Unfairly Targeting 340B Hospitals

Ted Slafsky, MPP & Robert Chapman, MD

In an era of rapidly escalating prices, the 340B drug discount program remains one of the few checks to keep medicine and medical care accessible to the underserved. Contrary to the recent column, "Payers Must Develop Strategies To Overcome 340B Hurdles," it is not being exploited by participating hospitals.

If it were, where exactly is the money?

Ted Slafsky, MPP

The median operating margin for all U.S. not-for-profit and public hospitals (not just the subset that qualify for 340B) is only around 3.4%, according to Moody's Investor Service. Finances are even worse for public hospitals, nearly all of which are in the program. More than half of these operate in the red, with an aggregate margin of −3.2%.

To qualify for 340B, a hospital must be either a not-for-profit or public institution. In addition, it must serve a very large volume of Medicaid and low-income Medicare patients—generally speaking, a minimum threshold of 30% of their total patient base. Most treat much higher percentages. On average, Medicare and low-income Medicaid patients make up 42.5% of 340B hospital patients versus 26% for non-340B hospitals. Safety-net hospitals provide $24 billion in uncompensated care annually—that’s about 60% of all hospital uncompensated care, despite the fact that they make up only one-third of all hospitals.

While some payers would no doubt like a piece of 340B discounts, Congress created it as a provider program for a reason: It helps stretch scarce resources and allows them to serve more patients.

Robert Chapman, MD

The pharmaceutical industry has worked overtime to malign the funding mechanism of the program. Under the law, providers extend the savings to the needy and also provide medications at negotiated rates to insured patients. The margin is used to help fund all manner of services, including HIV/AIDS, diabetes, cancer, vascular and primary care clinics used by the poor and other vulnerable populations.

And yes, 340B hospitals do provide free or reduced-cost medicines to low-income and uninsured patients. In a survey of 340B hospitals, 78% of respondents said drug costs would go up for the under and uninsured if the program were eliminated. Forty percent said it would lead to the closure of one or more clinics.

Another choice piece of misinformation from Big Pharma regards program growth. The Affordable Care Act made rural hospitals eligible for the program in 2010. But they tend to be tiny facilities with 25 beds or less that represent just 3% of 340B purchases.

The 340B contract pharmacy program makes medicines more readily available to underserved patients near home. 340B hospitals, like Henry Ford Health System in Detroit, provide a special discount card, so low-income patients can get their medications more cheaply and conveniently. Southern Ohio Medical Center in Portsmouth, Ohio, provides a pharmacy discount card to any patient who does not have prescription insurance. They get the 340B price, plus a modest dispensing fee, at area contract pharmacies.

340B disproportionate share hospitals provide twice as much care to African-American patients and serve nearly twice as many Hispanic beneficiaries as non-340B hospitals. While we are proud to serve such a diverse and vibrant population, we also need to recognize that these patients are underserved and suffer from higher chronic, costly conditions.

Rather than regarding the 340B program as a threat, MCOs should explore opportunities to partner with 340B hospitals to enhance patient care and reduce costs.  Compared to non-340B hospitals, 340B hospitals are more likely to provide a wide range of critical specialized and public health services

For some services, including alcohol and drug abuse outpatient services, mobile health services, and pediatric intensive care, the percentage of 340B hospitals providing the service are more than two times higher than the percentage for non-340B hospitals. MCOs could contract with 340B hospitals to serve as “centers of excellence” for their beneficiaries or specific groups of enrollees requiring specialized services, such as HIV/AIDS patients.

340B hospitals know financial pressure all too well. They can sympathize with payers’ high costs in therapeutic areas such as mental health, HIV/AIDS and trauma care.   340B hospitals provide these services at much higher volumes than non 340B-hospitals despite the fact that they are financial drains to their institutions. 

Rather than scapegoat 340B hospitals for these expensive therapies, payers should turn their attention to the source of the problem—pharmaceutical and biotech companies that, in the pursuit of profit, appear to have no compunctions about testing the nation’s limit to pay for lifesaving therapies and cures.

Ted Slafsky M.P.P. is president and chief executive officer of 340B Health, an association of approximately 1,300 hospitals in the 340B program.

Robert Chapman M.D. is director of the Josephine Ford Cancer Institute at the Henry Ford Health System in Detroit, Mich., and a board director of 340B Health.