Under Attack? The Future of the 340B Drug Discount Program


Many institutions currently participating in the 340B program will view the proposed guidelines as additional barriers to an existing array of issues.

In 1990, Congress created the Medicaid rebate program to lower the cost of pharmaceuticals reimbursed by state Medicaid agencies. During that time in Kentucky (where I practice), the majority of the medications on the Medicaid reimbursed drug list were generics. The new law allowed brand name medications to be added to the reimbursed drug list, which can be good clinically but not so good financially.

Nevertheless, this provision in the legislation removed any incentive for the pharmaceutical companies to offer deep discounts outside of the Medicaid market. The higher cost of medications to the other providers supported by the federal and state agencies offset any cost savings realized from the rebate program. In part to remedy this, Congress enacted the 340B legislation in 1992 (technically known as the Veterans Health Care Act of 1992, codified as Section 340B of the Public Health Service Act), creating another discounted pharmaceutical pricing program mandated to all pharmaceutical manufacturers participating in the Medicaid program.

Since the inception of the 340B program, my hospital has been able to provide millions of dollars of medications and treatment to our community’s vulnerable patients and at the same time continue to grow and expand facilities, programs, and services. This illustrates the true intent of the program: enabling the ability to provide a community an economical, efficient, university-related healthcare institution that serves the majority of uninsured/ uninsurable patients.

In January 2007, the Health Resources and Services Administration (HRSA) issued two Federal Register notices: one proposing changes to the definition of “patient” under the 340B Drug Discount Program, the other proposing revised guidelines regarding the types of contract pharmacy services covered entities are allowed to use. There are several potential problems associated with the proposed changes to the patient definition. If the proposed changes are approved as written, the uninsured patients reaping the benefits associated with the 340B program will suffer, costs will increase, and taxpayers will bear the burden.

The 340B Drug Discount Program is one of the few federal programs that save taxpayers money. Enacted in 1992, section 340B of the Public Health Services Act requires pharmaceutical manufacturers that choose to participate in Medicaid to sell outpatient drugs at discounted prices to hospitals, community health centers, and other safety-net healthcare providers that serve the majority of the millions of Americans who are uninsured or covered by Medicaid. Although there is great value in participating in the 340B program, not all eligible entities take part in the program. According to a survey conducted by HRSA, only 63.5% of a surveyed 588 eligible entities reported that they were participating.4 Roughly 40% of nonparticipating eligible entities indicated that they did not understand the 340B program “at all,” with another 30% reporting they “only slightly” understood the 340B program. Survey respondents cited several barriers to 340B participation, including high startup costs, complex mandatory recordkeeping rules, the “confusing nature” of the program, and the “perceived absence of adequate information” about the program. Another notable barrier cited by the nonparticipating entities was the absence of a pharmacy at their institution (although there are several models under which 340B entities operate, in general, eligible organizations must be able to dispense the drugs they purchase through the 340B program).

The proposed changes regarding contract pharmacies should address these objections. Viewed from the perspective of aDSH(Disproportionate Share Hospital), the proposed changes to the 340B patient definition, if adopted, will become so arduous to implement, and the current program savings cut in such a way, that our ability to continue providing these pharmacy services to the vulnerable populations we serve will be severely limited. In fact, I think the proposed changes to the rules governing the 340B program would be so limiting and difficult to administer that my facility would consider withdrawing from the program if they are adopted as written.

Currently, HRSA has defined a “patient” (for the purposes of determining who is eligible to receive 340B discounted medications) as an individual with whom the “covered entity has established a relationship… such that the covered entity maintains records of the individual’s health care” and who “receives health care services from a health care professional who is either employed by the covered entity or provides health care under contractual or other arrangements (eg, referral for consultation) such that responsibility for the care provided remains with the covered entity.”

Under the proposed new guidelines, the criteria for determining whether an individual is a patient of an entity covered under 340B require (in part) that “the covered entity has established responsibility for the outpatient health care services it provides to the individual, such that the covered entity maintains ownership, control, maintenance, and possession of records of the individual’s health care, including records that appropriately document health care services that result in the use of, or prescription for, 340B drugs” [emphasis added]. What is gained by adding the additional conditions that an entity must maintain “ownership, control, maintenance, and possession of records of the individual’s health care?” As a DSH facility, it is not in our best interest to own or possess such records. Our institution supports the educational mission of the University of Louisville Medical School. We support that mission monetarily, not through ownership. Our relationship allows the university to recruit and retain the best and brightest faculty/researchers in the country. In this winwin association, the clinics are operated by the faculty, fellows, residents, and medical students of the University of Louisville, who in turn support our mission of providing cutting-edge healthcare to any patient who walks through our hospital doors. Many state- or county-owned 340B/DSH hospitals are not separate legal entities, and it is not clear whether these organizations can “own” health records. If this proves to be the case—if they cannot meet the proposed new rules—then the institution would have to resign from the program.

