In their ongoing quest to lower prescription drug prices, some states are forcing drugmakers to continue to sell cheaper medications to thousands of pharmacies through a federal drug-discount program.
Under the 32-year-old 340B program, pharmaceutical companies that participate in Medicaid must sell outpatient drugs at discounted prices to clinics, community health centers and hospitals that primarily serve low-income patients. The idea is that providers will use the money they save — between 20% and 50% off the normal price — to expand their services.
But many such facilities don’t have in-house pharmacies, so in 2010 the federal government expanded the 340B program to allow many more outside pharmacies — so-called contract pharmacies — to dispense the drugs to eligible patients on behalf of health centers and hospitals. Among the top four pharmacy chains (Walmart, CVS, Rite Aid and Walgreens), 71% of locations participate in the 340B program, according to a recent study by the University of Minnesota School of Public Health.
Drugmakers contend that the 340B program has grown far beyond its original intent, and that some hospitals are pocketing the savings instead of investing the money in more services. Some research supports that contention.
In 2020, seven major pharmaceutical manufacturers announced that they would restrict or halt 340B drug sales to contract pharmacies, since those sales aren’t required under federal law. As of last September, 25 drugmakers had imposed such restrictions, according to 340B Health, an advocacy group that represents more than 1,500 public and private nonprofit hospitals and health systems.
“We as an industry continue to provide those discounts, but we’re concerned that there’s no evidence patients are seeing any improved access or that they’re seeing lower costs,” said Nicole Longo, deputy vice president for public affairs at Pharmaceutical Research and Manufacturers of America, a trade group representing drugmakers.
States are pushing back. This year, Kansas, Maryland, Minnesota, Mississippi, Missouri and West Virginia have enacted laws requiring drugmakers that participate in Medicaid to sell discounted drugs to contract pharmacies. In 2021, Arkansas became the first state with such a law, and Louisiana followed in 2023. Other states, including New York, have considered similar bills this year.
“It’s very hard to maintain services and keep a hospital open. So, when 340B came into play, it was very helpful,” West Virginia Republican state Sen. Tom Takubo, the sponsor of the legislation in his state, told Stateline.
“They just unilaterally stopped delivering medications to those peripheral pharmacies,” Takubo said. “And so, we passed a bill that said you can’t do that. You gotta deliver out there. And if you don’t do it, we’re gonna fine you.”
340B expansion
One thing is certain: The 2010 expansion of the 340B program to many more contract pharmacies has dramatically expanded access to the discounted drugs. The number of retail pharmacies participating in the program grew from 789 in 2009 to 25,775 in 2022, according to a study published last year in JAMA Health Forum.
Patient spending on 340B discounted drugs also has increased significantly, from $6.6 billion in 2010 to $43.9 billion in 2021, according to the Congressional Budget Office.
Karen Mulligan, a research assistant professor at the Sol Price School of Public Policy at the University of Southern California, said there are valid arguments on both sides of the debate. The point of the 340B program is not to subsidize drugs for low-income patients, she said. Rather, it is to funnel financial support to struggling community health centers and rural hospitals.
The federal government began allowing those entities to use contract pharmacies because many of them did not have pharmacies in-house, Mulligan said. But she pointed out that the expansion of the 340B program also has brought in some hospitals that “make plenty of money without 340B.” And because the 340B reporting requirements for hospitals are lax, she said, it’s not clear that they are using the money they save to improve patient care.
The challenge, Mulligan said, is that efforts to rein in the program likely would harm all providers — those that need the savings to serve low-income patients and those that don’t.
“The program’s intention is not what the program looks like today, and that’s why you have so many different people on different sides,” Mulligan told Stateline.
A broad range of patients
Some critics of the 340B program claim the discounts end up flowing to hospitals located in wealthier neighborhoods.
But Joey Mattingly, an associate professor of pharmacy at the University of Utah who has been in pharmacy for more than two decades, said the health care providers that use contract pharmacies see a broad range of patients. And the revenue they get helps those hospitals stay open.
“When you lose the hospital and it’s no longer even available in your community, now you’ve got to drive farther to get to a hospital,” Mattingly told Stateline. “That’s not to say that if 340B went away tomorrow, you would lose a bunch of hospitals. But I think you’d see a lot of changes that would be dramatic.”
Mattingly said a lot of hospitals and clinics use the savings to create changes that are both economical and helpful to patients. For example, they may start offering free or subsidized drugs in-house that patients could get right away, increasing the likelihood that they will actually take the medicine and avoid a costly hospital readmission.
Aimee Kuhlman, vice president of advocacy at the American Hospital Association, said the 340B program generates tens of billions of dollars in savings that hospitals use to benefit patients.
“The reality is, Big Pharma doesn’t want to give discounts to hospitals or the patients these hospitals serve, they want to keep it for themselves,” Kuhlman told Stateline. “The fact is, 340B is a critical resource to eligible hospitals and the patients and communities they serve.”
Participation in Medicaid is optional, and pharmaceutical companies that don’t want to provide the 340B discounts can decline to be part of it, said Greg Havard, CEO of the 49-bed George Regional Health System in Lucedale, Mississippi, a city of a few thousand people close to the Gulf Coast.
“Pharmacy manufacturers have agreed to sell certain drugs to us at a lower price, and the 340B program is there to help us recoup costs on services or facilities that we operate to treat these folks and try to keep the doors open,” Havard told Stateline. “The reason we as a group wanted to pursue legislation is because pharmaceutical manufacturers, during the height of the worst pandemic in 100 years … stopped honoring our contract pharmacies that have been a practice in place for 15 years.”
Vacheria Keys, associate vice president of policy and regulatory affairs at the National Association of Community Health Centers, also argued that the facilities she represents invest 340B savings into patient care. Keys said the program is essential because the federal funding that community health centers receive “doesn’t stretch as far as it used to.”
Meanwhile, pharmaceutical companies are challenging the new state laws in court. Last month, for example, a federal judge denied a bid by drugmaker Novartis to halt Mississippi’s law. The company told Stateline it plans to appeal the decision.
Robert Dozier, executive director of the Mississippi Independent Pharmacies Association, hailed the new state law and the court’s ruling.
“We’re getting more brand-name drug manufacturers back on board,” Dozier told Stateline. “That gives us access to more medication to where we can help more people in the community.”
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