The pursuit of profit drives drug companies to break Law 340B

SEleven pharmaceutical companies, including some of the world’s largest, are ignoring a 30-year-old federal program that supports hospitals serving low-income patients and those living in rural communities. Both the Trump and Biden administrations have deemed these actions illegal. But these drugmakers continue to ignore the law, undermining the resources of the country’s health care safety net and threatening the health of patients who depend on them for their care.

The program in question is the 340B drug pricing program, named after the section of federal law that created it. Congress enacted 340B in 1992 in a bipartisan effort to provide safety net providers with resources to serve more patients in need and provide comprehensive services they otherwise would not be able to offer. The law requires pharmaceutical companies to offer discounted prices to eligible safety net providers on certain outpatient drugs. In return, Congress approved that Medicaid and Medicare Part B cover participating companies’ products, a deal that has been very lucrative for drugmakers.

In 2010, lawmakers decided to expand the program to include more than 1,000 small rural hospitals as well as stand-alone children’s and cancer facilities.


The 340B program worked as intended by Congress. Hospitals that qualify for the program based on their low-income patient populations — known as disproportionately shared hospitals — make up about 43% of all hospitals in the United States, but provide 75% of hospital care to people covered by Medicaid and 60% of all unpaid and unreimbursed care. The program also serves as a lifeline for small rural hospitals that are the only source of care for patients in remote areas. And 340B hospitals accomplish this without spending a dollar of taxpayers’ money. Instead, the resources come from the rebates that drug manufacturers offer at the point of sale.

Most manufacturers continue to deliver on their commitment to offer discounted prices to eligible vendors. But since July 2020, a growing group of companies are limiting the 340B rebates required when medicines are dispensed to patients from providers through community or specialty pharmacy partnerships. Some of these companies refuse to give discounts to these so-called contract pharmacies. Others tie access to rebates to illegal requests for patient claims data that are unrelated to 340B’s mission.


These actions are causing enormous harm to safety net hospitals and the patients they serve. A March survey of 550 hospitals by 340B Health, the organization I lead, found that these drug company restrictions result in an estimated median annual loss of $2.2 million for large, mostly urban hospitals. , 10% of these hospitals expecting their losses to exceed $21 million. Among the smaller, mostly rural 340B hospitals, the median annual loss is $448,000, with 10% estimating losses at more than $1.3 million per year. These losses have more than doubled since we conducted a similar investigation in December 2021. Since March, two other big pharma companies have jumped on the 340B restriction bandwagon, developments that will further compound these losses.

What drives drug companies to ignore the law? As with many industry stocks, the motivation appears to be solely to maximize price and profit.

Many of the early adopters of these restrictive policies appear to be motivated by a desire to avoid Congressional sanctions against pharmaceutical companies that raise their drug prices faster than inflation. Law 340B requires a minimum 23.1% discount on brand name drugs. If a company repeatedly raises the price of a drug, the 340 B discount increases. In the event of repeated price increases, the discount can approach 100% and the price of 340B can drop to a penny per dose.

Insulin is a perfect example of this phenomenon. Between 1996 and 2019, Eli Lilly raised the price of Humalog, its top-selling insulin product, by 1,200%, far outpacing inflation. As a result, the 340B price has fallen to pennies per dose. The three major insulin makers in the United States – Eli Lilly, Novo Nordisk and Sanofi – were among the first companies to enact illegal 340B price restrictions. By refusing to honor the $340 billion price tag for drugs dispensed in community pharmacies, these companies are circumventing the sanction created by Congress, further increasing their profits on insulin and a long list of other products. A senior Eli Lilly executive called the discount restrictions a “tailwind” for the company.

By circumventing the inflation penalty, companies also have less restraint on their overall pricing behavior. Independent research published in JAMA Network Open has demonstrated that the 340B inflation penalty slows price increases for drugs sold at everything buyers, not just 340B suppliers. The study looked at 606 brand name drugs used by Medicare beneficiaries between 2013 and 2017 and found that higher percentages of drug sales subject to inflation penalties were associated with lower drug price increases. These lower price increases were associated with a reduction in Medicare Part D pharmaceutical spending of $7 billion over the four-year period.

A second factor pushing manufacturers to restrict 340B rebates is the booming specialty drug market. Specialty drugs tend to be expensive and treat life-threatening chronic conditions such as cancer, rheumatoid arthritis, growth hormone deficiency and multiple sclerosis. Many pharmaceutical companies that have recently adopted 340B restrictions sell such drugs, including AbbVie and its best-selling Humira. Although only a small fraction of the number of prescriptions filled at retail, specialty drugs accounted for more than one-third (37.7%) of retail and mail-order prescription spending in 2016 to 2017. Insurers and Pharmacy Benefit Managers (PBMs) require the use of their own specialty pharmacies, requiring hospitals to use multiple pharmacies for patients covered by each insurer or PBM. Since these agreements involve contract pharmacies, the restrictions imposed by drug manufacturers make it more difficult for hospitals to obtain specialty drugs for their patients.

The pharmaceutical industry is one of the most profitable industries in the world. Between 2000 and 2018, pharmaceutical companies generated $8.6 trillion in profits. Yet 17 companies – AbbVie, Amgen, AstraZeneca, Boehringer Ingelheim, Bristol Myers Squibb, Eli Lilly, Exelixis, Gilead, GlaxoSmithKline, Johnson & Johnson, Merck, Novartis, Novo Nordisk, Pfizer, Sanofi, UCB and United Therapeutics – are looking for ways to further increase profits at the expense of the health care safety net and others may do so if this dispute is not resolved quickly. So far, seven companies have refused to reinstate the discounts and have been referred to the Department of Health and Human Services’ Office of Inspector General, who will assess whether they should face penalties for “knowingly and intentionally” overloaded hospitals for 340B drugs.

In a federal court filing, AstraZeneca said such fines “could amount to hundreds of millions of dollars in potential penalties each month” for this company alone. The OIG should issue fines to all companies refusing to reinstate 340B discounts. In an industry focused on the bottom line, this may be the only way to convince them to obey the law.

Maureen Testoni is president and CEO of 340B Health, which represents more than 1,400 hospitals participating in the 340B drug pricing program.

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