Thursday, March 27, 2014

340B Hospitals: Not So Charitable

Anyone interested in the future of the 340 drug discount program should read Unfulfilled Expectations: An Analysis of Charity Care Provided by 340B Hospitals, a depressing new report on the program’s current oversight failures.

This analysis, which was funded by the Alliance for Integrity and Reform of 340B (AIR 340B) and conducted by Avalere Health, discovered that most 340B-eligible hospitals do not provide much charity care. (Details below.) Only 22% of hospitals account for 80% of the total charity care that 340B hospitals provide. These new data are consistent with the Office of Inspector General’s recent finding that two-thirds of the hospitals do not offer discounted 340B drug prices to uninsured patients.

Safety Net Hospitals for Pharmaceutical Access (SNHPA) immediately shouted, “Bah! Humbug!” But now that so many uncomfortable 340B facts are being revealed, SNHPA may see its shrill, uncompromising position marginalized as change comes to the program.


The 340B program applies to outpatient drugs that covered entities provide to eligible patients. Covered Entities include six hospital types or those receiving federal grants. Hospital categories include those with a disproportionately large share of Medicare and Medicaid patients (disproportionate share hospitals, or DSHs), children’s hospitals, freestanding cancer hospitals, and sole community hospitals.

Using Medicare cost reports, Avalere Health analyzed charity care at hospitals that qualified based on their DSH percentage. Alas, this percentage doesn’t measure charity care, as the report explains:
“The DSH percentage, therefore, is a reflection of care provided to low-income insured patients and does not reflect the share of uninsured patients or the amount of charity care provided at a hospital. Additionally, the DSH metric is based solely on inpatient utilization, which makes it a poor proxy for a program such as 340B that is limited to outpatient drugs.”

Here are the unfortunate results: About 70% of 340B hospitals provide less charity care than the overall 340B and non-340B average. For one in four 340B hospitals, charity care accounts for 1% or less of the hospitals’ total patient costs. (See chart below.)

[Click to Enlarge]

In 340B Is Taking Over the Hospital Market—With a 25% Share, I found that hospitals’ overall share of uncompensated care has not materially increased along with the explosion in 340B purchases. Avalere’s analysis provides a compelling explanation for this awkward reality.

In SNHPA's press release response, it stated that “two-thirds of hospital uncompensated care is provided by 340B hospitals.” However, the Avalere analysis found that only 22% of hospitals account for 80% of the total charity care that 340B hospitals provide. (See page 7 of the report.)


These latest data reinforce my previously stated position on the 340B program. Some legitimate entities truly require additional financial support. However, there are also many large, profitable, well-funded health systems that appear to be taking advantage of the program by using 340B revenues in ways that can’t be linked to the drug discount program’s initial purpose.

Congress should require that hospitals fully disclose how they use their 340B profits. Let’s hope that HRSA’s promised “mega-rule” starts to focus the program on truly deserving hospitals and the neediest patients.

To read more on this topic, check out Charity Care Program Fails, an editorial by a spokesperson for AIR340B.


  1. Adam, I really like the way and the means in which Drug Channels approaches such a sensitive subject. Most of us in the industry and assuming we're being honest with ourselves and others know the 340(b) program as it stands today has not fulfilled it's Promise of Charity Care. 340(b) is a program to cover the financial gaps in which charity was provided and the cost of that care was diminished. 340(b) is not a program to boost the profits or subsidize lost profits of the hospital.

  2. This is a good example of the law of unintended consequences writ large. The 340B program was never intended to enrich all hospitals and their chain store pharmacy "partners". The latest iteration impacting the truly established disproportionate share hospitals comes from the ACA, which further exacerbates the impact on such providers as a result of the surge in newly insured beneficiaries with reimbursement at Medicaid, i.e., abysmally low rates. I think 340B has its rightful and intended place but not as it has recently played out.

  3. Perhaps this study would be more credible if the organizations funding it were not various entities which would like to see 340b vanish, including the lobbying groups for drug companies and PBMs.

  4. Here's a unique thought and an alternative to improve two big problems (hospitals not using 340B funds as intended and drug shortages). How about the Feds passing a reg that states all hospitals currently receiving 340B funds have to provide a detailed (auditable) report that shows exactly how much drug profit they made form 340B drugs and exactly how many drugs were provided to patients that truly qualify for drug discounts. The difference in the amounts provided vs profit made would be sent to the feds like income taxes to be used to increase the payments for high-demand, low margin drugs such as nitroglycerin and sodium chloride IV bags, etc. The feds coulkd easily establish contracts with various drug companies to produce these high demand drugs at guaranteed payment levels.

    Both of these problems need serious attention and I agree with one of the commenters below.....I hate to see the entire 340B program thrown out just because hospitals have found a way to gain financial windfalls at the expense of big pharma. Both entities should be required to establish some type of contribution based on sales, profits, etc to help fund production of high demand/low margin drugs. Somehow their marketing messages of "we have concern for all our patients" rings pretty hollow when it comes to their actual behavior finding solutions for major problems like the ones above.

  5. Here's a counterpoint from SNHPA that pretty much defines "ad hominem" attack: More of the same from Big Pharma