Hundred dollar bills rolled up in a pill bottle

Ensuring 340B Discounts Trickle Down to Low-Income Patients

By Sravya Chary

The 340B prescription drug program was created with the original intent of providing discounted drugs to vulnerable patients. However, this program inadvertently created a revenue stream for for-profit retail pharmacies and intermediaries, which is cutting into the benefit received by low-income patients.

In a previous blog post, I discussed the pitfalls of a recent 340B advisory opinion released by the Department of Health and Human Services (HHS). The aim of this opinion was to provide more clarity regarding contract pharmacy use within the 340B program. However, the opinion ultimately did not alleviate the tension between pharmaceutical manufacturers and 340B representatives.

As one facet of a long-term solution to this ongoing issue, I proposed further investigation of 340B savings to analyze whether discounts are truly trickling down to vulnerable, low-income patients.

The 340B program operates by designating health centers, hospitals, specialized clinics, and Ryan White HIV/AIDS program grantees as 340B entities. To attain this designation, the entity must:

  • Be owned or operated by the government, be a non-profit organization granted with government powers, or be a private non-profit organization with a government contract in place to treat low-income patients not eligible for Medicaid or Medicare.
  • Have a Medicare disproportionate share hospital (DSH) adjustment percentage greater than 11.75% for the most recent cost reporting period (or greater than 8% for sole community hospitals and rural referral centers).
  • DSH, children’s hospitals, and free-standing cancer hospitals also must sign a certification stating that they will not procure covered outpatient drugs through a group purchasing organization (GPO).

Once an entity is designated as a 340B covered entity, it may purchase drugs at a 340B discounted rate and dispense them to 340B eligible patients.

Further, 340B entities may contract with external pharmacies (known as contract pharmacies) to distribute 340B discounted drugs to eligible patients. Before the enactment of the Patient Protection and Affordable Care Act in 2010, each entity was only allowed one contract pharmacy. Following the ACA, however, this restriction was removed, and now there is no cap on the number of external pharmacies a 340B entity may contract with.

Since 2010, contract pharmacy growth has exponentially increased. According to Drug Channels, there were less than 3,000 contract pharmacies in 2010. This number increased to 20,000 by 2017.

340B contract pharmacy locations, 2000-2017

This growth is, in part, due to large retail pharmacy chains (such as Walgreens, CVS, and Rite Aid), which accounted for roughly 67% of all contract pharmacies in 2017 and dominate the contract pharmacy space.

Drug Channels further states that between 2013 and 2017, many of these chains significantly increased the number of contract pharmacies they operate “[… implying] that the profits have been substantial enough to justify this expansion.”

340B contract pharmacy locations by chain, 2013 vs. 2017

Contract pharmacies benefit from this program due to the lack of transparency within the 340B program. Once they contract with 340B entities, these pharmacies are eligible to dispense 340B discounted drugs to 340B patients. However, these contract pharmacies serve a wide mix of patients from difference insurance channels. Often, 340B discounted drugs are dispensed to patients who are ineligible or insured, and the insurance provider is then billed for the full price of the drugs.

In other words, contract pharmacies dispense discounted drugs on behalf of 340B entities and then share in the profits. Insurance providers then collect a contracted rebate from the drug manufacturer, which already provided a 340B discount to begin with. This phenomenon, known as duplicate discounting, is forbidden according to the 340B statute. However, a lack of transparency and accountability has allowed a large volume of 340B duplicate discounts to slip through the cracks.

It is unclear whether the 340B discounts offered to 340B entities are truly benefitting vulnerable patients who fill their scripts at retail pharmacies. A recent study conducted by the Berkeley Research Group (BRG) reports that profit generated from collecting the full cost of drugs procured at a discounted 340B rate are unlikely to be helping the vulnerable patients this program was originally created to serve.

Rather than allowing 340B discounts to line the pockets of for-profit retail pharmacies and intermediaries, Congress must take action to ensure these discounts benefit low-income 340B eligible patients, as intended. Congress can take the following actions to make this a reality:

  • Place restrictions on the pharmacies a 340B entity may contract with. This will require some thought to achieve its intended aim. In densely populated areas, it might make sense to limit the number of pharmacies a 340B entity may contract with, or impose distance caps. But in rural areas, such limitations may prevent low-income patients without nearby pharmacies from accessing the drugs they need.
  • Conduct more strenuous audits on contract pharmacies to guarantee that 340B patients are benefitting from the program. As I described in a previous blog post, contract pharmacies can provide claims-level data to drug manufacturers to mitigate duplicate discounting.

Congress should take the above actions to hold 340B contract pharmacies and intermediaries accountable and uphold the original intent of the program.


The above opinions are wholly my own and in no way represent the opinions of my affiliated institutions.

Sravya Chary

Sravya Chary is a manager in the pharmaceutical industry, a Master of Bioethics (MBE) candidate at Harvard Medical School, and a Petrie-Flom student fellow for the 2020-2021 academic year.

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