Federal report indicates that drug costs are increasing and mergers and acquisitions are leading to a rise in 340B spending

A recently released report sheds light on the escalating expenditures in a federal program that mandates pharmaceutical companies to offer discounts to not-for-profit hospitals and clinics that cater to a significant number of low-income and uninsured individuals. The bipartisan Congressional Budget Office (CBO) disclosed data suggesting that expenditure in the 340B program surged by an average of 19% annually, surging from $6.6 billion in 2010 to $43.9 billion in 2021, based on data collected from 90% of 50,000 participating facilities.

Although the report solely reflected data up to 2021, entities under the 340B program acquired a record $66.3 billion worth of drugs in 2023, as per the most recent data provided by the Health Resources and Services Administration (HRSA). Entities such as community health centers argue that these discounts on medications are essential in sustaining their operations and enabling them to extend cost savings to their low-income patients. However, pharmaceutical companies and policymakers have been advocating for adjustments, contending that the program has significantly strayed from its original intent, and certain health systems might be exploiting it for financial gain.

The surge in drug prices can be attributed to about one-third of the growth, which can be linked to the increased utilization of expensive specialty drugs and the escalating costs of medications (spending on brand-name drugs witnessed an average annual growth of 4%). The CBO identified the primary contributing factors for the remaining two-thirds as the Affordable Care Act that broadened participation, a 2010 guideline alteration permitting hospitals to engage with multiple off-site pharmacies, and the acquisition and amalgamation of off-site clinics by hospitals.

The CBO report emphasized that the most considerable effect was the convergence of hospitals with off-site clinics such as infusion centers or specialty medical practices. The report noted that when a hospital acquires an external clinic, the clinic becomes eligible to purchase drugs at 340B prices. The report stated that the number of off-site clinics involved in the program surged from 6,100 in 2013 to 27,700 in 2021, with the proportion of hospitals possessing off-site clinics advancing from 50% to 76%.

An article by The New York Times in 2022 highlighted the establishment of satellite clinics by not-for-profit hospital chains in affluent neighborhoods. These clinics benefited from substantial drug discounts but were situated far from qualifying 340B hospitals. The CBO report noted behaviors encouraged by the 340B program that tend to elevate federal spending, such as an increased volume and price of prescribed drugs, the expansion of services, and the integration of hospitals and off-site clinics.

Advocates of the 340B program have raised concerns about the limitations in evidence presented in the CBO report and have criticized its methodology. They argue that the program’s positive impact has expanded access to care and improved patient outcomes. Despite the escalating costs associated with the program, research indicates that discounts accounted for merely 7% of pharmaceutical companies’ revenues in the US in 2022. The recent report coincides with the initiation of a pilot program by the HRSA, allowing hospitals to pay the full drug price upfront and receive a rebate from manufacturers subsequently.