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Hospitals and for-profit PBMs are diverting billions in 340B savings from patients in need

STAT News


America’s economically disadvantaged patients can point in two directions when talking about what is wrong with the 340B Drug Pricing Program, which is designed to help hospitals caring for underserved communities — and the patients they treat — keep necessary medicines reasonably priced: large supposedly “nonprofit” hospitals and for-profit pharmacy benefit managers that serve as 340B contract pharmacies, which together divert billions of dollars in savings that should be helping patients in need.


Begun in 1992, 340B is a federal program that requires drug manufacturers to provide significant discounts to eligible health care organizations that are supposed to treat high numbers of uninsured and low-income patients. This program is critically important to hemophilia, AIDS, and other community clinics known as grantees.


The problem is that the 340B program has become a slush fund for its other participants, the large, supposedly nonprofit hospitals and health systems. They buy drugs at steep 340B discounts, then charge insurers, the uninsured, and cash-paying patients a huge markup. The profits pad the hospitals’ bottom lines and provide ample capital to take over and consolidate local markets, particularly in cancer care. And the result is shockingly little charity care.


How exactly does this benefit patients who can barely afford their medicine?


As if this wasn’t bad enough, 340B became even more broken as new for-profit PBM participants found a way to make money from the charity-care program.


The government allows 340B participants without pharmacies to distribute medicines to patients via third-party pharmacies. These are known as contract pharmacies and, until 2010, were predominantly independently-owned, local community pharmacies. The problem began in 2010 when the government said all 340B participants, even those with their own pharmacies, could contract with an unlimited number of third-party pharmacies.


In the ensuing years, for-profit pharmacies associated with the largest for-profit PBMs rushed in to capitalize on the outsized margins available on 340B drugs. Between April 1, 2010, and April 1, 2020, the number of contract pharmacy arrangements increased 4,228%, and they now account for 28% of 340B revenue.


This might have been an acceptable trend had the increase in contract pharmacies been meant to reach underserved patient populations. But according to a new JAMA Health Forum study, ever since more contract pharmacy relationships were allowed, the proportion of 340B contract pharmacies in socioeconomically disadvantaged and primarily minority neighborhoods declined, while they increased in affluent, predominantly white neighborhoods. This has allowed 340B hospitals and their for-profit contract pharmacies to expand their reach, charging fully insured patients steep markups and then pocketing the difference instead of passing on the savings.

If the contract pharmacies were serving more poor neighborhoods and patients — as the spirit of 340B intends the program to do — the profits they could make would be much smaller because they can’t recoup a large profit margin from uninsured or underinsured patients. And I must point out: the for-profit 340B contract pharmacies aren’t delivering any care or using 340B savings to serve disadvantaged populations. They are simply making money.


Related: A CVS whistleblower lawsuit comes at a pivotal moment for the FTC’s probe of pharma and PBMs


The tremendous growth in 340B contract pharmacy relationships is the subject of numerous ongoing lawsuits stemming from the decision by several drug manufacturers to cut off contract pharmacy access to 340B discounts because, they say, the number of contract pharmacies has gotten too large and the discounts aren’t benefiting the patients the program is intended to help.


Some people want to paint the 340B contract pharmacy fight as big pharma versus little hospitals, but that view is willfully misleading. This battle is about a fundamentally broken program meant to help patients in need that is being exploited by hospitals and PBMs — some of the country’s most profitable corporations — to unjustly enrich themselves.


PBMs have for years operated in the shadows of the convoluted US. drug supply chain without scrutiny, but there is an increasing understanding that these companies are anticompetitive monopolies out to pad their bottom lines rather than lower costs. Currently, three PBMs control around 80% of the prescription drug market in the U.S., and are among the most profitable corporations in the country.

This is why the Federal Trade Commission is investigating the industry, and why federal and state lawmakers are hurrying to promulgate new regulations to keep the most egregious PBM behaviors in check.


It’s hard to track the dollars flowing from the 340B program to for-profit PBM contract pharmacies because of the profound lack of transparency in 340B. But one Wall Street analysis estimates that $2.58 billion in 340B savings were siphoned away in 2021 by PBM-controlled pharmacies operated by Walgreens, Caremark, Express Scripts, and OptumRx. That’s $2.58 billion in 340B discounts that patients never benefit from.


Related: FTC puts drugmakers and PBMs on notice that it will crack down on illegal rebate schemes


Even more damning is the disclosure from CVS Health, the number four corporation on the Fortune 500 list, in its annual shareholder filing, which warned investors that any reduction in 340B contract pharmacy arrangements could “materially and adversely affect the Company.” This tells you exactly where 340B drug discounts are going — and it’s not to patients in need.


The 340B program can do much good to help patients in need afford their medications, especially those with cancer and other serious diseases. Not acknowledging that a program designed to help patients has become a profit center for some of the largest corporations is simply wrong. That is why the organization I represent, the Community Oncology Alliance, filed an amicus curiae brief in the case of Eli Lilly v. the U.S. Department of Health and Human Services to ensure that the courts considering the wave of contract pharmacy disputes are aware of this ongoing perversion of the program.


The only way to ensure that 340B functions the way it was intended by Congress is by regulating the bad actors who are taking advantage of it. The 340B program is not meant to turn billion-dollar profits for so-called nonprofit hospitals, let alone for opaque, for-profit PBMs. It’s to help underserved patients who desperately need access to affordable cancer and other medicines.



Ted Okon is the executive director of the Community Oncology Alliance, a nonprofit organization that represents independent community oncology practices and the patients they serve.

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