340B Drug Pricing Program: Controversy & Reform

The 340B drug pricing program was created to help safety-net hospitals and clinics stretch their resources to care for low-income and uninsured patients. But has it spiraled out of control? Originally a modest plan, the program has exploded into a $130 billion market, leading to a fierce debate over who truly benefits from the massive discounts. Is it the patients, as intended, or are for-profit corporations, PBMs, and large hospital systems capturing the profits? In this episode, we unpack the controversy and explore the future of 340B.

Joined by two of the nation's leading experts on the topic, we dissect the complex mechanics of the 340B drug pricing program and the powerful financial incentives that drive it. We explore how the program has grown exponentially, fueled by rising drug costs and the explosion of 340B contract pharmacies. This discussion sheds light on the central question: who benefits from the 340B program? Our guests break down how pharmacy benefit managers (PBMs) and major chains like CVS and Walgreens have become major players, diverting funds that were meant for patient care. We provide a clear, step-by-step example of how the money flows for a single prescription, revealing the winners and losers in this system.

A significant focus of our conversation is on 340B in oncology, where high-cost drugs create enormous financial spreads for participating hospitals, often without any direct savings for the cancer patient. This raises critical questions about whether the program encourages the use of more expensive drugs and consolidates cancer care into large hospital systems. We also dive deep into the push for 340B program reform, covering the recent Senate hearings, the legal battles over state laws restricting manufacturers, and the debate over moving oversight from HRSA to CMS. We analyze proposals like a rebate model and increased transparency requirements to understand what the future may hold for this vital, yet deeply flawed, healthcare program.

Introduction

Dr. Anthony Paravati: Amar, we are back for episode 21 of Value Health Voices. Tonight we are going to be talking about the 340B drug pricing program. This episode or this program over its existence has had a knack for timing. We're talking about this program, recording this episode on the same night of a big Senate hearing on the future of 340B.

Understanding the 340B Drug Pricing Program

Dr. Amar Rewari: For our listeners, maybe I'll just say a little bit about what 340B is. It's a program that was created in 1992 requiring drug manufacturers to sell drugs at a discount to hospitals who are providing care to low-income or uninsured patients. That's really the goal of it, to improve access to these drugs for people who otherwise wouldn't be able to afford it.

Dr. Anthony Paravati: And since its founding, going from 92 all the way to today, the program has expanded, and it's expanded for many reasons. When I say expansion, what I mean is total dollars caught up in the program or total dollars of discounted drug purchases. As you intimated, the idea was this was geared towards safety net providers, and that's still a huge piece of it.

But one thing in the way the statute was put together is it didn't do the job necessarily of restricting who could participate in a foolproof way. And it didn't tell hospitals how they have to spend the money from the savings that they get from acquiring the drugs.

Dr. Amar Rewari: No, exactly. And so hospitals can use this money to fund other programs. It's a very profitable program for hospitals, so they also look to acquire other hospitals that give them access to this program. So let's say if you're a hospital in a county that's otherwise wealthy, that you would not qualify for 340B, it encourages expansion into those communities that allow for 340B so they can get these profits and potentially, instead of just using them on underserved care, use it to fund other programs they're running.

Dr. Anthony Paravati: And one of the reasons why the program has gotten to this level, and we'll talk about it a lot in the program, in our episode with our guests, why it's gotten to a $60 billion program is drug costs are so high. We even get into it in the program, why drug costs are so high. We have Medicare, which is a large purchaser of drugs that doesn't negotiate the rates. We have Medicare set up so that there's no budget neutrality out of the entire ecosystem of Medicare. Every aspect of Medicare is tightly constrained to budget neutrality except spending on drug purchasing. These factors all put together, you mentioned expansion of hospitals and expansion of their 340B covered sites. Drug expense has all led to a big program and the government wants to reform it.

Dr. Amar Rewari: Yeah. And around reform, there's not much regulatory oversight. So there's this concept of HRSA, which is the Health Resources and Services Administration under the HHS, which we'll talk about a lot in the episode. But the statutory authority of theirs is very thin. It's three pages of law. And so there's really, as you said, hospitals can spend this money in whatever way they want.

The original intent was hospitals could only dispense these 340B drugs on site. But in 2010, HRSA allowed this concept of contract pharmacies, which are retailer specialty pharmacies that dispense the 340B drugs on behalf of the hospitals.

Dr. Anthony Paravati: And a key aspect of 340B as it was designed was that this was supposed to be for nonprofit entities. But once that switch occurred in 2010 to allow the contract pharmacies to be the location where a 340B covered drug is dispensed, that was a way for, in fact, for-profit entities to work their way into the program. By the way, for contract pharmacies, and this will be well covered in the episode, we're talking about household name programs, CVS, their mail order pharmacy as well, and Walgreens, et cetera, et cetera. There's so many participants in the program and that's driven up costs as well.

Dr. Amar Rewari: And one of the other aspects about the program is there's a lot of reforms that are currently being done. Some are revolving around rebates that we'll get into. Some are on the state level that we'll get into. Some are around increased transparencies and ways to improve the transparency. Because the next few years will really test whether Congress or the administration can modernize 340B without destabilizing the hospital finances and still preserving that community oncology access.

Dr. Anthony Paravati: And that's really what's so important because there are so many hospitals providing care to cancer patients in very challenging payer environments. So in the language of healthcare finance, a poor payer mix, all the federal qualified health centers, the Ryan White program for patients with HIV and AIDS. This program has a very important role to play. Certainly, neither you nor I are suggesting it should be abolished. And neither are either of our excellent national expert guests who we have on the program.

Meet the Experts on 340B Policy and Law

Dr. Amar Rewari: Yeah, we have some great guests today. One is Ted Okon, who is a nationally recognized voice on the policy and politics of cancer care. He's been quoted widely in the media and has appeared on national TV and radio news programs, testified before Congress, a frequent presence on Capitol Hill, where he works to shape policy affecting the nation's care delivery system.

