By Jane Ehrhardt

At a Mississippi hospital, a patient diagnosed with advanced kidney cancer needed a prescription, but the $26,950 price tag for a 30-day supply of pills placed the life-saving drug out of reach. However, because the hospital qualified for the federal 340B program, they were able to cover the patient’s cost.

Enacted as part of the Public Health Service Act of 1992, the 340B program was designed to assist specific healthcare entities in reaching more patients, expanding access to affordable medications, and providing essential healthcare services to a broader patient population, regardless of their insurance status or ability to pay.

The government defines the covered entities to include nonprofit hospitals, such as critical access hospitals, freestanding cancer hospitals, and children’s hospitals. Clinics of all types can qualify as well, including those treating HIV and family planning. “They have to provide some type of care in the community that’s considered a safety net,” says Heather Brooks, RPh, the vice president of operations and services at ProxsysRX, a Birmingham-based company that partners with covered entities nationwide to provide pharmacy services and properly manage their 340B programs.

The government, and therefore taxpayers, contribute nothing to the plan. The funding source relies solely on the drugmakers providing outpatient drugs to covered entities at reduced prices. “Using a prescribed formula, manufacturers calculate the 340B ceiling prices which change every quarter, and are based on the Average Manufacturer Price (AMP) minus the Unit Rebate Amount (URA) from the quarter before,” Brooks says.

In return for the deep discount, the pharmaceutical manufacturers’ products gain access to the Medicaid and Medicare Part B prescribers, which include nearly 86 million and 31 million individuals, respectively. According to HRSA, 340B covered entities purchased $53.7 billion in covered outpatient drugs in calendar year 2022.

The hospitals sell the outpatient drugs through a contract pharmacy. The pharmacy fills the patients’ prescription, notably with the patient paying below the usual price or even for free—or charges their insurance company the full price. The covered entity then receives the monies collected minus whatever pharmacy dispensing fees they agreed to. 

Those monies have opened the way for these safety-net institutions to save lives and provide care not seen in their communities before. For instance, a rural hospital that’s part of a small Louisiana health system serves a very low income population and provides care to all who walk through their doors. The labor and delivery unit often cares for uninsured patients, and runs as a net loss to the facility. Their 340B program revenue keeps that unit open. Otherwise, those mothers would be forced to deliver at home or would have to drive over 60 miles away.

A large health system in Alabama uses their 340B savings to fund a pharmacy for patients with HIV. The pharmacy extends the 340B discount to patients who need extra help by providing free or discounted prices. 

The pharmacies generate revenue as well, which is defined by the contract they agree to with the covered entity. Generally that includes a fee per prescription filled and, in some cases, a percentage of the revenue. Thse profits have been notable enough to entice 71 percent of pharmacies owned by the top four pharmacy chains—Walmart, CVS, Rite Aid, and Walgreens—to join the 340B program.

The success of the program has spurred its growth. According to HRSA, discounted prescription drugs purchased wholesale under the 340B program grew 22.3 percent to $53.7 billion from 2021 to 2022. The number of pharmacies participating in 340B has exploded as well, from 601 in 2009 to 26,885 in 2022, according to a study published in Health Affairs Scholar.

This burgeoning growth and having no say in the program’s definition of covered entity has riled drug manufacturers who see that potential profit eaten into. “Not only do they have to give the government a rebate on drugs for Medicaid purchases and claims, but they also have to extend a discount to covered entities,” Brooks says. “And over time, the government has added more and more entity types to that bucket.”

In response, starting in 2019, drug manufacturers began putting forth their requirements, like requiring covered entities report claims data, limiting covered entities to only one contract pharmacy and restricting 340B access to drugs available for the 340B plan because they say the program has gotten too big.

“It’s changed a lot in the last three to four years,” Brooks says. “There’s now a lot of litigation on this program. There have been lawsuits over the definition of patient, the transparency of drug pricing within the program, and the use of contract pharmacies. There’s nothing in the statute saying covered entities have to do any of this, so HRSA is telling the manufacturers to step back in line, and that they have no right to create any requirements or restrictions,” she says.

Despite the recent legal battles, the growing program improves healthcare, quality of life, and employment in a number of local communities. “Between late 2019 and the end of 2023 ProxsysRx’s 340B Support program went from zero to more than $500 million in savings generated for the hospitals and health systems we serve,” Brooks say. “These savings are vitally important to keeping the healthcare safety-net in place in many communities.

“One of my favorite things is to hear about how 340B impacts patients. Last week, a pharmacist in one of our locations told me about a patient who was in tears when insurance would not cover the medication prescribed for her son, who was being discharged from the hospital with a new diabetes diagnosis. The discount provided to the patient through the partnership of the hospital and the pharmacy, and funded by the 340B program enabled that mom to focus on controlling her son’s diabetes, rather than how to pay for the medication.”