Tuesday, May 07, 2013

My Controversial 340B Op-Ed

Last week, congressional news site The Hill published my editorial on the 340B drug discount program. Read it here: Hospitals twist prescription assistance program for their own benefit. (The full text is also pasted below).

Some of you will agree with my perspective. Others of you will violently disagree. Please post your comments on Drug Channels. All points of view welcome!

For background, here are my two most recent articles on 340B:

The following article originally appeared in The Hill, on April 29, 2013.

Hospitals twist prescription assistance program for their own benefit
By Adam J. Fein, president, Pembroke Consulting, Philadelphia

In 1992, Congress acted to help indigent and uninsured patients gain better access to prescription drugs. It authorized the 340B drug discount program, which lets eligible hospitals and other providers purchase outpatient drugs and receive discounts from pharmaceutical manufacturers.

But today, 340B discounts have left needy patients behind. Health Resources and Services Administration (HRSA), the government agency that oversees the 340B program, has developed the program with a tangle of regulations, non-public private letters, clarifications, and “Frequently Asked Questions.” Aggressive hospital strategies, all technically legal, have stretched the program’s goals beyond recognition. Hidden rebates from pharmaceutical manufacturers are instead subsidizing the operations of highly profitable, multi-billion dollar health systems.

The limited government oversight and foggy regulations let a 340B hospital profit from everyday outpatient prescriptions — drugs that are dispensed by your local pharmacy and are already fully paid by your insurance company. Thus, economic status and degree of need are irrelevant to a hospital’s ability to profit from a 340B prescription.

Hospitals grab these 340B rebates through a convoluted process. First, the hospital and its software vendors secretly match personal information from your retail prescription to their internal patient databases. If it is profitable, they convert the prescription to a 340B claim. Then, the retail pharmacy turns over its third-party and consumer payments to a 340B hospital. The hospital pays a fee to the pharmacy and submits a rebate claim for the retail prescription.

What’s more, the hospital benefits without your or your payer’s knowledge. Under existing regulations, the process is entirely permissible. However, it certainly wasn’t considered or intended in the original legislation.

This behavior sharply accelerated after a 2010 regulatory change, which lets hospitals build external networks of community pharmacies. HRSA projects that nearly one-quarter of the country’s 60,000 retail community pharmacies will be part of a 340B network. The biggest player is Walgreens. More than 4,000 of its drugstores act as 340B contract pharmacies.

Unfortunately, we can’t even detect the full scope of this practice. The National Council for Prescription Drug Programs (NCPDP), which set electronic communication standards for pharmacy care, allows easy identification of an individual prescription’s status under the 340B drug pricing program. This voluntary standard is purposely ignored by most hospitals and pharmacies.

Senator Charles Grassley (R-Iowa) has requested that the largest North Carolina hospitals provide details about their use of the 340B program. His work has exposed the small fraction of hospital 340B profits that now target indigent and uninsured patients.

Consider Duke University Health System, which has annual revenues of $2.5 billion and operating profits (revenues minus expenses) exceeding $500 million. Responding to Senator Grassley, Duke disclosed 340B pharmacy profits of $292 million — a 53 percent gross profit margin. Without these discounts, Duke's pharmacy profit margin would drop to 24 percent — comparable to that of a typical outpatient pharmacy. Only 1 in 20 patients served by Duke’s 340B pharmacy is uninsured. The remaining 95% have prescription costs paid by Medicare, Medicaid, or private insurance.

Today’s Congress should improve oversight and tighten 340B participation requirements.

To ensure that the program’s funds are being used appropriately, Congress should require that hospitals fully disclose how they use their 340B pharmacy profits. By allowing hospital’s to retain and then spend all 340B pharmacy profits, neither Medicare nor patients benefit from 340B drug discounts.

To limit abuse and increase transparency, hospitals and pharmacies should also be required to comply with established industry standards for identifying 340B prescription claims. Hospitals’ use of contract pharmacy networks should be scrutinized to be consistent with the program’s true intent.

