compared with <5% for a non-340B outpatient department. Controversy circles such statistics as experts are questioning the integrity of some of these covered entities: Are they keeping the money saved from these discounts for themselves or is the money actually helping the uninsured and needy patients?
Manufacturers, understandably, are enraged by this exploitation and have been lobbying intensely to amend the 340B Program. The resultant proposed 340B Drug Pricing Program Omnibus Guidance (also known as the “mega-reg”) is expected to address many of the manufacturers’ woes.
This is not the case with payers, however. Do payers know how they may be operating at a loss due to the potential exploitation of the 340B Program? If so, have they measured this? Finally, how can they solve these issues? Perhaps this federal discount program is fueling the high cost in payers’ most agonizing therapeutic areas such as cancer and immunology.
In order to spark some ideas, here are some problems that payers are likely facing due to the 340B Program.
First, did you know that the 340B may be incentivizing providers to circumvent formularies? Covered entities are incentivized to prescribe brand name drugs because they can make a larger profit from those drugs compared with generics. Evidence suggests that the 340B Program encourages dispensing of branded drugs over generics.
Another hurdle that payers should consider is the proliferation of 340B contract pharmacies. Today, 25% of total retail, mail, and specialty pharmacy locations are 340B contract pharmacies (about 10 years ago, they were virtually nonexistent). The upsurge of contract pharmacies is beginning to disrupt traditional managed care contracting strategies to establish in-network pharmacies as pharmacies may find that contracting with a covered entity may be more profitable than contracting with a payer.
We would like to know your thoughts—it will benefit all of the other payers out there and the resulting unity and single voice can strengthen all of us.