The 340B Program Dilemma: The Good, the Bad, and the Ugly

Craig Deligdish, MD

August 2014, Vol 5, No 6 - From the Editor

The 340B Drug Pricing Program was a result of Public Law 102-585, the Veterans Health Care Act of 1992, which was codified as Section 340B of the Public Health Service Act. This program is managed by the Health Resources and Services Administration (HRSA) Office of Pharmacy Affairs. Section 340B limits the costs of outpatient drugs to qualified health centers (ie, community-based healthcare providers that receive funds from the HRSA Health Center Program to provide primary care services in underserved areas), federally qualified health center look-alikes (ie, community-based healthcare providers that meet the requirements of HRSA, but do not receive funding from it), and other federal grantees, including community health centers, migrant health centers, health centers for residents of public housing, and health centers managed by the Office of Family Assistance’s Tribal programs or urban Indian organizations. Other organizations eligible for 340B pricing include black lung clinics (which provide services to coal miners and their families), comprehensive hemophilia diagnostic treatment centers, certain entities receiving assistance under Title XXVI of the Social Security Act, disproportionate share hospitals, free-standing cancer hospitals, critical access hospitals and sole community hospitals, in addition to a number of other organizations. The Affordable Care Act further expanded the number of organizations that were eligible for the program.

The program covers outpatient drugs, but does not cover drugs that are administered on an inpatient basis. The discount that organizations receive is significant and varies between 20% and 50%, but generally can be estimated to be 50% of the average wholesale price of a drug.1

In recent years, the 340B program has grown dramatically, allowing for eligible institutions to benefit and to provide important drug treatments to qualified patients. The financial benefits of the 340B discount can be significant for healthcare institutions. The 340B program has an important impact on patients with cancer and their providers because of the high costs of oral therapies and other drugs that are given in the outpatient setting.2

In recent years, there has been a great deal of debate as to whether the expansion of this program is consistent with the original intent of the legislation that created it.3 There has also been much written about the benefits of the program to patients and to eligible institutions. Advocates of the program have argued that the program allows eligible institutions to expand the services they offer and to provide appropriate care to individual patients who otherwise would not have had access to or have received this care.2 Alternatively, there has been criticism of the program because institutions have abused it to expand their provider networks and take advantage of the discounts for the benefit of the institution.4 It has also been suggested that some institutions have taken the discounts for inpatient care when the program was intended only for use in the outpatient care setting.4

The expansion in the size of the 340B Drug Pricing Program has resulted from policy changes made by the HRSA and Congress and the use of contracted pharmacies that distribute drugs at sites other than at 340B-covered sites. In March 2010, HRSA issued guidance that allows 340B-covered entities to create arrangements that permit them to increase the number of prescriptions filled through contracted pharmacies.5

During the past several years, there has been concern whether this program has been adequately managed. These concerns have been examined by the Government Accountability Office6 and the Office of Inspector General,7 and Congress has taken a role in investigating the potential abuse of the program.

Although they appreciate the noble intentions of the 340B Drug Pricing Program, oncologists in private practice have also recognized that some hospitals have used the program to expand their number of employed oncologists.4 Many of these hospitals bill for services at higher rates than physicians in the community, thereby increasing the costs of outpatient services. The expansion by these hospital-based cancer programs has significantly increased the overall cost of care in some communities. Others have been critical of nonprofit hospitals that do not align the 340B discount program with the delivery of indigent care.4

Organizations that have suggested that the program be reformed include the American Society of Clini­cal Oncology and the Community Oncology Alliance, both of which have written position statements and white papers in the past year on this topic.2,4 Advocates of the program, such as the Safety Net Hospitals for Pharmaceutical Access (SNHPA), have promoted bipartisan legislation to expand and maintain the program’s original intent.8

It is increasingly clear that the cost of drugs for the treatment of cancer and other chronic diseases is not sustainable. It is inconsistent that federal laws allow many organizations to be eligible for substantial discounts, including state Medicaid programs and the Veterans Administration that can negotiate drug pricing with pharmaceutical companies, yet Medicare does not. Of note, European governments pay significantly less for many medications than patients in the United States and our own government. Although the pharmaceutical industry has taken a position and has sued the US Department of Health & Human Services regarding providing 340B coverage for orphan drugs,9 pharmaceutical companies do not appear to be as publicly critical of the expansion of the 340B Drug Pricing Program as may be expected.

This debate was recently put in perspective by Ted Slafsky, President and Chief Executive Officer of the SNHPA, who indicated that only 2% of the $325 billion in annual US pharmaceutical spending is attributable to 340B purchases, yet pharmaceutical companies spend 8% of this revenue, more than $27 billion, on marketing and advertising.10

For many years, the pharmaceutical industry has benefited from the support of the federal government. The expansion of pharmaceutical spending resulting from the Medicare Modernization Act, which created Medicare Part D, is one such example. The time has come for the government to restore the free market in the pharmaceutical industry, while simultaneously addressing the conduct of 340B-eligible organizations that abuse the intent of the 340B programs to attain competitive advantages in their markets.

There needs to be reform in the 340B program, and the time for enhanced supervision is now. The government should take action to address the abuses in this program that contribute to increased costs for care. It is important that lawmakers consider alternative approaches that will ensure that all patients have access to affordable drugs, while pharmaceutical companies continue to generate the resources they need to support research and innovation.


  1. Richardson K; for Medicine for People in Need. The bridge to 340B: comprehensive pharmacy services solutions in underserved populations. April 2004. Accessed August 7, 2014.
  2. American Society of Clinical Oncology. Policy statement on the 340B Drug Pricing Program by the American Society of Clinical Oncology. J Oncol Pract. 2014;10:259-263.
  3. Alliance for Integrity and Reform of 340B. The impact of growth in 340B contract pharmacy arrangements. Summer 2014.,%202014.pdf. Accessed August 7, 2014.
  4. Community Oncology Alliance. 340B Drug Discount Program: position statement. July 21, 2014. Accessed August 7, 2014.
  5. Notice Regarding 340B Drug Pricing Program—Contract Pharmacy Services. Fed Regist. 2010;75:10272-10279.
  6. Government Accountability Office. Manufacturer discounts in the 340B Program offer benefits, but federal oversight needs improvement. September 23, 2011. Accessed August 7, 2014.
  7. Office of Inspector General. Memorandum report: contract pharmacy arrangements in the 340B program. February 4, 2014. Accessed August 7, 2014.
  8. Safety Net Hospitals for Pharmaceutical Access. Statement from SNHPA President and CEO Ted Slafsky on the bipartisan 2014 budget agreement. Press release. January 14, 2014. get_statement_1_28_14.pdf. Accessed August 7, 2014.
  9. Health Resources and Services Administration. Orphan drugs exclusion. requirements/orphandrugexclusion/. Accessed August 7, 2014.
  10. Slafsky T. More of the same from Big Pharma. Congress Blog. April 1, 2014. Accessed August 7, 2014.