New 340B Health Reports Confirms the Program’s Size—But Double-Dips on Hospitals’ Community Benefit Obligations

340B Health, which lobbies for hospitals that participate in the 340B Drug Pricing Program, recently issued an eye-opening member survey. It found that 340B Health’s member hospitals reported total 340B discounts of $15.3 billion. (Details below.)

Hmm. That’s pretty darn close to our estimate of $14.9 billion, shown in 340B Program Purchases Reach $24.3 Billion—7%+ of the Pharma Market—As Hospitals’ Charity Care Flatlines. It looks like 340B Health has perhaps inadvertently validated our computations of the program’s size.

The 340B Health report also claims to show evidence that hospitals are properly using 340B funds.

In reality, the report merely affirms that hospitals are spending money to meet their fundamental legal and statutory community benefit obligations. Any money from 340B discounts shouldn’t be double-counted to meet hospitals’ fundamental spending requirements.

This latest report therefore again highlights the need for transparency and accountability to ensure that billions in 340B discounts are shared with the patients whose prescriptions generated those funds.

#MATH REDUX

In 340B Program Purchases Reach $24.3 Billion—7%+ of the Pharma Market—As Hospitals’ Charity Care Flatlines, we estimate the total value of 340B discounts from invoiced prices for 2018 to be $14.9 billion (= $39.2 billion minus $24.3 billion).

340B Health was particularly distressed that our analyses “focused on 340B sales instead of discounts.” However, in 340B Health Gets It Wrong … Again, I demonstrate that when the program is measured using 340B Health’s suggested approach, the $14.9 billion in estimated program discounts accounted for 9% to 11% of total U.S. rebates and discounts provided by manufacturers.

So far, so good.

Here’s the update: Last week, 340B Health released a new report with results from a survey of its 1,300 hospital members. Download it here: 2018 340B Health Annual Survey Report.

According to the new 340B Health report, average discounts from the 340B program were $11.8 million per hospital.

Using this report as a guide, we can calculate that total 340B program discounts were therefore $15.3 billion (=$11.8 million * 1,300).

In other words, 340B Health’s own data have validated my original figures—and, by implication, confirmed that the 340B program is much larger than its defenders claim. Alas, I am still awaiting my apology from 340B Health.

Note that the 340B Health survey excluded certain 340B covered entities, including free-standing cancer hospitals and federally qualified health centers. This means that total discounts are likely to be bigger than the figures above. We also don't know the mix of hospital members at 340B Health. Average discounts at disproportionate share hospitals (DSH) were $19.2 million, while average discounts at rural hospitals were $2.2 million.

CLAIMING CREDIT

The rest of 340B Health’s report is filled with numerous qualitative statements about how nonprofit hospitals use the 340B discounts. Notably, the report states:

“Hospitals reported that the top two areas for use of 340B savings were to support uncompensated and unreimbursed care and to support patient care services (including clinical services, pharmacy services, and patient auxiliary services).”

But the report conveniently omits a crucial fact: The nonprofit hospitals that belong to 340B Health already have obligations to provide such community benefits.

Per Nonprofit Hospitals' Community Benefit Requirements:

“[C]ategories of community benefit activities include the net, unreimbursed costs of charity care (providing free or discounted services to patients who qualify under the hospital's financial assistance policy); participation in means-tested government programs, such as Medicaid; health professions education; health services research; subsidized health services; community health improvement activities; and cash or in-kind contributions to other community groups (such as donating funds to a community health screening event or hosting a blood drive).”

What’s more, the Affordable Care Act added four more requirements related to community benefits that nonprofit hospitals must meet to qualify for tax-exempt status:

• Conducting a community health needs assessment with an accompanying implementation strategy
• Establishing a written financial assistance policy for medically necessary and emergency care
• Complying with specified limitations on hospital charges for those eligible for financial assistance
• Complying with specified billing and collections requirements

Here’s the bottom line: Hospitals’ community benefit spending obligations are distinct from any funds received from the 340B program. If 340B vanished, hospitals would still have these community benefits obligations.

SHOW US THE MONEY

This, dear reader, is why the 340B program requires substantially more transparency.

Money is fungible and doesn’t know where it comes from. Hospitals continue to parade their basic compliance as evidence that 340B funds are being used properly.

Perhaps every penny of those 340B discounts went to worthwhile programs that supported legitimate safety net providers and provided financial support for needy patients taking prescription drugs. But there are plenty of anecdotes showing 340B hospitals behaving badly.

This week, the American Hospital Association told the Senate health committee that its hospital members plan to share publicly information on how they use 340B funds. These voluntary disclosures should—but probably won't—explain how we can distinguish the use of 340B discounts from hospitals' fundamental community benefit obligations.

Today, our elected officials have little appetite for sensible legislation that would provide visibility and oversight of this boondoggle. Maybe one day, Congress can modernize the 340B program so that it focuses on genuine safety-net providers and financially needy patients.