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The 340B Program
Over the last 30-plus years, biopharmaceutical advances have transformed how we prevent, treat and cure disease. But many parts of our healthcare system still operate on decades-old programs which undermine the significant progress for patients made through medical innovation. A prime example is the 340B Drug Discount Program, which is rife with arbitrage, opportunism and opacity that benefits large for-profit entities at patients’ expense.
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Our responsibility as a leader in the healthcare system is to bring forward actionable ideas, data and insights to help create a sustainable healthcare system. This has been a paramount principle since our first Transparency Report was released in 2016. These data and insights are critical to help inform the ongoing debate surrounding rising out-of-pocket costs for patients.
Our responsibility as a leader in the healthcare system is to bring forward actionable ideas, data and insights to help create a sustainable healthcare system. This has been a paramount principle since our first Transparency Report was released in 2016. These data and insights are critical to help inform the ongoing debate surrounding rising out-of-pocket costs for patients.
The 340B Program
Over the last 30-plus years, biopharmaceutical advances have transformed how we prevent, treat and cure disease. But many parts of our healthcare system still operate on decades-old programs which undermine the significant progress for patients made through medical innovation. A prime example is the 340B Drug Discount Program, which is rife with arbitrage, opportunism and opacity that benefits large for-profit entities at patients’ expense.
The 340B Program’s Explosive Growth
At $43.9 billion per year (and growing), the 340B Program is now the second largest federal prescription drug program after Medicare.1, 2
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The 340B Program
Graphic showing the increase in purchases at discounted 340B prices as well as the increase in contract pharmacy agreements since 2010.
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Graphic showing the increase of drug purchases at discounted 340B prices from 2014-2021.
How 340B Got So Big
At $43.9 billion per year (and growing), the 340B Drug Discount Program is now the second largest federal prescription drug program after Medicare.2 The 340B program, meant to be an incidental “fix” to a Medicaid rebate issue, now is larger than the entire Medicaid rebate program.2 340B will likely be the largest federal drug program by 2026.6
Graphic showing the increase in hospital covered entity sites between 2004 (<10%) and 2020 (>60%)
Covered Entity Sites
Prior to 2004, hospitals represented less than 10% of covered entity sites (including child sites); by 2020 they made up just over 60% of covered entity sites.7

Arbitrage, Opportunism and Opacity

Covered entities are currently using the program to reap significant financial windfalls using a complex web of large for-profit pharmacies and PBMs. Arbitrage, opportunism and opacity have supercharged the financial windfall benefiting certain companies and unsustainable expansion of 340B.
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Graphic illustrating the quote: "one healthcare system charged as much as seven time the amount it paid for a particular cancer drug."
Arbitrage
Hospital systems are using 'arbitrage' for financial gain by acquiring outpatient clinics that provide drug-intensive healthcare services, like cancer treatment, and converting to 340B.

This financial-growth strategy gives them access to low 340B pricing on medicines, even as government and private insurers reimburse these covered entities for those medicines at different rates.7 Exploiting this arbitrage by marking up drug costs, hospitals (and hospital-owned clinics) pocket the resulting financial windfall, with little transparency into how these gains are used.
Graphic showing the large margin between brand medicine prices in 340B program vs. Non 340B program
Opportunism
As of July 2022, nearly 32,000 pharmacy locations were contract pharmacies–more than 50% of the entire U.S. pharmacy industry.5, 9

PBMs’ and retail pharmacy chains’ size and power accelerated program growth, extracted the benefit of 340B discounts from the health system and enabled them to pocket funds meant to help support certain safety-net hospitals and covered entities.3 In fact, 340B profits for providers and their contract pharmacies have increased twelvefold since 2013.10
Graphic showing that private nonprofit hospitals spent less on charity care and community investment than they received in tax breaks in the same year (with a big 83% number adjacent to text).
Opacity
Hospitals and covered entities are under no obligation to disclose how their financial gains from 340B discounts are being used and whether patients are benefiting from the discounts. Right now, $44 billion in healthcare resources are funneled into what’s essentially a black box of financial gamesmanship and a windfall for large hospitals, for-profit retail pharmacy chains and PBMs.1

Lack of transparency also results in duplicate discounts and diversion, which are specifically prohibited by the 340B statute.11
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U.S. Capitol Building
Final Rx: Where We Stand
Janssen supports the original intent of the 340B program. Congress created a balanced program designed to allow manufacturers to restore the discounts that they had traditionally provided to safety net providers, before enactment of the Medicaid Drug Rebate Program, while protecting against duplicate discounts and diversion.

As the program has grown exponentially in recent years, we believe steps must be taken to ensure that duplicate discounts and diversion are limited. More broadly, we think that reform of the program should require that the benefit of discounts be made directly available to patients at the pharmacy counter. We will continue to advocate for a 340B program that truly benefits patients and prevents for-profit intermediaries from seizing discounts meant for patients and that reduces resources available for investments into future innovation.