Also under the proposed guidelines, an individual may be considered a patient who is allowed to receive 340B drugs only if he or she receives them or is prescribed the medications as part of a diagnosis and treatment from a “health care provider who is employed by the covered entity, or provides health care to patients of the covered entity under a valid, binding, and enforceable contract.”2 Currently, the professional providing the services through which 340B medications are furnished needs to be connected with the covered entity through some other arrangement distinct from an employment or contractual relationship. Physician interns, fellows, and residents, for example, are neither employed by, or under contract with, the hospitals in which they are on staff. Our DSH hospital is a part of a larger university health system that employs or contracts with the medical staff that is assigned to our hospital. In most instances, we have no direct employment or contractual relationships with the doctors treating patients at our facility. In addition, it is unclear whether the use of the phrase “health care provider” rather than “health care professional” is intended to eliminate the use of recognized services currently being provided by nurses, case managers, social workers, nurse practitioners, and physician assistants. Are the services provided and patient relationships created by these healthcare professionals no longer eligible to establish the patient definition with the covered entity? Obviously, a clearer definition will be necessary. Presently, these healthcare professionals provide valid—and indeed vital—services to our patients that preserve individual health and conserve resources by reducing the number of emergent medical crises and the need for acute care.

Current guidelines require that prescriptions for 340B medications be for the covered outpatient drugs, which relates to billing rather than the kind of services that give rise to the prescription. The proposed guidelines would restrict healthcare services on which the patient status may be based exclusively to outpatient services. At the present, we recognize patients admitted to hospitals for inpatient treatment when they are discharged from the hospital setting as eligible patients for the 340B drug program. One of the criteria used to establish the covered entity as a participant in the 340B program is in fact the percentage of indigent or free care reported on the most recent Medicare cost report, which includes the inpatient population as well as the outpatient population. Limiting the use of 340B drugs to services only provided in the outpatient setting would be in direct conflict with the law. A rule that would prohibit the use of 340B drugs to fill prescriptions for hospital-discharged patients would create administrative burdens and complexities for the hospital pharmacy, which could increase the number of eligible facilities that decline to participate in the 340B program.

Another problem with the proposed guideline revisions is the limitation on who may write prescriptions to be filled with 340B drugs. Currently, the patient test does not address or set limits; however, the new test does. Presently, it does not matter who writes the prescription, as long as the standards for record maintenance and care by a medical professional properly associated with the covered entity are satisfied. According to the proposed amended guidelines, prescriptions would only be filled with 340B drugs if they are written by a healthcare “provider” employed by or under contract with the covered entity. This would impose an additional “prescriber” identity test as a criterion of a patient’s status within the patient definition, clearly going beyond the statute and establishing rules with no apparent authority. Many of our patients are referred to outside physicians for specific follow-up care for conditions recognized by our faculty and staff. We maintain ongoing responsibility for the healthcare service that results in the use of or a prescription for 340B drugs. Requiring the covered entity to discern when that care is for the same condition will often be difficult or impossible. The proposed conditions for filling outside prescriptions are so restrictive that, in virtually all instances, most hospitals would be prevented from using 340B drugs. This drastically reduces the extent to which 340B drugs can be used to stretch safety net providers’ resources and assist in addressing the healthcare needs of indigent and underserved communities.

The last issue I will raise concerns the use of 340B drugs to fill our employees’ prescriptions. Under the terms of many hospitals’ self-insured employee health benefits plan, the hospital provides its employees and their dependents healthcare services under a managed care arrangement. The hospital will use a network of physicians and providers with whom the hospital has contracts for participation in the network. The current guidelines allow this model of care to establish the 340B patient relationship and thus the ability to use 340B drugs to fill hospital employee prescriptions. The new guidelines would prohibit this relationship and the use of 340B drugs for hospital employees. This change, if implemented, would negatively affect many DSH hospitals, compromising their abilities to create the necessary revenue value to cover their expenses (ie, making ends meet). The ability to recruit and retain important staff is enhanced by the benefit of discounted prescription drugs we are currently offering to our employees. The system for conserving a hospital’s limited staff resources is enhanced by affording hospital employees access to 340B drugs under a self-funded program. If the proposed rules are implemented as written, I believe many hospitals like our own will reassess their future participation in the 340B program.

I have discussed the problems associated with redefining the 340B-eligible patient, as it pertains to new or revised criteria and rules regarding prescribers, the medical record, the environment where the prescription is written, and whether the patient is employed by the eligible entity. In each of these scenarios I have revealed the many shortcomings of the proposed new guidelines. It is my opinion that many institutions currently participating in the 340B program will view the proposed guidelines as additional barriers to an existing array of issues, limiting the use of a program that was originally developed to help entities ease the growing healthcare cost of treating our most vulnerable population, the uninsured and unemployed.

Don Kupper, RPh, MBA, CHE, is Vice President of Supply Chain, Chief Pharmacy Officer at University of Louisville Healthcare in Louisville, KY.

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