In 1992, the 340B drug pricing program was created for certain safety-net hospitals and clinics (like community health centers) to help low-income and otherwise vulnerable patients more affordably access medicines. Flash forward to today, and you’ll find pharmacy benefit managers (PBMs) have found a way to siphon money out of the program for their own financial benefit.
The 340B program works by letting hospitals and clinics buy outpatient medicines at a reduced price. Hospitals often still charge patients and insurers based off an undiscounted price of medicines though – meaning they are reimbursed at a higher price than they paid for the medicine. Hospitals pocket as profit the difference between the amount they are reimbursed and the discounted 340B price they paid.
While pharmacies were not mentioned in the law, today they are also profiting from the program by contracting with 340B hospitals and clinics. These contract pharmacies leverage their arrangements within the 340B program to boost their own bottom lines because they share in any profit hospitals generate from 340B medicines. These contract pharmacies have even been known to charge uninsured patients the full cost of a medicine even if the hospital bought it for the contract pharmacy at a 340B discount.
Today, large pharmacy corporations have flooded the program. Currently, over 33,000 distinct pharmacies participate in the 340B program. More than half of all 340B profits retained by contract pharmacies are concentrated in four companies: Walgreens, Walmart, CVS and Accredo.
That’s where PBMs come in. Because of vertical integration in the supply chain, PBMs now own the vast majority of pharmacies, meaning they also make a profit from contract pharmacy arrangements.
- Today, 46% of contract pharmacy arrangements are between 340B covered entities (hospitals and clinics) and pharmacies affiliated with one of the three largest PBMs (ESI, Optum, Caremark).
- The big three PBM-owned specialty pharmacies account for 26% of contract pharmacy arrangements.
- Nearly half of the top 25 companies on the Fortune 50 today generate profit from 340B.
Congress should be asking themselves: How did a program meant for safety-net hospitals and clinics become a PBM giveaway?
Comprehensive fixes are needed to make the 340B program work better for patients, and that includes policies that prevent for-profit corporations like PBMs from profiting off the program. Read more about our proposed changes here.
Nicole Longo
Nicole Longo is Deputy Vice President of public affairs at PhRMA focusing on Medicare, 340B, importation and more. She previously worked for a D.C.-based public affairs firm where she assisted a wide range of clients with communications efforts on everything from trade policy to agriculture policy to health care policy. Outside the office, Nicole can be found trying new restaurants (usually Italian), taking an occasional barre class and cheering on the Cincinnati Bengals.
Nicole Longo
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340B
PBMs/Insurance
How the 340B program became a PBM giveaway
How the 340B program became a PBM giveaway