A lack of transparency in the program limits stakeholders’ ability to monitor the program for diversion and duplicate discounts, which are illegal. We believe that this greater transparency will make the program more sustainable.
With more transparency in the 340B program, we believe two important developments are possible:
Patients Could More Directly Benefit from Discounts:
Without reform and more transparency, it is not clear that patients directly benefit from 340B discounts. This is critical to ensure patients do not pay more than they should to access life-saving treatments.

More Resources Available to Support Innovation:
While hospitals and healthcare systems continue to use the opacity of the program to their benefit, this comes at a significant cost to future innovation. As the 340B program discounts grow each year, those increased discounts reduce the resources available for future investments into tomorrow’s treatments and cures. Without reform this will undermine our nation’s innovation ecosystem.

Citations

  1. Adam Fein, "The 340B Program Climbed to $44 Billion in 2021—With Hospitals Grabbing Most of the Money," Drug Channels. Accessed November 1, 2022, https://www.drugchannels.net/2022/08/the-340b-program-climbed-to-44-billion.html.
  2. Eleanor Blalock, "Measuring the Relative Size of the 340B Program," Berkeley Research Group, June 2022. Accessed November 1, 2022, https://media.thinkbrg.com/wp-content/uploads/2022/06/30124832/BRG-340B-Measuring-Relative-Size-2022.pdf.
  3. Aaron Vandervelde, Kevin Erb, and Lauren Hurley, "For Profit Pharmacy Participation in the 340B Program," Berkeley Research Group, October 7, 2020. Accessed November 1, 2022, https://media.thinkbrg.com/wp-content/uploads/2020/10/06150726/BRG-ForProfitPharmacyParticipation340B_2020.pdf.
  4. Adam Fein, "EXCLUSIVE: The 340B Program Soared to $38 Billion in 2020—Up 27% vs. 2019," Drug Channels, June 16, 2021. Accessed November 1, 2022, https://www.drugchannels.net/2021/06/exclusive-340b-program-soared-to-38.html.
  5. Adam Fein, "Exclusive: Five Pharmacy Chains and PBMs Dominate 2022's Still-Booming 340B Contract Pharmacy Market," Drug Channels, July 12, 2022. Accessed November 1, 2022, https://www.drugchannels.net/2022/07/exclusive-five-pharmacies-and-pbms.html.
  6. Berkeley Research Group, "340B Program at a Glance," 2021, https://media.thinkbrg.com/wp-content/uploads/2021/12/09062840/340B_Forecast-Report-Infographic_2021.pdf.
  7. Karen Mulligan, "The 340B Drug Pricing Program: Background, Ongoing Challenges and Recent Developments," USC Schaeffer Center, October 14, 2021. Accessed November 1, 2022, https://healthpolicy.usc.edu/research/the-340b-drug-pricing-program-background-ongoing-challenges-and-recent-developments.
  8. Katie Thomas and Jessica Silver-Greenberg, "How a Hospital Chain Used a Poor Neighborhood to Turn Huge Profits," The New York Times, September 24, 2022, https://www.nytimes.com/2022/09/24/health/bon-secours-mercy-health-profit-poor-neighborhood.html.
  9. Matan Dabora, Namrata Turaga, and Kevin Schulman, "Financing and Distribution of Pharmaceuticals in the United States," JAMA, 2017;318(1):21–22, https://jamanetwork.com/journals/jama/fullarticle/2627994.
  10. Andrew Brownlee and Jordan Watson, "The Pharmaceutical Supply Chain, 2013-2020," Berkeley Research Group, January 2022. Accessed November 1, 2022, https://ecommunications.thinkbrg.com/44/2328/uploads/brg-pharmaceutical-supply-chain-2022.pdf.
  11. Medicaid and CHIP Payment and Access Commission, "The 340B Drug Pricing Program and Medicaid Drug Rebate Program: How They Interact," May 2018. Accessed November 1, 2022, https://www.macpac.gov/wp-content/uploads/2018/05/340B-Drug-Pricing-Program-and-Medicaid-Drug-Rebate-Program-How-They-Interact.pdf.
  12. Lown Institute, "Fair Share Spending," Lowen Hospitals Index, April 12, 2022. Accessed November 1, 2022, https://lownhospitalsindex.org/2022-fair-share-spending.
  13. Xcenda, "340B and Health Equity: A Missed Opportunity in Medically Underserved Areas," AmerisourceBergen, November 2021. Accessed November 1, 2022, https://www.xcenda.com/-/media/assets/xcenda/english/content-assets/white-papers-issue-briefs-studies-pdf/xcenda_issue_brief_340b_muas_nov2021.pdf.

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