INDIANAPOLIS – The federal government's 340B drug price reduction program has recently emerged as a hot topic in the U.S. legislature. This program mandates that pharmaceutical companies sell drugs at discounted prices to healthcare facilities serving low-income and medically underserved patients. However, with the program's rapid growth, questions are being raised about whether the discount benefits are effectively reaching patients as originally intended, leading to increasing calls for greater transparency in the program's operation.

The purchasing amount of drugs under the 340B program has exploded from $2.4 billion in 2005 to $66.3 billion in 2023. This quantitative growth is exacerbating the conflict between pharmaceutical companies supplying discounted drugs and the hospitals receiving them.

In response, the Indiana General Assembly is deliberating a bill to strengthen the reporting obligations for healthcare providers participating in the 340B program, particularly hospitals with high access to low-cost drugs. State Sen. Ed Charbonneau (R-Valparaiso), who authored Senate Bill 118, stated, "The key word for everything we've pushed, not just this session but last session, has been 'transparency.'" He added, "What is currently happening legally is far removed from the program's original intent of providing affordable drugs to underserved individuals in need."

The Senate did not concur with the House's amended version of the bill and referred it to a conference committee for final negotiation. The latest version of the bill under discussion requires certain healthcare providers participating in the program to report information such as the total cost and payment amount for purchased drugs, pharmacy dispensing costs, insurance claim details, usage of 340B discounts, and patient demographics.

However, for some small hospitals, all the savings obtained through the 340B program are essential for sustaining their operations. Brenda Ritz, CEO of Greene County General Hospital, expressed concern, saying, "We don't have the economies of scale that large tertiary facilities have. We often operate on very thin margins." She added, "The current budget cuts are reaching a level that threatens the very existence of the hospital, going beyond simple service line reductions."

Criticism of the Program

Key criticisms of the 340B program were well summarized in the testimony before a legislative committee by William S. Smith, Senior Fellow and Managing Director of the Life Sciences Initiative at the Pioneer Institute, a Boston-based think tank.

Smith testified before Senate and House committees in January and March, detailing the "arbitrage" practice where hospitals, clinics, and pharmacies purchase drugs at "very large" discounts and then bill private insurers at normal prices, pocketing the difference as profit. He pointed out, "Arbitrage is driving this situation, and it creates all the wrong incentives for the program. Hospitals have every reason to attract privately insured patients rather than treat the uninsured."

As evidence for these claims, Smith presented examples of contract pharmacies affiliated with 340B program participants opening in affluent areas with high rates of private insurance. He emphasized, "Even Jeff Bezos can buy 340B drugs at a 340B pharmacy." He added, "It seems to me that this program should be targeted towards low-income or uninsured patients."

According to the Pioneer Institute's report on Indiana, over half of these contract pharmacies are located in wealthy neighborhoods and dispense drugs on behalf of 340B entities. Some large non-profit hospitals within the state utilize contract pharmacies based in California and Hawaii, a key point of criticism for the Pioneer Institute.

Furthermore, Smith criticized the reported decrease in charity care. In response, legislators amended the bill to exclude reporting requirements for 340B entities such as Health Resources and Services Administration (HRSA)-funded clinics. These include the Damien Center, an Indiana support center for individuals with HIV, and the Indiana Hemophilia and Thrombosis Center.

These clinics testified that they already face stricter reporting requirements and audits than hospitals. Smith stated, "I think clinics are different than hospitals. Generally, clinics are better run and audited for charity care." He added, "Some hospitals rely heavily on 340B due to inadequate Medicaid reimbursement. I like that (Senate Bill 118) asks 'What's going on? How much money are you making?' without weakening the program."

Before House lawmakers in March, Smith further reinforced his arguments, urging additional oversight of large hospital systems. He emphasized, "They are reducing charity care... and making tens of millions of dollars from 340B. I want to know which hospitals are doing it right and which are not, and a little transparency would help."

These concerns have also reached Governor Mike Braun, who issued an executive order in January directing Secretary of Health and Human Services Gloria Sachdev to investigate the program and determine what oversight the state can pursue. The results of this review are expected by the end of October.