His role is executive director of the Community Oncology Alliance, which is a national nonprofit dedicated to supporting patients and providers in the community cancer care setting. Under his leadership, COA advocates on critical issues, including the cost of treatment, Medicare reimbursement, healthcare reform, pharmacy benefits managers, which are PBMs, and the changing economics of cancer care.

Dr. Anthony Paravati: I'm looking forward to getting into it with Ted here tonight. He's a household name in the 340B space for his role in leadership there. And our other guest we're also excited to have is Amanda Smith, and she is counsel at K&L Gates, which is a big law firm. She's in their healthcare and FDA practice. She has a focus on federal 340B drug pricing program. Of course, that's why we're having her on.

She advises clients on regulatory, legislative, and litigation matters all related to the program. Before joining K&L Gates, she was the counsel for a nonprofit association of hospitals and health systems. There she developed state and federal regulatory legal legislative advocacy in areas of health policy, drug pricing, a number of areas that are highly pertinent to what we'll be talking about today.

She plays a key role as well in the development of state level policy and as well as advocacy resources for all things drug pricing and health policy in general and before all that she also served as a health care law clerk for the United States Senate Committee on Finance. So she's going to talk a lot about the reform efforts and the hearing today in the senate. Let's get right into it after the intro music.

So excited, as we mentioned in our introductory comments, to be with Ted Okon, who is Executive Director of Community Oncology Alliance, and Amanda Smith, who's a particular expert in the legal and regulatory aspects of 340B. Welcome again, Amanda and Ted.

Ted Okon: Thank you.

Amanda Smith: Thank you.

340B Explained: How the Program Works

Dr. Anthony Paravati: So guys, we really should start with a conversation to try to make the basics of this program, the fundamental pieces, as straightforward and understandable as possible for our listeners. Amanda, why don't you start with giving some of us that background, and wherever you want to weave in the legal aspects, please do.

Amanda Smith: Yeah, absolutely. So as you mentioned, the 340B program has existed since 1992, and that there are certain covered entities that are able to access certain drugs at discounted prices. And each of those categories has its own requirements. So those providers that have access to these steeply discounted drugs are often referred to as safety net providers. They include hospitals that meet certain metrics or clinics, typically that receive some sort of federal funding. So think Ryan White clinics or family planning clinics, STD clinics.

The idea is that the safety net providers can then spend less on drugs and then have more to invest into the safety net mission. And it's not all drugs. You mentioned it's what I refer to as covered outpatient drugs. So these are the drugs that typically are also subject to a Medicaid drug rebate program rebate. And so those two programs really work very closely together, the Medicaid rebate program and the 340B program, in that one of the main compliance concerns or areas of concern for 340B providers is there's no double discount. If it's a Medicaid rebate, it's not 340B. If it's 340B, no Medicaid rebate.

And then the other big compliance piece is what we refer to as diversion, which means that 340B can only go to patients of those safety net providers, which may sound like a simple concept, but it can come with a lot of legal ease and a lot of considerations on behalf of the providers.

Who Truly Benefits from 340B Discounts?

Dr. Anthony Paravati: Ted, from your perspective, you're also studying the 340B program for years now. Are there anything about the program that you really want the listeners to understand? And perhaps you could even highlight some misconceptions where people think they get it, but they often cross up something about the program.

Ted Okon: Yeah, Anthony, I think, first of all, you have to understand, and Amanda said it, I think Amar referred to it, is that basically you have these covered entities. So think about it. On one side, you have these federal clinics, Ryan White, STD, FQHCs, and on the other side, you have hospitals. The hospitals really now make up the vast majority, 80% or so, of 340B.

I think one of the misconceptions is that patients always get the benefit of the discount, and they don't, especially on the hospital side. More and more, we see, especially as hospitals consolidate, and you see these big mega health systems, it's the health system that is benefiting from the discount, as well as their CEOs.

Now you even have for-profit corporations, insurers, and what are known as pharmacy benefit managers that are in the same corporation that are now in the program. Something that Congress never intended that you'd have for-profit entities. In fact, some of the largest for-profit entities in the country benefiting from 340B. So I think the misconception is that this is a program that is always going to benefit the patient either directly or indirectly.

Dr. Anthony Paravati: That's really a great point. And I think we're going to have the chance, Amar, to walk through it for our listeners. The funds flow, how the money flows in this program. And that will demonstrate, I think, what Ted just said. Because the patient's copay, coinsurance, is unchanged, whether or not they're seeing an oncologist, for example, at a 340B covered entity or not. And so, Ted makes a great point.

Dr. Amar Rewari: Pretty much if a cancer drug costs $10,000, let's say, and that's what the hospital acquires it for, at a 340B price, let's say if it's $6,000, that means the insurer, whether it's Medicare or commercial, would still reimburse that $10,000, but the hospital gets to keep the $4,000 spread. The argument is that hospitals say that this margin supports charity care and access, while critics say that it's used by hospitals to buy oncology practices and capture those drugs under the 340B eligibility.

Amanda Smith: It is accurate to say that this is not a direct patient discount. This is not a discount that is the patient presents at the counter and that is the price that they pay for the drug. It is the benefit, as the statute currently is, is very much intended to be for the provider.

The Financial Impact: How 340B Influences Drug Pricing

Dr. Anthony Paravati: If we rewind the clock to about the turn of the century, as I was saying, the program on a yearly basis was accounting for about $6 billion in spend. Now we're up as far as 2021, because that was the last that I could easily find north of $40 billion annually. Are we already hitting $50?

Ted Okon: We're over $60 billion, and that's in discounted 340B. So roughly if you double that and you look at what would be the market value of the dollars, we're approaching $130 billion. That's how large this program is.

And I want to say one thing about the flow of the money that you guys were just talking about. Hospitals are now required by law to report their data. We had two studies done for us. And the bottom line out of both of those studies that looked at all three, four to be hospitals, and then the other study that looked at some of the largest ones, is that looking at cancer drugs, these cancer drugs on the commercial side are marked up an average of four or five times, not percent, times.

