Pioneer Institute report calls 340B an 'increasingly dysfunctional' program

A new Pioneer Institute report deems the 340B drug discount program an "increasingly dysfunctional" initiative.

The free market-focused think tank's analysis found that while the revenue hospitals generate in the program has grown exponentially, major Massachusetts hospitals have been cutting back on charity care. Drug sales in the 340B program grew from $9 billion in 2014 to $38 billion in 2020, according to the report.

In 2005, just 583 hospitals participated in the program, according to the report. By 2019, under the Affordable Care Act, the program grew to include more than 2,500 hospitals and to account for 8% of all prescriptions in the U.S.

“The 340B drug discount program started with the best of intentions: to make high-quality prescription drugs and healthcare more affordable to low-income, uninsured populations,” said Bill Smith, Ph.D., Pioneer Institute director of the Life Sciences Initiative and co-author of the study, in a statement.

“The 340B program has, unfortunately, been transformed into a lucrative revenue stream for hospitals and pharmacies who can arbitrage drug discounts," Smith said. "With the exception of a small number of dedicated hospitals and clinics, the original goals of the program have largely been lost.”

The program's explosive growth has likely led to "mission drift," according to the report. Many hospitals view the program the way a for-profit entity would, buying drugs at a low cost and then reselling them to both government and commercial payers at higher profits, according to the report.

The program has also served to enrich contract pharmacies and pharmacy benefit managers, according to the report.

The report includes several policy recommendations Pioneer Institute analysts say could right the ship for the program. For one, participating hospitals should be required to report revenues earned through the 340B program, the researchers said.

In addition, providers should be mandated to spend revenues from 340B on charity care and community programs to ensure the benefits are reaching low-income populations as intended. Congress should also establish a standard definition for charity care to smooth out the wrinkles in managing charity care spend.

"A standard definition and stricter reporting requirements are sorely needed so policy makers can have some assurance that the vast, and rising, revenues from the 340B program are benefitting needy populations," the authors said.