Health Affairs Study Draws Misleading Conclusions
Regarding 340B Program


By Madeline Carpinelli Wallack

October 23, 2014
Original Post


After reading Rena Conti and Peter Bach’s recent study on hospitals’ purported misuse of the 340B Drug Discount Program, published in the October issue of Health Affairs, I had two questions: first, how are the authors substantiating their conclusions? Second, what kind of sensational sound bites are going to come from this?


These are the questions that responsible researchers must ask themselves so there is not a false representation of what they did, what they found, and how the actual findings compare to their research intentions. Researchers have to be equally precise in both their statistical analysis AND in the discussion of the results.


I was tempted to run through several counterpoints that my 15 years of 340B policy and research experience yields, but was tempered by both the word count limitations on a blog post and the straightforwardness of my main objection. Simply put, the authors’ conclusions are not substantiated by the data collected. Conti and Bach say that they “found” that hospitals “served communities that were wealthier and had higher rates of insurance” and “generated profits.” They did not find this.


Conti and Bach mapped the location of 340B hospitals and their affiliated clinics and compared the socioeconomic statuses of each. They found that hospitals and their affiliated clinics were located in different areas. The researchers did not review whom the clinics serve, explore payer mix, or evaluate reimbursement by insurance status. This is a serious methodological flaw, given the authors’ message.


Health Affairs: A Look at the Methods

Without the ability to correlate the location of the clinic to the population served, the conclusions are without merit. Conti and Bach mention this as a “limitation,” but without knowing who is receiving services at the clinic, what difference does the geographic location of a clinic make when examining whether or not it is serving vulnerable patients?


At most, the researchers’ data supports the fact that there is a statistically significant difference in the socioeconomic status between the areas where the hospital is located and the areas where its affiliated clinics are located. This is a far cry from the headlines concluding that hospitals are “enriching” themselves off a program intended to help the poor.


Sadly, Conti and Bach’s misleading conclusions will only serve to support 340B critics’ mischaracterization of program intent. The 340B program functions as a direct discount on drugs to certain institutions that serve vulnerable patient populations; in 2014, vulnerability can have many faces.


For hospitals to qualify, they need to demonstrate that they serve a disproportionate share of low-income Medicare and Medicaid patients. If the hospital meets the threshold, they earn the right to participate in 340B and stock their inventory with discounted products knowing they will serve a larger share of publically covered, uninsured, under-insured individuals alongside the privately-insured. The 340B program mission is, after all, to help entities “stretch scarce federal resources.”


The law that created 340B provides an incentive to the institutions that serve the most vulnerable, but it does not include disincentives to serve patients that have insurance. As long as the patient receives health care services from a qualified provider at a registered location, use of 340B drugs is entirely appropriate, regardless of insurance status. Insurance companies and pharmacy benefit managers are well aware of their 340B customers and often negotiate reimbursement rates that are at or barely above acquisition cost. Even in those cases, where a hospital or community health center is able to make a margin, there are several unique factors that diminish the amount of revenue that a 340B provider can attain.


First, 340B hospitals face significant under-reimbursement from public payers and uncompensated care due to their qualification as a disproportionate share hospital (DSH). Second, in many states, hospitals are required to pass through the 340B price to Medicaid.


Third, 340B revenue (like that of any revenue-generating department) is reinvested to balance other deficiencies that come with their category of hospital. Fourth, 340B hospitals must weigh “profits” and costs of compliance, which are significant at a time when the government is conducting hundreds of audits of 340B providers due to new integrity provisions in the ACA and industry pressure.


The bottom line is that there are no rules preventing a qualified hospital from generating revenue that results from participation in 340B and there would be little or no incentive to participate in this program if that was the case. If these hospitals could not benefit financially from the program, the clinics and pharmacies that treat our most vulnerable would likely be unable to meet the expectations of a post-reform health care market.


340B: Patient Demographics and Health Care

More globally, what troubles me about this research is that it hints at classist stereotypes of patient demographics and where health care is provided. All consumers—vulnerable and not—are free to make choices about where they receive care and should have a variety of options to choose from. All hospitals—340B or not—should be able to deliver high-quality and accessible care to all patients.


Should poor patients only be allowed to visit hospitals or clinics located in poor neighborhoods? Are there no vulnerable patients in affluent neighborhoods? Do vulnerable populations not also live in or close to affluent areas? Do affluent people not live in “up and coming” or “shifting” neighborhoods?


Finally, 340B status does not mean that an entity currently is or should be destitute. In spite of the disadvantaged reimbursement, a 340B hospital still needs to operate effectively and maintain a workable business model. In an era of hospital consolidation, reimbursement cuts, pay for performance contracts, and penalties for readmission, 340B hospitals must be able to deliver the same high quality of care as their for-profit counterparts, while serving a disproportionate share of more medically complex, yet publically insured individuals.


Conti and Bach assert that “other recent analyses have suggested that hospitals receiving DSH payments are shifting some specialty care from the inpatient to the outpatient setting, where drug discounts gained from participation in the 340B program may generate increased profits.” The fact is that all health care has shifted toward increased outpatient care. If you aren’t making this move, you will fail in this current and future marketplace. There is no prohibition in 340B on participants employing sound business practices.


The Success of 340B

Ironically, one could interpret the data presented as evidence that the 340B program is working and that the policy designed to support safety net providers has been a success. The hospitals that qualify for the program serve vulnerable patients as documented in their Medicare Cost Reports and they do so in a variety of locations relative to the parent hospital site.


340B is just one way that the government has recognized that these facilities need an intervention to level the playing field. Like all hospitals, 340B participants want to provide care and access points in a number of areas; their ability to sustain clinics in a variety of locations is evidence that 340B provides hospitals the resources to maintain even footing with their counterparts while providing a critical service to those in need.


Responsibility in research is important if we are to have accurate and fair discussions about policy issues like the 340B program. The 340B program is complex and absolutely needs more structure and oversight, but it does not need misleading and loaded rhetoric like “enriching and profiting.” That type of terminology might be common in the current attack of the program by the drug industry but I would expect a more nuanced viewpoint from a scholarly piece such as this.


When I began my work in 340B policy and compliance, the research examined why there was underutilization of the program and how to encourage participation. As I think about the incredible paradigm shift in agenda setting, I have to say that in another era, the sound bite could have just as easily been: “Researchers conclude that vulnerable patients should only be served in poor areas.”




Madeline Carpinelli Wallack is a founding director of Rx|X Consulting, a boutique, independent 340B advisory services group. She is a recognized leader in the healthcare industry with a Ph.D. in Social and Administrative Pharmacy and a 20-plus-year career dedicated to 340B, with numerous senior roles within organizations such as the Office of the Inspector General, American Pharmacist Association, and serving as a Research Fellow at the University of Minnesota.