What that means is that a person who's coming in who has commercial insurance, whatever their coinsurance is or co-pay or does not have insurance, literally paying are highly marked up prices for these drugs. So that's part of the problem, that this is classic arbitrage of where you're buying low and in essence selling high.

Dr. Anthony Paravati: So Ted, just to drill down on the markup, is the argument that the existence of the 340B program is one of the contributing or let's say main contributing factor to the manufacturers doing that markup?

Ted Okon: Well, I will tell you this, and I'm not apologizing for drug or defending drug manufacturers because drug manufacturers basically have a role to play here in terms of prices. But I can tell you right now, when manufacturers sit behind the scenes and they go to price their drugs out, they look at the discounts and rebates from a number of programs, but 340B is a real big one. They're giving away so if you want to say just let's take round numbers and make it easy a thousand dollars for a drug and you know you're going to give half that away you're basically going to price it at two thousand so it does have an effect in terms of launch prices.

But what I'm saying is then the entity the hospital, we're looking at hospitals now again because I think that the real offenders here with the program are hospitals not the clinic side of the cover entities, literally, they're taking these drugs and marking them up. As I said, in the case of cancer drugs, in some cases, it's as high as 12 times, markup 12 times, again, not percent, but on average, it runs between four and five times in terms of their markup. So patients are paying more. You have to realize, the average patient out there doesn't really understand the price of the drug. What they understand is the cost of the drug to them, which is a factor of their coinsurance, how much they have to pay out, and in this case, what the markup is.

Dr. Anthony Paravati: What is the, Ted just outlined what is, in a way, a kind of an ominous picture, not an ominous picture, but one of, raises some concerns. Is there any legal restriction, legal status that the manufacturers have to comply with to function as a kind of a ceiling on their pricing?

Amanda Smith: Yeah. So for the 340B price, there is a very complicated statutory formula that helps decide that. The way that that formula works is you have the basic discount that I think mentioned earlier can be 20% to 50% on average. But there's also in that calculation what is referred to as the inflation penalty, and that for drug companies that raise their prices faster than inflation, the 340B discount becomes greater and greater and greater.

That is not necessarily a ceiling or anything in that matter, determining that 340B price, but it is something that absolutely impacts the drug manufacturer's pricing in that if they continue to raise drug prices higher than inflation, then their 340B price for that drug can be penalized to the extent where it goes all the way down to a penny. So they don't have to give the drug away for free, but it can be a very severe discount. So that is, again, not a ceiling. So I don't know that directly answers your question, but it is absolutely a consideration that factors into that decision making on their part.

Navigating the Regulatory Landscape: HRSA's Role and Limitations

Dr. Amar Rewari: I guess, and Amanda, to follow up to that, where does the statute stop and the health resources and service administration guidance come in?

Amanda Smith: That's a great question in that the 340B statute, it's very short. I think it's maybe eight pages long. This is not like the Affordable Care Act where it's going to take you a couple months to read. It's a very short statute. Within that statute, there's really only a few places where the health resources and Services Administration called HRSA, and that's the agency with authority over 340B, where they actually have any sort of what's referred to as regulatory authority, authority to issue regulations.

And so because the regulatory authority is so limited, they've issued guidance in a lot of places. This is what they want to see from stakeholders participating in 340B. This is what they think is the best reading of the 340B statute. So because there's not a lot of regulatory authority, there's not a lot of regulations dictating 340B, we do have this guidance of, again, what the agency thinks is the best interpretation of the statutory text.

But at the end of the day, it really is the statute that governs here, particularly in 340B, as it does with all laws, but particularly here with very little authority for the agency. It's not necessarily like where does the statute end and guidance begin. So much as stakeholders look at that guidance, sees what the agency wants them to be doing, and then can really evaluate that against what the statute requires, and can lead to decision-making, where if they want to challenge the agency and say, we think we have the better reading of the statute, they can clearly do that, or they can comply with the agency's interpretation because they would much rather not have that drawn-out legal fight.

Do I want to take the agency to court because I don't agree with their guidance? Or, do I actually think the agency does have the best interpretation of the guidance? And so I'll comply in that way. Or do I think the best interpretation of the guidance, the agency's just wrong, my interpretation's better. So we'll let a judge decide who wins on this one.

The Political Push for Reform: Debating 340B's Future in the Senate

Dr. Anthony Paravati: Amanda, your comments made me think of today. So just for our audience, we're recording this episode on the evening of the 23rd of October, 2025, obviously. And so just earlier today, there was a hearing in the Senate, the Senate Health Education, Labor and Pensions Committee, which is chaired by Senator Cassidy of Louisiana. That was one of the topics in the hearing today is precisely what you were just referring to regarding HRSA, what they can do to have teeth, regulatory teeth in the program and what they cannot do.

One of the many pieces of potential reform to 340B is this consideration of transitioning the program, whether it's gradually, perhaps over time, from HRSA, where it currently resides, to the Center for Medicare and Medicaid Services, which, of course, does quite a lot of the regulation for the U.S. healthcare system. I just wanted to bring that up. And since we're on the topic of the hearing today, either for Amanda or Ted, anything that you heard today that you thought drives the reform effort forward in any meaningful way?

Ted Okon: I will say, well, first of all, Anthony, I think the dear senator, Dr. Cassidy, would want to correct you and say that he's from Louisiana, not Wisconsin, especially when he's running next year as well, too. So I think he would want to have that for any clear listeners from Louisiana. But I think it was pretty much of a nothing burger, frankly. I think that Senator Cassidy, the chair of the health committee, when he introduced it, he made a number of points that are really well known.

Now, remember, the health committee and health committee, rather, is a committee that came out with a large report and analysis of 340B, previous to this. This was really kind of nothing. But he reiterated some points that were made in both a study by the GAO, the Government Accountability Office, and the Congressional Budget Office, CBO, who those had had representatives testifying today. That was that he said, if you think taxpayers aren't praying for this program, they are. And he explained that.

He also made the point that the problem with the program, again, on the hospital side, is that physicians in 340B hospitals, and there have been numerous studies about this, are using more drugs and more expensive drugs. We definitely see that in the case of cancer.