It’s time to modernize the 340B program and help the neediest patients access valuable medicines.


  1. You are dead-on with your 340-B article. However, it’s not just hospitals that are taking advantage. There is one major organization that is making a ton of money from the 340 B program and I’m sure there are a number of other ones.

  2. This is an opinion piece... hence OP-ED. I wouldn't go calling it elite journalism (no offense Adam). So before you grab your torch and pitchfork remember that.

    There are many fundamental flaws in regards to the oversight and regulations that encompass 340B, that I agree with. Of course that is the case with most government run programs in general. Necessary evil I guess. Everyone else, remember, Adam is a consultant and a big chunk of his business is consulting manufacturers (I assume from reading the "about the blog page" on his Drug Channels web site). Shouldn't be at all surprising to anyone his opinion is definitely a little on the one sided... uh side.

    However, there does need to be reform. Some would say cut the 340B networks out. When a company like Walgreen's (nothing against them) is making huge profits (I assume this as well) off a program intended to help hospitals take care of their indigent patient population. I can see how that would cause a lot negative attention to the program. I don't even want to go into the fact that (in some cases) Walgreens (allegedly) only bills profitable brands and keeps all of the generic money in house. Before you start Adam, yes we know about what that can do to payers and all that mess.

    So there's problem one. Big bad giant Walgreens and hospitals out there making money with 340B... can you hear a little sarcasm.

    Next BIG issue is the criteria to become a 340B hospital. Obviously you have to be non-profit, but then the hospital qualifies on a percentage of Medicare (w/SSI) and Medicaid inpatient days. By the way this is an outpatient only program... I know, it makes so much sense. If I remember right, medicare and medicaid is a form of insurance. So just because a hospital reaches that certain percentage of patient days for Medicare and Medicaid doesn't always mean they perform an overwhelming amount of uncompensated care. So, that is the other big argument PHARMA and other stakeholders are stomping there feet about. I guess one solution for them would to require a certain amount of uncompensated care percentage or something. Not too many have branched out enough to offer a solution. Cry Babies... a little more sarcasm.

    The problem hospitals (my humble opinion) have is that it is hard to show what 340B has allowed them to do. Those that need it most, and yes there are definitely hospitals that need it more than others. Just visit your local large urban (county owned most of the time) hospitals that basically give their drugs away for free, or the rural areas in the country that have hospitals that are barely keeping the doors opened. Usually these places are the only hospital in the area and are 25 beds or less. But how do you show people 340B allows you to keep a doctor on staff or allows you to pay your bills. Also, how do you show that 340B saves everyone county tax dollars. Get rid of 340B and watch what happens to your county tax rate. Again, I know all hospitals are not in as bad a shape, but there are many that are. By the way, if you do speak up and try to demonstrate what 340B does for your location then the hospital gets slapped by Senator Grassely with an audit basically. Thanks Earnest... just goes to show you "Speech" is not free.

    Bottom line... there does need to be changes. What do they need to be... I am not smart enough to figure that out. Neither is Adam (no offense). It is hard to fix something built by congressman, especially when you have to make them fix it for you. Who has that kind of time... biggest babysitting job ever.

  3. They would use their GPO if they could not use 340B. That is what many hospitals already do, unless they live in Arkansas. No pun intended, but I believe a hospital cannot own or operate a retail like pharmacy out of a hospital in AR. That is the only state I know of protecting the retail rx community from what you are describing at any official level.

  4. This is true... I was looking at it from an "in house" perspective.

  5. Cry me a river. Congress created this mess, if you don't like it, blame them. If I were a pharma executive I would spend time and money trying to demonize covered entities and kill the program because I'm paying for it. Apparently I could be a pharma executive.

