Federal Drug Discount Program Faces Challenges

A federal program that provides billions in drug discounts to safety net hospitals and other health care providers is expanding under health care reform. The 340B program faces a number of critical issues, such as whether to better define eligibility, strengthen compliance efforts, and provide greater transparency about the discounts provided, according to new analysis by the RAND Corporation. The federal Health Resources and Services Administration is developing new regulations to address these and other issues. “Policymakers need a clear, objective description of the 340B program and the challenges it faces on the road ahead. There are increasingly divergent views on the program’s purpose and the role it should play in supporting safety net providers,” said Andrew Mulcahy of RAND.

The federal 340B program began in 1992 to help health care providers extend services to the indigent and uninsured. The program allows some hospitals, clinics, and health centers to buy outpatient prescription drugs at discounted prices. The program covers more than 7,800 entities as a result of expanding eligibility rules. Hospitals that participate in the program account for more than one-third of all U.S. outpatient hospital visits.

Federal officials estimate that the 340B program accounts for $6 billion in outpatient drug spending, about 2% of all U.S. prescription drug spending in 2011. This translates into savings of $1.6 billion for eligible safety net providers. RAND researchers say that these savings are small compared to the disproportionate share hospital payments and primary health care grants that play a large role in financing care in the safety net. However, some estimates suggest that the size of the program could double under provisions in the federal Affordable Care Act. Formulas used to calculate drug prices are based partly on proprietary information, which can make it difficult for health care providers to know whether they can negotiate a lower price for drugs through another source. For more information, visit www.rand.org.

Last Updated 09/16/2020

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