pharmacist sorts pills
A new study finds that contract pharmacy growth patterns differ between 340B hospital and non-hospital entities.

Economists Say 340B Hospital and Grantee Entities Use Contract Pharmacy for Different Reasons

Contract pharmacy growth patterns differ between 340B hospital and non-hospital entities, suggesting they may use 340B differently and should be subject to different 340B rules, new research in the American Journal of Managed Care concludes.

The authors, who previously have studied and commented on hospitals’ use of 340B, looked for differences in contract pharmacy expansion between hospitals and other covered entities based on local insurance rates, poverty rates, medically underserved status, and rural status.

They said they found that “growth of contracts with 340B hospitals was uncorrelated with uninsured rates, poverty rates, or areas of medical underservice.”

“By contrast, we find that growth of contracts with 340B safety-net clinics was positively correlated with poverty rates and metropolitan statistical status,” they said. “These findings suggest different patterns of access for patients.”

“Our results add to systematic evidence of a difference in how the two main types of 340B participants—hospitals and safety-net clinics—use the 340B program,” the researchers wrote. “Policy proposals to reform 340B should consider reforms for safety-net clinics and hospitals separately.”

The study was by Sayeh Nikpay, Gabriela Gracia, and Hannah Geressu of the University of Minnesota School of Public Health and Rena Conti of Boston University’s Questrom School of Business.

Conti is scheduled to be a witness tomorrow at a U.S. Senate Finance Committee hearing on the “urgent need to lower drug prices in Medicare.” It is not known if 340B will come up. Groups that represent 340B hospitals have criticized some of Conti’s past studies and praised others.

Main Findings

The new study found that as of 2019 more than three-fourths (76.3%) of all U.S. counties had at least one 340B contract pharmacy arrangement between a hospital and a pharmacy, up from 3.2% in 2009, the year before the federal government began letting covered entities contract with more than one pharmacy to dispense 340B-purchased drugs.

In 2019 64.8% of counties had at least one arrangement between a 340B non-hospital entity and a pharmacy, up from 20.8% in 2009.

Looking at 340B entities in the aggregate, “Communities with at least one 340B pharmacy contract had similar poverty and uninsured rates in 2009, but by 2019, communities with 340B pharmacy contracts tended to have lower poverty and uninsured rates,” the study found. “Both types of communities were consistently more likely to be located in urban areas and in counties that were not designated as medically underserved.”

The study looked next at contract pharmacy and county-level characteristics, separated by type of 340B entity.

“Although gaining a pharmacy contract with a hospital was more likely to occur in lower-poverty areas and non-metropolitan areas, the opposite was true for safety-net clinics,” it found. “Furthermore, pharmacy contracts with 340B safety-net clinics were more likely to occur in areas that had higher uninsured rates in 2009. This is important because 340B participants can generate revenue from charging insured patients full price.”

“For both types of 340B participants, the probability of establishing at least one contract pharmacy has little relationship to the availability of health care in 2009,” the researchers said. “As a result, it appears that 340B participants are not targeting contract pharmacies” in medically underserved areas, they said. “Further, it does not appear that newly established contract pharmacies were particularly likely to be in areas with fewer pharmacies per capita.”

“The costs of the 340B program are borne by taxpayers and individuals who purchase private insurance, as the subsidy is funded by charging Medicare and privately funded patients full price for discounted drugs,” the study said. “The costs are also borne by drug manufacturers who must offer the 340B discounted price to have their drugs covered by the Medicaid program. Additionally, group-specific discount programs, such as 340B, may contribute to drug price inflation.”

“Commercial and Medicare payer mix differs substantially between U.S. hospitals and federally sponsored safety-net clinics, with significantly more uninsured and Medicaid patients at federally sponsored clinics and more privately insured and Medicare beneficiaries at hospitals,” the study said. “Because hospital participants have a greater potential to profit from 340B, it is reasonable to assume that they may be more likely to pursue contracts in counties that target their higher-income and well-insured patients. This pattern of growth is similar to that found for 340B clinics.By contrast, safety-net clinics have little potential to profit from the program and may be more likely to pursue contracts that serve all patients.”

“Our results can inform current debates over whether and how to reform the 340B program,” the researchers said. “These debates center on whether participants use the program to enhance safety-net care or to further strategic objectives such as gaining market share.”

AHA and PhRMA Reactions

The American Hospital Association (AHA) criticized the study.

“It is clear that this study is based on a flawed understanding of the 340B program and preconceived notions that 340B hospitals do not use their savings to enhance safety-net care,” AHA senior associate director of policy Bharath Krishnamurthy said.

“The fact is that 340B hospitals provided approximately $68 billion in community benefits in 2018 alone, which was almost three times the $24 billion in total 2018 sales through the 340B program according to HRSA,” he said. “It is also a fact that 340B hospitals contract with pharmacies based on the needs of the patients and communities they serve. As patients have increasingly turned to mail order, online, and local retail pharmacies to fill their prescriptions, especially during the COVID-19 pandemic, hospitals have increasingly contracted with such entities to ensure that their patients are able to access their prescribed medications and treatments and are not lost to follow-up.”

Pharmaceutical Research and Manufacturers of America (PHRMA) spokesperson Nicole Longo said, “The latest AJMC study is further confirmation that the unfettered growth of contract pharmacies in 340B is not serving the interests of vulnerable patients—if it was, then contract pharmacies would primarily be located in underserved and low-income communities. The 340B contract pharmacy policy needs to be revisited as part of broader patient-centered changes to the program.”

Prior 340B Studies

Nikpay and Conti have collaborated before on research about 340B hospitals, and Conti has written with others on the subject.

The New England Journal of Medicine published a study in 2018 by Nikpay, Conti, and health economist Melinda Buntin that found that hospital participation in 340B was not correlated with greater provision of uncompensated care. They did detect an increase in charity care but said it appeared to be offset by reductions in other community benefit programs.

In a 2019 study in JAMA Network Open, the three economists found that hospital profits from administering 340B drugs to Medicare patients were a tiny fraction (less than 1%) net hospital revenues but a “sizeable” (6.3%) share of hospital uncompensated costs.

In 2014, Health Affairs published research by Conti and Peter Bach of Memorial Sloan Kettering Cancer Center finding that 340B disproportionate share hospitals generate profits by opening outpatient clinics in more affluent communities. They said their findings “support the criticism that the 340B program is being converted from one that serves vulnerable patient populations to one that enriches hospitals and their affiliated clinics.”

In March 2021 in Health Affairs, Conti and Kao-Ping Chua of the University of Michigan Medical School and Lauren E. Kimmel University of Michigan School of Law wrote that most spending on orphan drugs (70%) is for non-orphan indications. They said if Congress wished to decrease the rewards for repurposing a common disease drug to treat rare disease, they could start by changing the 2010 law that denies rural and free-standing cancer hospitals 340B discounts on drugs with an orphan designation.

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