And it was really interesting that the representative from CBO literally spelled out four reasons of why basically they found that the program is, in essence, being footed by taxpayers. Because a lot of times the hospitals will say, oh, it's the pharmaceutical companies that are footing the program and it's really taxpayers. But I think overall it was kind of nothing. The Democrats wanted really more talk about the shutdown and the ACA subsidies and touched on 340B a little bit. The Republicans were sort of all over the map and there wasn't even a great showing. It was a pretty quick two-hour hearing.

The Rise of Contract Pharmacies and the Influence of PBMs

Dr. Amar Rewari: Yeah. And Ted, they didn't really get too much into contract pharmacies. And I think that's a nice segue for maybe you could tell us a little bit about contract pharmacies and do you believe they warp incentives in oncology? And you could even talk about PBMs a little bit if you'd like.

Ted Okon: Yeah. This is really something that has really where the program, I think, has really, the best word I can think of is mutated. That's because back 15 years ago, there were roughly 1,300 contract pharmacies. What that means is that a hospital or a covered entity at one of these clinics would be able to contract with a pharmacy that was not on their location. Obviously, important to a lot of these clinics because they don't have a pharmacy. Obviously, hospitals have a pharmacy, but they can contract with multiple contact pharmacies.

Well, the problem is 15 years later, we now see over 32,000 contract pharmacies, and you say, what's wrong with that? The problem is these PBMs, pharmacy benefit managers, who are now integrated with some of the largest insurance companies. So the largest insurance companies, UnitedHealthcare and Cigna and Aetna, basically have the top three PBMs that account for 80% of the prescription drug market. Those PBMs basically have gotten into the business of contract pharmacies. Obviously, CVS has contract pharmacies in their physical locations.

Both Cigna and UnitedHealthcare, through their entities, Express Scripts and OptumRx, they have mail order pharmacies. Even CVS has mail order pharmacies. So what's happened is, not only those three corporations, but in on Walgreens and Walmart, and 75% of the contract pharmacy market or relationships are controlled by those five entities.

So what's the problem here? The problem here is, now you have a for-profit entity taking a cut and diverting funds, which should go to the entity either helping patients in need directly or, as Amanda said, helping the community, so indirectly helping those patients. And the problem is you have more and more what really is a diversion of funds into these for-profit entities.

And I have to tell you, when we talked about eight pages of basically statute, Section 340B, the bottom line is Congress never intended for for-profit entities to be part of this contract pharmacies. And so, in our world of oncology and cancer care, it's the patient who gets left out. And it's the hospital and their CEOs that are benefiting. It's the PBMs that are benefiting, taking over the contract pharmacy market. And it's the patients, basically, who are left out.

The Legal Battleground: State Laws and Lawsuits Over Contract Pharmacies

Dr. Amar Rewari: And manufacturers argue that this partnership with the hospitals and the PB-owned pharmacies can lead to duplicate discounts, diversion, opaque profits. So now manufacturers restrict shipments of the 340B drugs to certain contract pharmacies, which has led to a lot of lawsuits and state pushback. So I thought maybe, Amanda, maybe you could talk a little bit about that.

Amanda Smith: Yeah, absolutely. So the 340B statute says that drugs can only go to patients, and patient is not defined. And again, if you look at the statute, the word pharmacy isn't even in the statute. HRSA has interpreted this in a way that I think, as everyone has mentioned, that providers are allowed to contract with pharmacies in order to get the drug to the patient.

This is something that I think it was about five years ago, you had a drug company, the first drug company, look at the 340 statute and say, well, the word contract pharmacy is nowhere in the statute. So we're not going to deliver drugs to contract pharmacies.

And the agency initially said, well, we don't have the enforcement authority against you. And then turned around and said, well, actually, we do. So we're going to take enforcement. We're going to tell you that you need to go ahead and deliver the drugs to contract pharmacies as you have been, at least since 2010, when the contract pharmacy guidance was issued.

That led to multiple lawsuits because other drug companies that came to the same conclusion and then two circuit court decisions that said basically HRSA does not have authority to require the delivery of drugs to contract pharmacies. After those two federal court decisions, you have absolutely seen a number of drug manufacturers putting restrictions on whether they'll deliver drugs to contract pharmacy or not.

Around the same time as these restrictions started to come into place, again, back in 2020, you saw states start to look at the 340B statute and say, well, if there's a gap in the statute here that doesn't talk about pharmacy, doesn't talk about contract pharmacy, we can fill that gap because that's the way federalism works. Generally, states are allowed to regulate in areas that either don't contradict or conflict with or that the federal government hasn't said, hey, state, you can't do that. And so since the 340B statute has none of those things.

According to the federal district courts and federal circuit courts, states started to enact these laws. And the first state was Arkansas. Arkansas makes it to the Eighth Circuit, and the Eighth Circuit agrees that Arkansas is permitted to have this kind of law. Obviously, the way our federal court system works for non-lawyers, we're broken down into circuits. And so only the states that fall within the Eighth Circuit are controlled by that opinion. It's not the Supreme Court. Supreme Court hasn't spoken to this. But because you do have a circuit that has come to this conclusion, a lot of other states outside of that circuit are like, well, we have a good court decision to point to, so we're going to enact similar laws.

I think, keep me honest, I think my last count was about 26 states have enacted this kind of law. And there's litigation in every single one of those states. And I think we're over 60 lawsuits at this point challenging state contract RSC laws. So you have two positive, if you're from the covered entity perspective, two positive circuit court decisions at this point, and many more working their way through the courts. And then only one court, so that's West Virginia, the federal district court in West Virginia, has ruled in favor of drug companies in saying that, hey, West Virginia, you're actually not allowed to do this kind of law.

It's something that's obviously very active at the moment. A lot of litigation continuing of this question of, okay, if HRSA has given in to the circuit courts, haven't gone to the Supreme Court on this 340B statute doesn't require delivery of drugs to contract pharmacies. Can states then say we are going to require delivery?

