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A controversial study says hospitals aren't investing 340B savings in low-income populations. Here's our take.

Read Advisory Board's take on this story.

Hospitals that are eligible to receive discounted drugs through Medicare's 340B drug discount program have not allocated their savings in ways that have shown a clear benefit for medically underserved populations, according to study published Wednesday in the New England Journal of Medicine.

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Background on 340B

The 340B program requires drug manufacturers to provide outpatient drugs to eligible health care providers at discounts ranging from 20% to 50%. Participating providers are expected to use savings on patient care and services.

However, the program has come under scrutiny, with some questioning the amount of charity care participating hospitals are providing. In addition, Republicans on the House Energy and Commerce Committee earlier this month released a report in which they raised concerns about the federal government's lack of authority to adequately oversee the 340B program. The report authors said the 340B statute does not set requirements for how covered entities should report or use savings generated from the program.

As a result, the report stated that some hospitals are not tracking how savings are used under 340B, which the authors said raises concerns over whether the program is benefiting low-income and uninsured individuals, as was intended under the program. About 40% of U.S. hospitals are eligible to participate in the program.

Study details

For the study, researchers Sunita Desai from the NYU School of Medicine and J. Michael McWilliams from Harvard Medical School reviewed Medicare claims data spanning five years from general acute care hospitals with 50 or more beds that fell slightly above or below the 340B program's 11.75% disproportionate share hospital (DSH) eligibility threshold.

The researchers focused on specialties that frequently administer outpatient parenteral drugs, or intravenous and injectable drugs, covered by 340B, such as hematology–oncology and ophthalmology. The researchers also analyzed the program's effects on quality improvements and mortality rates for low-income patients.


According to the study, the researchers found "no evidence of hospitals using the surplus monetary resources generated from administering discounted drugs to invest in safety-net providers, provide more inpatient care to low-income patients, or enhance care for low-income groups in ways that would reduce mortality." Specifically, the researchers found hospitals in the 340B program did not:

  • Admit more low-income patients;
  • Improve quality in ways intended to lower mortality rates in surrounding low-income communities—at least to the point that the researchers could determine from the available data;
  • Increase levels of spending or staffing at health centers; or
  • Invest or integrate with community health centers serving low-income patients.

Instead, the researchers wrote that hospitals "eligible for the 340B Drug Pricing Program have responded to program incentives by increasing the outpatient provision of parenteral drugs and, in the case of hematology–oncology, by employing physicians or acquiring physician practices"—which the researchers said are practices that would help hospitals generate profits.

In particular, the researchers found hospitals participating in 340B were employing more hematologist–oncologists, ophthalmologists, and rheumatologists, and that the increased consolidations and physician recruitment in those specialties drove a corresponding increase in the administration of drugs covered under the program.

At the same time, the researchers found that hospitals participating in 340B began treating lower shares of low-income patients. The researchers said the 340B program "strengthen[ed] the incentives for hospitals to supply drugs to patients who have generous insurance coverage" by "prompt[ing] eligible hospitals to treat more Medicare patients who are more likely to have private supplemental insurance to cover the 20% of … drug costs that is not covered by Medicare."

The researchers wrote that the findings indicate hospitals' use of savings generated under the 340B program is "contrary to the goals of the program and [has] a number of important policy implications." The researchers wrote, "In general, policies that are intended to improve or expand care for medically underserved populations may be ineffective if they rely on indirect mechanisms with weak incentives, such as the cross-subsidization that the 340B program intends for hospitals to implement."

Further, the researchers wrote that HHS' recent cuts to hospital payments under the 340B drug program "could slow hospital-physician consolidation, while not adversely affecting care for low-income patients served by general acute hospitals."


McWilliams said the findings point to "a case of incentives dominating intentions." He continued, "Expanding resources to care for the underserved is a laudable goal," but "we need policies that achieve that goal more directly, without distorting incentives to provide drugs and without relying on hospitals to subsidize care for low-income patients when they are given no incentive to do so."

340B Health, a group with 1,300 hospitals enrolled in the drug discount program, in a blog post called the findings "misleading," noting that the study excludes about one third of 340B hospitals with a DSH adjustment percentage greater than 21.75%, as well as other large institutions responsible for treating a significant volume of low-income patients. Further, the post states, "The study is based on a flawed understanding of the 340B drug pricing program's purpose and intent," which Congress stated is "'to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.'" The group in the post wrote that the study's findings also "fail to recognize other market trends at play causing consolidation of care."

The group wrote that "340B hospitals continue to use their program savings to support care to their low-income and rural patient populations, just as Congress intended when it created the program," adding, "As policymakers evaluate the 340B program, it is important to recognize the many, diverse ways hospitals use the 340B benefit to support patient care" (Minemyer, FierceHealthcare, 1/26; Managed Care Magazine, 1/25; O'Brien, HealthLeaders Media, 1/26; Harvard Medical School release, 1/24; Desai/McWilliams, New England Journal of Medicine, 1/24; 340B blog post, 1/25). 

Advisory Board's take

Lindsay Conway

Lindsay Conway, Managing Director

There are major caveats that I think are needed to the NEJM article's analysis of the 340B program.

1. The program, on its own, doesn't seem to drive doctor-hospital consolidation. Physician-hospital consolidation is a much larger trend than just the 340B program or specialties administering 340B drugs. It is an industry wide trend that crosses physician specialists. 340B pricing may have greased the wheels of some hematology and oncology practice acquisitions, but 340B, in and of itself, isn't sufficient to motivate most physicians to sell their practice to the hospital. Most of these deals are motivated by other factors, such as reimbursement cuts, the growing risk associated with buying and billing for Part B drugs, and even physicians' retirement plans. As evidence, I would point to the fact that 340B was created in 1992, but we didn't really see hospital acquisition of hematology and oncology practices pick up until after 2005, when Medicare cut physician reimbursement for Part B drugs.

2. There's insufficient data on care provided by 340B hospitals. As the authors state, there is a lack of evidence that 340B hospitals use 340B savings to expand patient services. But there also isn't any evidence to prove the opposite point, i.e. that they don't use 340B savings to offset the costs of uncompensated and under-compensated care. 340B hospitals just haven't been asked to report on their services in a standardized way, and community benefit reporting is so inconsistent that it's hard to derive meaningful data.

3. Cancer survival is a questionable metric for evaluating the 340B program. There is no correlation between spending on cancer care and patient outcomes. The truth is that we know very little about what factors consistently extend survival across patients with different cancer diagnoses. Certainly routine screenings, access to care, and evidence-based treatment are critical, and hospitals should use their 340B savings for to ensure they are meeting the needs of their communities. But there are many other factors—many of which are still poorly understood—that impact cancer patient outcomes.

Next week: Get strategies to manage cancer program margins

Join us for a webconference on Thursday, February 8 to learn cancer programs' top opportunities for improving margin management. We'll cover strategies to contain cost growth, maximize revenue capture, and identify profitable growth opportunities.

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