Hospitals' Rebuttal

In response, hospitals countered that the 340B program's discount benefits were not originally intended to be directly passed on to patients, a point Smith also acknowledged. Hospital representatives argued that these savings are instead used to supplement funding for other programs.

Dawn Moore, Vice President and Chief Pharmacy Officer at Community Health Network, testifying on behalf of the Indiana Hospital Association, stated, "If we only focus on charity care, it implies that our savings should only go to support charity care instead of expanding scarce resources."

Moore also pointed out that charity care only considers services written off after billing and excludes free clinics, patient support services, and more. 340B discounts occur when billing private insurers and cannot be applied to Medicaid-covered drugs. Therefore, contract pharmacies may not be located in low-income areas.

Moore explained, "We provide services everywhere. But if savings occur in areas with commercially insured patients, we reinvest those savings where they are needed."

Greene County Hospital's CEO Ritz estimated that her hospital received approximately $500,000 in benefits through the 340B program, but nearly half of that was spent on internal audits and administrative costs. Although a relatively small amount, this buffer allowed them to maintain obstetrics and cardiopulmonary rehabilitation services.

Ritz stated, "Our community is one of the few remaining rural areas that still offers full obstetrical services... Maintaining obstetrics is very expensive, but we decided to do so because most of our residents would have to travel over an hour to give birth." She emphasized the importance of local hospitals, citing a recent complicated pregnancy case where both the mother and baby would have been at risk without access to an emergency C-section.

Ritz expressed concern that additional reporting requirements would further erode the funds they recoup from the 340B program, in addition to other hospital reporting and transparency demands. She emphasized that the 340B program does not involve taxpayer money, unlike other programs, and lamented, "I don't understand why more transparency is being demanded. I think we operate as transparently as we can. This will only increase the administrative costs of the program, further reducing the benefits we actually receive."

Overview of the 340B Program: The 340B program operates under Section 340B of the Public Health Service Act, enacted by the U.S. federal government in 1992. It allows certain healthcare organizations (covered entities) that serve low-income and medically underserved patients to purchase outpatient drugs from pharmaceutical companies at discounted prices. The program's purpose is to help these organizations provide more services to more patients. Participating Healthcare Organizations: A variety of healthcare organizations can participate, including Federally Qualified Health Centers (FQHCs), certain non-profit hospitals, HIV/AIDS treatment centers, children's hospitals, and cancer centers. Discount Rate: The discount rate varies depending on the type of drug and the pharmaceutical company, but it is generally a significantly lower price than the Wholesale Acquisition Cost (WAC). Contract Pharmacies: Healthcare organizations participating in the 340B program can provide discounted drugs to patients through their own pharmacies as well as external pharmacies with which they have a contract. The location and operation of these contract pharmacies have recently become a central point of controversy. Charity Care: Medical services provided by hospitals free of charge or at a reduced price to patients who cannot afford to pay due to financial difficulties. There are increasing calls for the benefits of the 340B program to lead to an expansion of charity care. Position of the American Hospital Association (AHA): Hospitals argue that the 340B program plays a crucial safety net role for low-income patients and that the saved costs are reinvested in various ways, such as expanding patient care services, introducing new medical technologies, and training medical staff. While they agree with the need for enhanced transparency, they are concerned that excessive regulation could undermine the program's efficiency and worsen patient access. Position of Pharmaceutical Companies: Pharmaceutical companies argue that the rapid growth of the 340B program is creating pressure to increase drug prices and that the discount benefits are being misused by hospitals seeking arbitrage profits by applying them to commercially insured patients, contrary to the program's original intent. They emphasize the need to strengthen the transparency of the program's operation and to clarify the criteria for eligible healthcare organizations and patients. ** 움직임 of Government and Regulatory Agencies:** The federal government is making various efforts to understand the operational realities of the 340B program and to seek improvement measures. Recently, measures such as strengthening regulations on contract pharmacies and enhancing audits are being discussed.

The current discussions in the Indiana General Assembly are expected to be an important opportunity to enhance the transparency of the 340B program and ensure that it operates in accordance with its original purpose. Attention is focused on the outcome of the final negotiations and the future movements of other states and the federal government.

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