Ted Okon: Amanda said, and she brought up West Virginia and this contract pharmacy. So if you look at West Virginia, literally over half of the hospital contract pharmacies are located out of the state. I think one is located in Hawaii, Arizona, California. It's just absolutely, absolutely crazy.

The other thing is what the hospitals do, is they create child sites or contract pharmacies that are in wealthy areas. So you look at West Virginia. West Virginia is the next to last lowest household income literally in the country of all states. And roughly, I think it's about 45% of the contract pharmacies and these child sites are literally in wealthy areas. And no offense to West Virginia, but as you know, there aren't many wealthy areas in West Virginia. So it shows you how the program is being manipulated. And especially as Amanda said, because there aren't a lot of definitions of the patient, contract pharmacies, all these other things that are in a pretty simple statute.

Following the Money: A Step-by-Step Example of 340B Funds Flow

Dr. Anthony Paravati: This is a really nice overview. And there's been a lot of invocations here of contract pharmacies. I will take on the responsibility of leading this. There's math involved here, okay? So I'm going to take the responsibility live together of walking us through a typical example of a drug cost and how the funds flow from all of the players in an example using contract pharmacy.

We've been talking a lot about oncology. It's 40% about of the spend of the whole entire enchilada here for 340B. So it's a perfectly reasonable thing to use as an example. Let's talk about an oral oncolytic, so an oral drug for cancer care. Let's say that drug per prescription is $10,000.

$10,000 is going to be where the starting point, consider that 100% of the money. If this drug is prescribed to a patient and the patient goes to fill it, and Ted, you brought up CVS, nobody here has any bone to pick with CVS, but let's just use that as a household name. So CVS operating as a contract pharmacy in this example, they will receive an amount of that $10,000 from the insurer, and then they'll receive whatever the difference is the patient's co-insurance, let's say it's 500 bucks. So they'll receive 9,500 from the insurer and 500 from the patient to equal $10,000, $10,000 cash to the contract pharmacy.

The covered entity is going to receive that amount of money, that $10,000 less the filling fee that CVS is going to get for that. Let's say the filling fee is a thousand. So we had $10,000. All CVS did was fill the script and they're going to keep a hundred bucks, which is, I think, a reasonable estimate of what they would actually get in real life. The covered entity, that's the hospital where that cancer patient is getting their cancer care and got this prescription from perhaps their medical oncologist. They're going to receive $9,900.

And then the covered, if the covered entity, they're a 340B covered entity, so they're acquiring that drug at something less than, let's say, some discounted rate. Let's say it's $4,500 of the $10,000 that was the total price. Then that means that the covered entity is going to get $9,900 minus $4,500 or $5,400 to prescribe this medication. So it's a good deal of money and certainly not what you would get without that 340V advantage pricing. Is my example track with your understanding, Ted and Amanda?

Ted Okon: I think that's a rough approximation. You just have to know that in some of these drugs, again, it depends on the class and competition and stuff like that. I literally have seen discounts from the hospital side run 60 to 70 percent. It is just really wild in terms of what it can. But I think the point to be made is that the more if you think about it from the hospital side, the more volume that you can push out through pharmacies and having contract pharmacies, the more volume you can push out, then the more patients that you have. So yeah, the pharmacy is getting a cut.

Basically, who's also making the money is the hospital. And that's important. I was just in Michigan last week and into, in Detroit, Henry Ford Health, they have like 450 contract pharmacies. It's just wild. And I think some 16% of those are literally outside the state. There've been stories that, and analysis done, these contract pharmacies being in wealthy areas as opposed to being in poor areas. And in fact, that's something that Senator Cassidy during the hearing brought up when he had some question and answers to one of the people testifying.

Dr. Anthony Paravati: The thing I wanted to mention too about that, and I should have in my funds flow really stuck a pin in this part is that the CVS, again, just an example, operating as the contract pharmacy, as you said a few minutes ago, Ted, is also PBM. So they are collecting cash from the manufacturer who is paying to them, CVS is PBM, a rebate to be on the formulary, perhaps have favorable position on the formulary. So they're getting that and they're collecting the filling fee. That's the point about essentially 340B funds ending up in for-profit hands.

And so if you think about, the role that the PBM is playing, this is really why PBMs and these multi-channel entities that have insurance arms, PBMs, et cetera, they're not necessarily in it to drive savings or value-based care because they do really well, as you said, with the volume. As the program just continues to function, they're going to make a lot of money.

Ted Okon: And understand something. You took the example of CVS in a brick and mortar, you have to realize that the largest part of growing in terms of contract pharmacy with these things are literally the mail order arms of these companies. So this is through the mail as opposed to literally just your brick and mortar pharmacy.

Defining the Safety Net: Hospital Eligibility and the Lack of Transparency

Dr. Amar Rewari: The whole flow of funds is so fascinating. And it's really like so a lot of money is coming back to the hospital in the end. As you brought up, some hospitals that are in wealthier areas are acquiring hospitals, which are covered entities to get access to this program and potentially fund expansion of their hospital systems and their programs. But the goal was to help with support safety net, right? So I'm wondering, is anyone measuring anything around any outcomes around safety net, whether it's charity care, access, affordability? What would happen if oncology completely vanished from 340B? Would it affect patient access, which was the whole goal of the program? I ask Amanda first, and Ted, feel free to jump in.

Amanda Smith: Really the metric for most of the hospitals we're talking about, so hospitals can qualify in multiple ways. Some of them are really small rural critical access hospitals. So, tiny 20 beds, those aren't really the hospitals I think we're talking about in this conversation. The conversation is really more about what are referred to as disproportionate share hospitals or dish hospitals.

Those dish hospitals, the metric that demonstrates that their safety net is that the, basically there's a formula that counts how many of their inpatient days are for Medicaid patients or for low-income Medicare patients. And those numbers are crunched into a fraction and out pops a percentage. And if that percentage is what we're referring to as the disproportionate hospital adjustment percentage, or again, dish percentage, is 11.75.

