340B Economics 101

If you have found your way to this blog, you are beyond needing a 340B primer, but may be seeking alternate perspectives on industry hot topics. Join me, a 25 year+ program veteran, for a series exploring the top areas of contention and calling out PhRMA’s 340B Bluff.

The conversation around the purpose of 340B is controversial, because so many voices want to rebrand it as a direct patient benefit. While there are downstream benefits to individuals, 340B is a discount for a set of qualified health care entities.

The law requires manufacturers to discount their drugs to these specified entities. This is because Congress recognized that they receive sub-par reimbursement from the majority of their payer mix. Simply put, 340B lowers the cost of goods to the entity so they aren’t in the red for the majority of their claims. The entity buys the discounted drugs directly on a 340B account and then receives whatever they are paid from the plethora of possibilities based on a payer’s contracted rate, State rules for Medicaid, etc., but not at a “markup.” Sometimes there is margin. Sometimes it is a break-even. Sometimes it is a loss. 340B entities rely on the program to manage this situation of variable reimbursement. 

Without 340B, but with all other market factors remaining, the original problem that led to the creation of the program would re-emerge. Entities would have a higher acquisition cost, but the payer situation would remain the same or worsen. 340B is a unique program that mitigates many other gaps in the US healthcare delivery and insurance markets. 

As with all industries, there are some bad actors that are operating on the edge. However, that is not the case with what I see day-to-day working directly with covered entities. Each day I read about providers fraudulently billing Medicare recipients or other types of true healthcare fraud. Policymakers should not fall for the sensationalist articles that focus on 340B taking away from individuals when it was always meant to supplement the eligible institutions’ finances.