Fixing the 340B Program, a Critical Safety Net for Uninsured and Low-Income Patients-Part 2

Fixing a Critical Safety Net Program: 340B, Third Way, Darbin Wofford and David Kendall – Part 2

The Solution: A Patient-Centered 340B Program

The 340B program is an essential tool for uninsured and vulnerable patients to access lifesaving medicines. But program discounts should improve patient access and lower costs—not pad hospital profits and incentivize further consolidation in the health care system.

To address these issues, policymakers should reform the 340B program to include accountability to patients so they benefit rather than profitable hospitals. A good illustration of this can be found with community health centers that provide care to vulnerable populations. They rely on the 340B program to maintain their operations and pass discounts onto their patients through lower prices and free care. The community health centers are a prime model for how all 340B providers should operate: through a patient-centered 340B program. This kind of accountability would be sufficient to exempt existing safety net providers including community health centers, rural hospitals, and safety net hospitals from changes to 340B.

Reforming 340B program would require three structural changes:

First, ensure patients benefit from the discounted drugs. Patients must be front and center of any meaningful reform to 340B. Low-income and uninsured patients should receive discounts when they purchase their prescription at the pharmacy counter.

Patients must be front and center of any meaningful reform to 340B.

When an insured patient purchases their prescription at the pharmacy counter, a percentage of the discount should be directly applied to their total cost-sharing. Specifically, Congress should require 340B hospitals to distribute discounts to patients on a sliding scale based on patients’ income. Of note, other 340B providers (like federally qualified community health clinics) already have that requirement. Congress should also require that financial benefits from 340B discounts stay within the site of service when the discount is provided to a hospital. This would ensure gains from the program serve the patients in those communities.

Second, reform Medicare’s reimbursement for 340B drugs. Medicare should not overpay hospitals for 340B-discounted drugs. The Centers for Medicare and Medicaid Services attempted to lower Medicare’s reimbursement for outpatient Part B drugs from 106% of the average sales price to 77.5% of the average sales price; however, the Supreme Court overturned this adjustment on procedural grounds. The Administration should again lower Medicare’s reimbursement for 340B drugs through Part B—and use the correct administrative procedures the government must follow under the Medicare statute. This would save taxpayers $1.6 billion annually and lower costs for Medicare beneficiaries.24 Addressing Medicare’s reimbursement for 340B drugs would limit hospital incentives for prescribing more or higher-cost drugs that increase costs for patients and the taxpayer. Rural and safety net hospitals would be exempt from these adjustments to preserve access to hospital care for those communities.

Reducing Medicare’s payment for discounted drugs would decrease the spread 340B hospitals generate with respect to outpatient drugs prescribed to Medicare Part B beneficiaries. These savings to Medicare should be reinvested into hospitals that need it most. In an accompanying report, we will propose to improve targeting for safety net hospitals that provide essential care to America’s vulnerable populations, closing coverage gaps leading to larger amounts of uncompensated care, and investing in our health care workforce.

Third, require hospitals’ off-site clinics and contract pharmacies to meet a 340B standard. Congress should require outpatient clinics and pharmacies owned by or contracted with 340B providers to meet enforceable standards for being part of the program, such as serving vulnerable populations or being located in medically underserved or rural areas. For providers that do not have access to nearby pharmacies that fit those standards, additional contract pharmacies should be permitted. For example, if a 340B provider is in an area with no pharmacies reasonably nearby, it may request to contract with a pharmacy outside of their geographical area.


The purpose of the 340B program is to improve patients’ access to affordable medicines; however, that has not been the case. The reforms listed above would vastly improve the program by lowering costs for patients, decreasing incentives for further consolidation, and preventing the program from being a piggy bank for large hospital and pharmacy systems.

In addition to policies such as site-neutral payments reducing high prices in hospital outpatient departments compared to physician offices and bolstering competition in the health care system, reforming 340B is another step in achieving the ultimate goal of lowering out-of-pocket costs for patients and reducing perverse incentives for consolidation.

Fixing the 340B Program, a Critical Safety Net for Uninsured and Low-Income Patients, Angry Bear, by Third Way