Then their safety above 11.75, so 11.76, then there's safety net. And that's the metric to measure whether or not Congress said, yep, you get in versus you get out. 11.75 is no, 11.76, you're good to go. Now, that's only for nonprofit or government hospitals. To be clear, for-profits are not eligible as a matter of statute.

What that really effectively means is that Congress said, if about 30% of your inpatient days are for Medicaid, which is a means tested for mostly for people living with lower incomes or low-income Medicare patients, then we're going to qualify you as safety net. We're going to say you're taking care of a large portion of low-income patients. So that's really the metric that the statute looks at to see if you are a safety net. Again, that dish percentage of you have enough inpatient days that we're attributing to people that we've identified as low income. So your safety net.

Dr. Anthony Paravati: But Amanda, the statute, one glaring hole in it, right, is that so that you mentioned what it takes to qualify. But the statute itself doesn't define how the savings from the drug purchases must be used. And the statute at the federal level, we know, doesn't require that. Is there anything at the state level that's happening that might serve as a model for reform in terms of transparency about where funds ultimately impact a community?

Amanda Smith: There are some states that have enacted laws that require reporting on 340B. So Minnesota is one state. Then, you've seen in some state legislatures, I know of one, for example, last year, it didn't pass, but the North Carolina legislature considered restricting the use of 340B savings. But that's the only example I know of where a state has looked at that kind of law, other than just the pure reporting, which again is the Minnesota example of a state that has taken it upon itself to require 340B reporting for the covered entities in the state.

Ted Okon: And if I can just add, what's actually interesting about that is that Minnesota, the health department actually did a study of 340B and saw how much money that it was actually costing the state. And that's one of the reasons. And Amanda also mentioned North Carolina, which is my home state. What's interesting about that, the North Carolina Treasury Department, and I've been up talking to the Treasury people, basically, they tried to enact the same laws as Amanda said in terms of doing that, because they found in North Carolina that 340B hospitals, DISH hospitals were among the lowest in charity care, in charity care compared to other hospitals.

Go back to West Virginia. This is a crazy case. In West Virginia, again, second lowest household income, West Virginia's percentage of charity care, so the percentage of charity care of their operating expenses is 1.32%, if I recall. And the percentage nationwide is 2.5. So here, one of the poorest states is actually not close to the nation in terms of the charity care that they're providing, because you have to understand that with the federal grantees, remember, we're talking about hospitals and federal grantees and specifically dish hospitals.

The federal grantees, because of a lot of what they do, they're held to a level of transparency and accountability. So you can actually see where the funds are going. But on the hospital site, it's a veritable black hole. It goes into their operating budget because they don't have to report. There's no transparency. And so you have no idea what's happening with the funds.

Dr. Amar Rewari: So, Ted, I'm just curious, especially since you head up the Community Oncology Alliance directly, if the oncology drugs completely left 340B, do you think there'd be any limitations to patient access?

Ted Okon: Yeah, this is important. First of all, I want to say this is an important program. This is an important program to basically help patients in need, also help their community. But this should be helping also patients in need. Because let's not forget that even though basically this is a program that essentially the statute said stretch scarce resources to some 40 safety net hospitals at the time.

This happened because the year before or so, two years before in that time frame, Medicaid best price was created. When Medicaid best price was created, pharmaceutical discounts went away because if you discounted it, that would be the best price. So Congress kind of freaked out and said, we have to do something. And they wrote in this section to the bill, which is why it's 340B. It's section 340B. And it was created. So it's really important. And that's why we're so frustrated because when I see a cancer patient, literally can't get treated.

I'll tell you a real live case just heard last week. A 50-year-old woman went into the hospital with abdominal pain and constipation. It ended up, she had a mass on her kidney. They did a biopsy. It's metastatic disease. She went home. She went to schedule her treatment and literally the hospital, which was a 340B hospital said, sorry, we don't take your insurance. Here's what will cost you in terms of cash. It just doesn't make sense if that's happened.

As I said, I was in Michigan last week, and last week I heard an oncologist tell a state legislator, that's why I was in, talking about 340B, how he's had patients that literally have their treatment delayed for three months, especially curative cancers and things like that, if you got them if you got them right away because of the 340B hospital. That's what I object to.

Exploring 340B Reform: Rebate Models, CMS Oversight, and Potential Legislation

Dr. Anthony Paravati: Thanks for that, Ted. One of the things that we really want to make sure we hit on in this episode, and we'll all have a chance to comment on our understanding of it, is this bubbling up current reform wave in the 340B program and what aspects of reform perhaps have legs and what aspects really aren't going to go anywhere. But one of the reasons why Amar and I do this podcast is it's really our mission to explain how the U.S. healthcare system functions. There's one thing that we actually never, Amar, explicitly talked about on the program here that plays a big role into why drugs are so expensive, and it pays a big role into why typical full-service hospitals, why their finances are squeezed in other aspects of the care they provide. And it has to do with how Medicare works.

Accept the aspects for drug payment. So accept the part of Medicare Part B for those medicines that are administered at doctor's offices or in hospitals, but not for inpatients. And then for Medicare Part D, every other aspect of Medicare is subject to budget neutrality. Every other aspect, drug purchasing, whatever the market can bear, whatever the market can bear.

Only now do we have the sprinkling of regulatory reform and the Inflation Reduction Act for Medicare being able to negotiate prices. But we live in this environment where so much of medicine has become oriented towards drugs, drugs, drugs, more, better, new, because there's no ceiling. We really have to make sure our listeners, and we have very sophisticated audience, administrators, people from insurance, physicians who are interested in these topics, but really worth hitting on that.

If we want to think about reform to the 340B program, I think it has to be put into the context of a package of reforms that could actually really make the difference in terms of what it costs patients out of pocket to receive these critical medications. Perhaps we should, because the point of this episode is 340B, start in talking about what reform of the 340B program would look like. But then I'm going to prompt perhaps Amanda and Ted as well about other aspects of reform that could really benefit patients. So let's do that. Ted, let's start with you. Whether it's the rebate pilots, CMS oversight instead of HRSA, as we talked about, executive actions, the whole deal. Tell me what you think, again, has legs and might really make a difference.

