340B is a program created by Congress to help vulnerable or uninsured patients access prescription medicines at safety-net facilities. Manufacturers provide mandatory drug discounts to covered entities (e.g. clinics & hospitals) as a condition of their drugs being covered by Medicaid and Medicare Part B.
Congress enacted Section 340B of the Public Health Service Act, created under Section 602 of the Veterans Health Care Act of 1992. Section 340B requires pharmaceutical manufacturers to enter into a pharmaceutical pricing agreement (PPA) with the HHS Secretary in exchange for Medicaid and Medicare Part B drug coverage.1
The 2010 Affordable Care Act, extended 340B eligibility to critical access hospitals, sole community hospitals, rural referral centers and cancer centers.2
The rate of uninsured nonelderly adults in 1992 was 17 percent3 and 13 percent in 2018.4 The motivation for the 340B program was to provide coverage and access to vulnerable, uninsured populations. Even though the number of uninsured people is decreasing, 340B is growing exponentially. While the impetus of the 340B program is access to care for underserved and vulnerable populations, not all covered entities are passing the savings to their patients.
Covered entities are entitled to receive discounts on all eligible covered outpatient drugs. A covered entity is a hospital or non-hospital (e.g. clinic or program) that is funded, owned or operated by state or local government, a non-profit corporation, or a private non-profit who is contracting with the government to provide care to low-income individuals who do not qualify for Medicaid or Medicare. Covered outpatient drugs are prescription drugs, biologics (excluding vaccines), and over-the-counter drugs prescribed by a physician. A manufacturer can not charge above the 340B ceiling price to covered entities even if they purchase drugs through a wholesaler. Covered entities can also negotiate further discounts that are lower than the ceiling price.1
The 340B ceiling price is the average manufacturer price (AMP) reduced by the unit rebate amount (URA). The URA is a minimum rebate percentage of 23.1 percent for most brand-name prescription drugs, 17.1 percent for brand-name pediatric drugs and clotting factors, and 13 percent for generic and over-the-counter drugs. Manufacturers have to offer greater discounts on brand-name drugs if the manufacturer’s best price for a drug is lower than AMP minus 23.1 percent for that drug or the price of the brand-name drug has increased more quickly than the rate of inflation. Generic drugs are not subject to a best price adjustment but they must be offered at a greater discount if the price of the drug has increased more quickly than the rate of inflation.1
Total sales for 340B increased from 2.6 billion in 2004 to 16.1 billion in 2016, with hospitals accounting for 45% to 87% of the sales, respectively.5
From 2016 to 2021, the 340B program is estimated to increase by more than 40 percent.5
The definition of a 340B patient is not specific enough to discern when an individual is considered a patient of a covered entity for the purposes of 340B. Therefore, covered entities can provide drugs purchased through 340B to all eligible patients regardless of a patient’s payer status.5
Detailed Overview - 340B Health. 340bhealth.org. https://www.340bhealth.org/members/340b-program/overview/.
Hammelman E. The 340B Drug Pricing Program. Avalere Health; 2012. https://achp.org/wp-content/uploads/Avalere_340B_Presentation.pdf.
Snider S, Boyce S. Sources of health insurance and characteristics of the uninsured. Analysis of the March 1993 Current Population Survey. EBRI Issue Brief. 1994;(145):1-78.
Tolbert J, Orgera K, Singer N, Damico A. Key Facts About The Uninsured Population. San Francisco, CA: Kaiser Family Foundation; 2019. https://files.kff.org/attachment//fact-sheet-key-facts-about-the-uninsured-population#:~:text=Most%20(86%25)%20of%20the,for%20adults%20(Figure%204).&text=higher%20risk%20of%20being%20uninsured%20than%20Whites.
340B 101. Phrma https://www.phrma.org/-/media/Project/PhRMA/PhRMA-Org/PhRMA-Org/PDF/0-9/340B-101-Deck_FINAL_Nov-20171.pdf.