Congress created the 340B program in 1992 to fix a problem it had created two years earlier when an overreaching government implemented price controls in the Medicaid drug benefit program.  As a condition to participate in Medicaid, pharmaceutical companies are required to participate in the 340B program and give discounts of between 20-50 percent to certain federally funded healthcare facilities and disproportionate share hospitals (DSH) known as “covered entities” that serve large numbers of low-income, uninsured patients

The savings are intended to give patients of these covered entities access to prescription drugs, and also allows, according to Congressional intent, the entities to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”  But due to unclear legislation, legally questionable guidance by the Health Resources and Services Administration (HRSA), which oversees the program, and expansion under the Patient Protection and Affordable Care Act, the program has grown exponentially and is vulnerable to abuse.

The BRG report noted that the “shift in site of oncology care from the physician office to the hospital outpatient setting has continued unabated since 2008, and almost 50 percent of 2016 Medicare Part B chemotherapy drug administration claims occurred in the hospital outpatient setting – up from just 23 percent in 2008” and “average profit margins on Part B-reimbursed physician-administered oncology drugs purchased at a 340B price increased from 40 percent in 2010 to 49 percent in 2015 and have created substantial financial incentives for 340B hospitals to expand oncology services, despite overall healthcare costs increasing as a result of this shift in site of care.”

In 2014, 340B discounted prices were at $9 billion, but by 2020, they reached $38 billion, an increase of 27 percent from 2019 and a 322 percent increase from 2014.  On April 14, 2023, the healthcare data analytics firm IQVIA released its study, “The 340B Drug Discount Program Exceeds $100B in 2022,” which showed a massive increase in spending and provided further evidence of the exploitation of the program.  The report found that the misuse of the funds by hospitals and contract pharmacies is ongoing, and patients are still not getting the benefits Congress intended them to receive.

The IQVIA study noted that the Inflation Reduction Act’s (IRA) price controls will impose additional pressure on future research and development.  CAGW submitted comments in response to the Center for Medicare and Medicaid Services (CMS), “initial guidance for implementation of the Negotiation Program for initial price applicability year 2026.”  The price controls in the IRA will further distort the medical marketplace.  Additionally, the IRA expands the 340B drug discount program despite its flaws.