This week Jazz Pharmaceuticals announced that they would no longer be doing bill to/ship to orders on EPIDIOLEX® to contract pharmacies. They became the 25th pharmaceutical manufacturer to place restrictions on 340B sales.
By itself this is not huge news (24 companies did it before Jazz) but I also don’t think it should fall into the void. If you dabble in pharmaceutical reimbursement, you likely have heard of 340B but, for a long time, it was a program that you could brush under the rug in terms of knowing well. Maybe a little like the Department of Veterans Affairs and the federal fee schedule. You know it is there but may not be an expert.
340B has dramatically changed over the past decade so let’s do a 3 part series on 1) what is 340B 2) what’s the deal with contract pharmacies and 3) where might all this go next.
340B basics
In 1992, Section 340B of the Public Health Service Act was enacted. It requires pharmaceutical manufacturers that wish to sell to Medicaid to enter into agreements in which they agree to sell outpatient drugs at a discount to specified providers (“covered entities”) that serve vulnerable patient populations.
Hospitals that qualify:
Children’s hospital
Critical access hospitals
Disproportionate share hospital (DSH)
Freestanding cancer hospitals
Rural referral centers
Sole community hospitals
Grantees that qualify:
Black lung clinics
Family planning clinics
Federally qualified health centers (FQHC)
Hemophilia treatment centers
Native Hawaiian health centers
Ryan White grantees (other)
Ryan White AIDS drug assistance program
Sexually transmitted diseases grantees
Tuberculosis grantees
Urban Indian organizations
The idea was to stretch federal resources and allow covered entities to reach eligible patients and provide more services. Covered entities are entitled to receive discounts on all eligible covered outpatient drugs and may provide those drugs to all eligible patients, regardless of a patient’s insurance status. After purchasing drugs at deep discounts from manufacturers, 340B-covered entities can bill the full, non-discounted price of the drugs to patient’s insurance companies. Keep that in mind, we will come back to this point.
Discounts in 340B are significant. While it is often quoted as 30 – 50% savings, realistically the formula that dictates 340B ceiling prices has many pharmaceutical manufacturers giving their drugs away at penny pricing ($0.01). And then you combine that with the size of the 340B program. The program has increased tremendously over the years. In 2021 (the latest numbers released), covered entities made over $43 billion dollars in 340B purchases. This represented over $90 billion dollars of drugs at list price. That is a considerable delta.
The New York Times put out a sentinel piece last year on 340B using an example from Richmond, Virginia that focused on a health system seemingly prioritizing 340B profits over patients. One of the main criticisms of 340B is that covered entities bill the full non-discounted price to those that are insured and to those that are under- or uninsured. Not all covered entities do this but the 340B discount does not always find its way directly to patients in need. The Department of Health and Human Services (HHS), the agency that oversees the 340B program, believes it does not have the statutory authority to track how entities use this revenue. As a result, funding that should go to patient care may go elsewhere, without adequate measures to track such financial diversion.
All of this came to a head with the introduction of contract pharmacies into 340B. But that’s a story for next time.