Reality Check: 340B is 4% (not 2%) of the U.S. Drug Market—And Growing Quickly

Many 340B lobbyists frequently claim that the 340B Drug Pricing Program amounts to “only 2%” of total U.S. drug purchases and is therefore not a significant issue.

This is an extremely careless misrepresentation of the truth. As I document below, 340B now accounts for at least 4% of the U.S. drug market. That’s twice as large as the lobbyists’ “only 2%” figure, which hasn’t been true for at least 7 years. You can check my math below.

Regardless of whether you believe that 340B should be a bigger or a smaller part of the market, we shouldn’t be debating its actual share. Just remember our Drug Channels philosophy, courtesy of the late senator Daniel Patrick Moynihan: "Everyone is entitled to his own opinion, but not his own facts."

340B WAS AT LEAST 3.9% OF THE MARKET IN 2015

Apexus, the HRSA-designated Prime Vendor for the 340B Drug Pricing Program, reports that discounted purchases made under the program totaled $12 billion in 2015. (See 340B Purchases Hit $12 Billion in 2015—And Almost Half of the Hospital Market.)

Note that the Apexus figure includes purchases at or below the deeply-discounted 340B ceiling prices. To compute 340B’s share of the total drug market, the appropriate denominator must therefore also be discounted purchases.

Fortunately, we have this figure for 2015. According to IMS Health’s IMS Institute for Healthcare Informatics, “net price spending” (after discounts) on pharmaceuticals was $309.5 billion in 2015. See Key Insights on Drug Prices and Manufacturer Rebates from the New 2015 IMS Report. IMS provided the following definition:

“Net price spending” is an estimate of the net revenues received by pharmaceutical manufacturers. It therefore reflects estimated rebates, off-invoice discounts, chargebacks, cash discounts, and other price concessions made by manufacturers to distributors, health plans and intermediaries.

Therefore, 340B’s share in 2015 was 3.9%, or $12 billion ÷ $309.5 billion

Note that the $12 billion figure includes only indirect sales made via wholesalers. The data therefore understate total 340B purchases, because they exclude an unknown amount of manufacturer sales made directly to healthcare institutions. That means 340B could be an even bigger share.

340B HASN’T BEEN 2% OF THE MARKET SINCE 2009

The chart below shows the purchases made under the 340B Drug Pricing Program, all at discounted contract prices. These data come from Apexus, the HRSA-designated Prime Vendor for the 340B Drug Pricing Program. This chart originally appeared in this February article.

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It’s difficult to judge 340B’s growth over time, because IMS reports only undiscounted spending for years prior to 2015. These undiscounted data reflect purchases at invoice pricing. Contract pricing, such as a hospital’s 340B discount processed via a wholesaler chargeback transaction, are generally not reflected on the invoice.

For a conservative but reasonable estimate, I assume that 340B covered entity purchases are 70% of the average invoice price to a non-340B entity. Therefore, I grossed up discounted 340B purchases from the above chart by 1.43 (=1.0/0.70).

The chart below shows the result of this approach. As you can see, 340B has not been 2% of the U.S. drug market since 2009. This alternate methodology estimates that in 2015, 340B accounted for 4.1% of the U.S. market. That’s pretty close to the approach using the discounted spending data.

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It makes mathematical sense that 340B is gaining share. The Apexus data show that 340B purchases grew by 88% from 2011 to 2015. By contrast, the IMS health data show that the total U.S. market grew by only 29% over the same period. If the 340B program’s growth continues, the program will account for an ever-larger share of the U.S. market.

In addition, hospitals—the primary beneficiaries of 340B profits—accounted for 86% of 340B purchases. This means that hospitals now receive 340B discounts on almost half of their drug purchases. That cannot reasonably be considered a fraction of the market.

WHO ARE THE CRITICS?

Some people blame “Big Pharma” for attacks on the 340B Drug Pricing Program.

That’s also misleading. Some of the loudest critics of the 340B program and its operations have come from U.S. government agencies, including:

• the Office of Inspector General 

• the General Accounting Office 

• the Medicare Payment Advisory Commission 

In other words, government oversight groups have been at the forefront of recommending changes to the government's 340B program. None of these government agencies can reasonably be considered to be "Big Pharma."

By all means, let’s debate the purpose and operations of the 340B Drug Pricing Program. But let’s be sure we build that conversation on the facts.