Bipartisan legislation, signed by President George H.W. Bush, created the 340B Drug Pricing Program in 1992. But the program’s roots stretch back two years earlier, to the Omnibus Reconciliation Act of 1990, which established the Medicaid Drug Rebate Program.
That program required manufacturers to give Medicaid an outpatient drug rebate equal to a percentage of a drug’s average manufacturer price or, if greater, the difference between the average and the best price available to any purchaser. Manufacturers reacted by reducing discounts to certain providers, such as safety-net hospitals. They did this to avoid paying Medicaid rebates larger than necessary under the best price provision.
Fast forward to 1992. Congress, recognizing that drugmakers had gamed the system to shift costs to non-Medicaid purchasers, responded with the 340B program. The program requires manufacturers, as a condition of Medicare and Medicaid participation, to discount the price of drugs sold to certain “covered entities”—providers, such as hospitals that serve a safety-net role. Covered entities also include Ryan White HIV/AIDS program grantees, children’s hospitals, federally qualified health centers, freestanding cancer hospitals, and others.
How 340B Helps Hospitals and Patients
Through manufacturer discounts, the 340B program helps essential hospitals save money, which they use for a wide variety of services for vulnerable patients. Of course, much of the savings flow directly to low-income patients in the form of affordable drugs—often free or at a tiny fraction of what the drugs otherwise would cost.
How the 340B program functions today is exactly how Congress designed it 26 years ago: to enable covered entities “to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services” (H.R. REP. 102-384(II), at 12 (1992)).
340B: As Important Today as Ever
High and rising drug prices remain as much of a problem today as they did in the early 1990s, when Congress created the Medicaid Drug Rebate Program and the 340B program.
A January 2018 Health Care Cost Institute report found a 110 percent price increase for brand-name drugs from 2012 to 2016. The future isn’t any brighter: a March 2018 Health Affairs study of health spending from 2017 to 2026 concluded prescription drug spending will outpace overall health care spending growth due mostly to “faster anticipated growth in drug prices.”
The 340B program is one of the few effective tools we have to keep drug prices down and ensure vulnerable people have access to affordable medications and comprehensive services. Dismantling the program, as the pharmaceutical industry wants, would only pad the industry’s average 20 percent profit margin at the expense of taxpayers, patients, and communities.