Ted Okon: Well, I think the first thing that has legs is actually on the administrative side in that Congress. That is that basically in what's called the Medicare proposed rule for outpatient hospital systems. Literally, Medicare, CMS, the agency that runs Medicare, has said that they intend to early next year start collecting survey data on what it costs hospitals to acquire these drugs. And it's clear the intent is to then take that survey data and basically ingest the reimbursement rate or the rate that Medicare pays these hospitals, which will be lower than what they pay now.

Now, just not to get too much in the weeds, but in the Trump administration 1.0, that's what exactly CMS tried to do. The problem is they picked the number out of the air. So they picked the average sales price minus 22.5. They did collect some survey data. They didn't use it. There was a lawsuit over it. It went to the Supreme Court. And Justice Kavanaugh said, no, you have to pay like everybody else unless you have survey data. So now CMS and Trump 2.0 is going to collect the survey data. And I think the intent is clearly to do that. I think that's something that you will see from the administration. And on the hospital side, it will probably drastically reduce their payment and reimbursement.

On the congressional side, it's a tougher act. Now, it was mentioned today that there is a group, and we've talked to them, of, a bipartisan group in the Senate that is looking at 340B reform. And I think one of the things that is possible to come out of there is more transparency. I think everybody realizes there's transparency. So I think you may see some transparency in other things.

The other thing that is coming out of the administration is, and you mentioned it, Anthony, is a rebate. So right now, literally, when a 340B entity buys that $1,000 drug, they're basically, and let's say the discount is 50%. So they're paying $500 to buy that $1,000 drug. What the manufacturers want to do is basically rebate it. So it would be a back-end rebate. So they would get the same amount of money, the $500, but they would pay up front the $1,000, and then they would get $500 back by the manufacturers. This is in the courts. Amanda can certainly talk about that.

But what HRSA has done is they said, we're going to take some of the trop drugs that Medicare is negotiating, and we are going to literally put that into a rebate mechanism as a pilot test and see how it works. So you have the administration moving on reimbursement issues and literally this idea of a rebate, whereas on the congressional side, I think you'll get some transparency. You may get some other fluff around that. I don't think you'll see much more than that.

Dr. Amar Rewari: Thanks, Ted. And Amanda, I wanted to bring you back and tie some of these concepts that Anthony and Ted brought up, specifically around reform. One of the issues I'm concerned about is that the pharmaceutical lobby is so strong, right? And so we talk about reform and one of the options out there is if CMS took over 340B oversight. But I was curious, how realistic do you think that is given the pharmaceutical lobby? And if they were to take over oversight, could they really implement any transparency without any new statutes?

Amanda Smith: I can't really speak to any specific lobbying group or association or stakeholder for that matter. But I think one kind of important distinction here is that a lot of this conversation, particularly around moving 340p over to CMS, is coming from the administration themselves. So that isn't something that I think necessarily any given stakeholder has been pushing. It's something that agency-wide, Department of Health and Human Services has looked at. How do we reorganize? And that moving HRSA under CMS or 340B under CMS is one of those proposals that they looked at.

But I think a very key consideration there is that CMS would get the same exact statute HRSA has. The statute wouldn't change because a different agency is overseeing the program. And so to the extent that what CMS could do to really put their mark on 340B, they're still confined again by the statute as Congress has written it.

Dr. Anthony Paravati: And I just want to say two things about the rebate aspect of this, too. And Amanda, I want, after I say this, if you have any particular legal insight about the rebate program to add to this, is that... We have over 160 senators who've signed on, who've said, waved their hand to say, they're not 160 senators, 160 total members who've raised their hand to say, we don't want rebates. That's bad news. The arguments perhaps differ across that plurality of members.

But the other piece of it is, I think that, Ted, you brought that simple math example of chasing that $500 rebate on the part of the hospitals, chasing that money. We know that, first of all, it's going to take a long time to get it, and they're going to spend a good deal of money to get it. And so everybody from that side who's on that side of the issue, AHA, et cetera, is going to say, yeah, we can't do that. And I suppose that's the reason, perhaps among other things, why so many have come out and put a stake in the ground saying the rebate thing's going nowhere. Does that track, Ted?

Ted Okon: Obviously, the idea of paying $1,000 and then having a pharmaceutical company basically control it until you get the $500 discount as opposed to paying $500 up front is something that the hospitals are absolutely panicked over. So yeah, they're fighting that hard. And actually, since that was going to be implemented sooner than later, and we have a shutdown right now, and you have people that are not around to even get some of these programs going, that may help them a little bit.

Dr. Anthony Paravati: And so Amanda, yeah, the legal aspects of the rebate, anything there that's particularly important?

Amanda Smith: It's still before the D.C. Circuit Court. So, I just have to wait to see what that circuit decides where they come down, the district court did find in favor of the agency and said that the agency does have authority to do a rebate, but manufacturers can't unilaterally do it if the agency tells them no.

I think we're more in a wait and see to see if the D.C. Appellate court, who has this issue before the month of moment, where they come down on it. And that's for more, we were talking about the rebate model for the pilot drugs, but that's more for just a rebate model even more broadly outside of that pilot drugs, outside of that pilot. So this is my very long winded way of saying, I think we're at a wait and see moment. There was early success for the agency at the district court, but all eyes are on the appeals court.

Ted Okon: It was very interesting. You heard the representative from GAO today basically at the hearing, excuse me, at the hearing, basically talk about the fact that GAO has recommended that HRSA needs to do more auditing of these hospitals that also not only, as Amanda said, these dish hospitals that have to hit this 11.75% of treating these patients, but basically also has to have these certain contracts to help. Patients in the States, and they've done a sampling of this at the GAO and found that basically HRSA isn't doing that.