    If I'm a hospital executive seeing my reimbursement arbitrarily decreased to balance budgets while being asked to maneuver laws and regulations governing the most complicated, man-made scheme since creation (US healthcare), I'm taking advantage of the darn 340B program. If you don't like contract pharmacy, call the OPA, they published the guidance in the Federal Register. If you don't like oncology practice acquisitions creating cheaper cancer drugs, call Congress or the OPA.

    Pharma can argue that the 340B program is another Medicaid or patient assistance program and should be designed as an individual entitlement. I think the covered entities have decent evidence that the intent was to provide cheaper drugs to covered entities because they were already accepting a disproportionate share of the cost of care for the uninsured and indigent. That's how the program was setup 20+ years ago.

    Welcome to the world of big government intervention - sometimes you win, sometimes you lose, and sometimes you whine about losing.

  6. I think your article is way off base. While some hospitals that are very profitable may take advantage of the program, there are many many more that use it wisely. There are bad apples in every industry. I even know some consultants that might do some shady business. You mention contracted pharmacies making huge profits.

    The regulations require the profits made on retail prescriptions to go to the 340B entity and not the pharmacy. Those pharmacies are only allowed to make a minimal contracted fee per 340b prescription so you need to do your research. Walgreen's makes profit, don't get me wrong, but the majority is not off the dispensing fee they get by being a contracted pharmacy, its from you buying your lottery tickets and cigarettes. The "if profitable" they switch you comment is also completely nonsensical By rule, if you are eligible then you must use 340b. So they switch the non-profitable ones as well. I would love to see your proof of the statement you made. I suspect there is none. Also there is no rebate process. Lastly the price the patient pays can only be lower than if they used non-340b.

    Back to hospitals. There are instances where hospitals own the physician's group and in those cases there are opportunities to make significant profit as the clinic would then see all insurances. But those hospitals I believe are in the minority of 340B institutions. No one ever mentions is that most out-pt oncology clinics without hospital owned physicians only see one of a few types of patients. Here is what most pharmacy directors I have ever talked to would tell you they see in their clinics :

    1. the uninsured pt referred by the doc office who doesn't want to give free care

    2. the uninsured pt seen by the doc in our free clinics that was set up to help the uninsured

    3. the insured patient getting a high cost drug for the first time because the oncologist hasn't figured out if he/she will be well reimbursed yet

    4. the patient who needs a new medication to market and the doc hasn't figured out reimbursement yet

    5. the patient mandated by their insurance to go to a hospital based clinic.

    6. Hospital employees required to use hospital based services

    7. Loyal patients that always want their care at their local hospital.

    I could go on for days over this article. It is totally false except for maybe pointing out there are a few that used the program for pure capitalistic purposes and not for the good of the patient. But the way I see it, that could also be said for big pharma and express scripts, etc.

    since when did cheaper drugs for patients ever become a bad thing? All the people you refer to as being screwed (big pharma, insurance companies, etc), have way bigger margins than your 340b eligible urban hospital in the middle of Michigan. They are just trying to stay open and 340B allows them to. Hospitals in some cases could just close the money losing clinics and provide no care.

    Lastly, I have never read you blog before and not sure my heart can take ever reading it again without BP meds. please ask the little man before writing such a piece the next time.

  7. I agree with you 100%. However, I would think, in certain circumstances, that manipulation of the 340b program may, infact, be illegal. If a prescription dispensed at a facility/pharmacy is being paid for by Medicare and was procured under the 340b program, than said facility could be in violation of anti-kickback law and subject to OIG scrutiny. Given regs around drug pedigree & transfer, it should be a relatively easy undertaking to determine any violations.

  8. Adam- For once, I totally agree with you. And to your detractors on this thread: it is hard to understand how this mess is all because of government, while the private entities in this equation are operating in less than good-faith manner. Sure, government has inefficiencies and waste. Lets not pretend private industry doesn't. Lets follow Adam's lead. He clearly doesn't generally support government intervention, but on this issue, he rightly calls for the government to step in and fix this program that would simply not exist without the Federal government's lead.


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