340B Reform Remains Elusive Even As Spending Increases

Industry, advocates and legislators are in agreement that there must be changes to the federal 340B Drug Discount Program to control its growth, but it remains unclear which direction Congress will go to solve the issue.

Ted Alexander, a senior legislative assistant for House Energy & Commerce Health Subcommittee member Rep. Chris Collins (R-N.Y.), acknowledged that discussions on the matter have not yet been "terribly bipartisan." Speaking at a Dec. 6 roundtable discussion hosted by the Alliance for Integrity and Reform of 340B, he did note that there would be a series of healthcare bills coming through during the next Congress – including repeal efforts of the Affordable Care Act – but was mum regarding specific 340B reforms.

"[340B] is a complicated program," Alexander said. "So I think a lot of members would rather just not weigh in."

Alexander added that there is more uncertainty created by the upcoming health subcommittee chairman vacancy, with Rep. Joe Pitts (R-Pa.) retiring at the end of the 114^th Congress. There is no way to know yet which direction the new chairman would want to go regarding 340B, Alexander said.

The incoming Trump administration will also have some non-legislative opportunities to shape the program. (Also see "340B “Mega-Guidance” Delayed To December (Or Beyond)" - Pink Sheet, 14 Jul, 2016.)

340B Program More Than Doubled In 5 Years

The discussions come with the release of a report by the Berkley Research Group, which projected the program to exceed $23 billion in total purchases at the 340B price by 2021 – which would be more that the total spent on Medicare Part B drug reimbursement in 2014. Based on total sales, the 340B program more than doubled in size between 2010 and 2015, and expanded by 66 percent between just 2013 and 2015, according to the report. (See chart.)

Berkley Research Group 340B Report

Reforming the discount program has long been a policy priority for the pharmaceutical industry, but as 340B has grown, it’s also become more of a financial issue for firms. (Also see "340B Impact: Roche Starts Educating Investors About Discount" - Pink Sheet, 28 Oct, 2016.)

The growth is also problematic for the Health Resources and Service Administration's Office of Pharmacy Affairs – the administrator of the program – which operates on a roughly $10 million annual budget and with 22 part-time auditors.

Elizabeth Wright, director of health and science policy at the non-profit group Citizens Against Government Waste, said that the 340B program "has gone far beyond its original mission" of improving access to medicines for uninsured or vulnerable patients.

"We believe that [340B] has essentially become an ATM at DSH hospitals, costing insurers, consumers and taxpayers billions of dollars." Wright said.

Much of the report's research focused on hospitals. Aaron Vandervelde, managing director of the Berkley Research Group and an author of the report, told panelists that 90% of total drug sales in the 340B program go through hospitals, and also described hospitals as "the largest driver of growth in the program." The vast majority of entities that participated in the program were non-hospital entities before 2005, Vandervelde said.

The increasing participation of hospitals has left drugmakers waiting for a legislative solution.

The Medicare Modernization Act, however, which was passed in 2003, changed the DSH calculation for certain hospitals, which led to a substantial increase of hospitals participating in the 340B program, Vandervelde said. The Affordable Care Act also expanded eligibility for the 340B program to critical access hospitals, sole community hospitals and rural referral centers for outpatient services.

"Not surprisingly, given that hospitals account for almost 90% of co-purchases, what came with that growth in hospital enrollment is growth in overall purchases through the 340B program," Vandervelde said.

The report additionally found that 390 hospitals have enrolled in the program for the first time since the beginning of 2015, with the authors expecting this trend to continue for the next two to three years. The increasing participation of hospitals has left drugmakers waiting for a legislative solution. Vandervelde noted that 340B drug prices end up being, in practice, 30% to 50% lower than the group purchasing organization prices made available to most hospitals, which "does represent a substantial discount."

Contract Pharmacies Help Drive Growth

Another factor the authors deem responsible for the 340B program's growth is the increase in drug utilization at hospitals. Based on Medicare Fee-for-Service claims data, drug utilization has grown on average between 7% and 15% percent per year at hospitals continuously enrolled in the 340B program since 2010.

Physician practice acquisitions, affiliation and referral networks, as well as product launches were cited as factors attributing to the growth in utilization. According to the authors, the trend is expected to continue for the next five years.

Additionally, the expansion of contract pharmacies has contributed to the growth, the report says. HRSA issued guidance in March 2010, which allowed covered entities to contract with an unlimited number of third-party pharmacies to dispense 340B drugs. The result has been an increase of hospitals having at least one contract pharmacy from 10% in March 2010 to over 68% by 2016.

"Although there is a natural limit to overall participation rates, our research indicates emerging growth trends in specialty pharmacies and covered entity ownership of contract pharmacies," the report states. "Therefore, we expect contract pharmacies to continue to drive incremental 340B sales for at least the next five years."