HRSA always complains that they don't have the dollars to basically do all these auditing things they should be. I have a sneaky suspicion that one of the reasons why the administration is talking about shifting it over to CMS is because I think CMS would be able to do a lot more in terms of looking at the program and program oversight. And it would also connect into what I think CMS is intending to do about changing the reimbursement rate to 340B hospitals. My speculation, but I think that's why you're seeing some of these things connect.

Dr. Amar Rewari: And Ted, you bring up a good point, which I'm going to ask you, Amanda. So if CMS did take over, how might the federal preemption challenge any of the new state 340B laws that are being enacted out there?

Amanda Smith: So the initial preemption argument, and again, this goes back to 2020. So before rebate models or anything of that nature came along, and that the initial argument was just basically that the 340B statute is so comprehensive, there's no room for states. That's the argument that failed. And so you're starting to see new arguments pop up in the preemption space saying that a rebate model is a different argument than the 340B statute generally, and the state laws are preempted because CMS is moving forward with a rebate model. And so they really are speaking to delivery in that way.

That a court hasn't agreed with that argument yet. That's not to say it will never happen but no court to my knowledge is or I guess, no court has because I know them all. No courts agreed with that yet. That's not to say they never will, but they just haven't. But a lot of these state laws do have clauses in them that basically say like this law is not going to be interpreted in a way that conflicts with federal law. So basically like a preemption savings clause. And so, if the rebate model is implemented and moving forward, then a lot of those state laws, the states would at least argue is that, well, then you have to interpret the state law as allowing that, that we're not going to like HHS says that it's okay in this circumstance. So it's okay in the circumstance under state law.

Looking Ahead: Predictions for the 340B Program's Next 1-2 Years

Dr. Anthony Paravati: Now, look, there's all these analyses out there about how the program might change over three to five years, but look, this is the United States, right? We have a short-term mentality. The people who listen to us, they want to know where's the program going over the next year, perhaps two years max. So if you guys could give us an idea, we've been talking about reform aspects that we think are going to have an impact. So let's really focus that message and make sure our audience understands. What's 340B going to look like within the next year to two years, Ted?

Ted Okon: I think if the administration carries through on what their intent is, I think on the hospital side, they're going to see drastically reduced reimbursement on Medicare in terms of 340B. And I think that's going to take a big hit. I also think that this whole contract pharmacy thing is going to be resolved. Hospitals especially have taken a big hit there. And I think that's something that can happen.

I do believe that you may see now that this is really almost stupid of me to say this of a Congress that can't even keep the government open. But I do think what you may see is some legislation on three 40 B that literally goes to the idea of transparency, of having more of shining some light into the program and on the hospital side where it's a veritable black hole now. And I think that can actually happen.

It's very interesting. Five years ago, you basically had no partisan view of PBMs. Now it's one of the things that is bipartisan. They just can't get the legislation over the gold line. You see hints of that happening with 340B, especially realizing that at least, yeah, it's a valuable program, even the staunch STEM supporters. But yeah, I know it needs some transparency. And the other thing is, if you listen to the hearing today, a lot of the things that we're talking about, the need for 340B was protecting the clinics, the FQHCs in the clinics, as opposed to the as opposed to the hospital. So I think you're going to see some changes, especially from the administration.

Dr. Amar Rewari: Yeah, thanks, Ted. And Amanda, to you, where do you see 340B in the next one to two years?

Amanda Smith: I don't have a crystal ball, obviously. So I think it's a really challenging question from that regard. But I think that the current trends, the things that are happening are, obviously the litigation is going to continue slow marching on. I think earlier we talked about the Medicare reimbursement cuts that made it to the Supreme Court a few years ago, and that it's a little bit of a nerdy stat. Between when those cuts went into effect and when the Supreme Court said, CMS, you can't do that, it was 1,626 days.

Courts take time. They take a lot of time. And so we're seeing this kind of bubbling up through the courts. So my best guess, for lack of a better word, of what we're looking at in the next two years is we're going to continue to see the slow march of the courts really lay out more kind of what that legal landscape of 340B looks like. And that's happening regardless of what Congress does or the administration does, because it's already happening. And we're just waiting to see kind of how that continues to evolve.

Final Thoughts: Centering the Patient Experience in the 340B Debate

Dr. Anthony Paravati: Really excellent analysis from both of you and your respective areas of expertise. One of the things we always like to do on this program, because frankly, we spend a lot of time talking about health policy and healthcare finance and in all the dollars and cents of it, it's relatively easy to lose track of that individual patient. And Ted brought up a pointing example of an individual scenario, is I think what we all have in common is the desire, and however this program is reformed, if it's reformed at all, but I think it's likely that it will be, that we end up with a 340B program that is true to its intent, that preserves access for cancer patients, that allows hospitals, large and small, that are operating in challenging payer environments, to continue to offer full-service cancer care, all the wraparound services that bring humanity and dignity to the patient care experience. That's what Amar and I, as practicing oncologists, are most concerned with. So we thank you all both so much. And if you have any closing words, please share them.

Ted Okon: I would say, well said, Anthony. This is about patients. My wife was an oncology nurse for 10 years, whenever she thinks I forget it because I'm in policy world up in DC, she reminds me that, hey, buddy, this is about patients. When a patient can't get a drug or worse, you read a story in the papers and you see aggressive debt collection going on, and then you look at the hospital and it's a 340B hospital, that just doesn't wash. So this is about patients and there are more patients in need, more patients can't afford their drugs. And literally, it should be those 340B hospitals that are making a ton of money helping them out.

Amanda Smith: My only closing remark really is just to, yeah, at the end of the day, it's caring for patients and making sure patients get the care they need. Also from the perspective of, I'm not a physician, obviously a lawyer, but just the innovation that's happened through prescription drugs over the last 10, 20 years has just been just really something to see. And really that the way that something that previously would have been maybe more terminal than it is now, and just to continue to see that evolve in the pharmacy space, I think is something that maybe we take for granted a little too much when we're focusing too much on other things, just on some of the miraculous therapies that are coming out there and continue to come out.

Dr. Anthony Paravati: That's an excellent point.

Dr. Amar Rewari: Well said. Well, thank you both for coming on.

Credits

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