• Does 340B hurt patients? Is it Obama’s fault?

    Writing in the WSJ, Scott Gottlieb makes it sound like the Affordable Care Act has spawned a monster in the 340B drug pricing program (“How ObamaCare Hurts Patients”).  Gottlieb claims that “ObamaCare is taking a rotten feature of the old system and making it worse.” The core of his complaint is the expansion of the program from about 90 hospitals initially to thousands of covered sites today, blaming the Affordable Care Act. But most of the expansion in the program occurred well before Obama took office or the ACA was signed. From the GAO:


    Where did this “rotten feature” come from?

    The 340B program was enacted as part of the larger Veterans Heath Care Act of 1992 with bipartisan support. Indeed, Public Law 102-545 passed by a voice vote in both the House and the Senate. Co-sponsors included Newt Gingrich. It was signed by President Bush in November 1992. When the Republican majorities created Medicare Part D a decade later, 340B wasn’t scrapped. This was Republican drug policy.

    Here is a description of the 340B program from a recent 8-0 opinion from the Supreme Court, Astra USA, Inc. v. Santa Clara County:

    Under §340B, added in 1992, 106 Stat. 4967, as amended, 124 Stat. 823, manufacturers participating in Medicaid must offer discounted drugs to covered entities, dominantly, local facilities that provide medical care for the poor. See §256b(a); §1396r–8(a)(1). The 340B Pro­gram, like the Medicaid Drug Rebate Program, employs a form contract as an opt-in mechanism.

    The Medicaid discount program was the price the industry paid to gain coverage for their drugs in Medicaid. One reason changes weren’t made in Part D was that the industry gained greater access to the Medicare market in 2006. These deals have (at least) two sides; Gottlieb conveniently fails to mention the quid pro quo.

    In 2011, the GAO described the program in a 54 page report. The main points (from the Executive Summary):

    1. “[A]ll covered entities reported using the program in ways consistent with its purpose.” But HHS/HRSA should audit much more effectively.

    2.  340b does not generally cause shortages:

    According to the 61 340B program stakeholders we interviewed, manufacturers’ distribution of drugs at 340B prices generally did not affect providers’ access to drugs. Specifically, 36 stakeholders, including those representing manufacturers, covered entities, and non-340B providers, did not report any effect on covered entities’ or non-340B providers’ access.

    3.  Shortages are limited to one particular drug (IVIG) and others only after significant price drops:

    The remaining 25, also representing a wide range of perspectives on the 340B program, reported that it affected access primarily in two situations: (1) for intravenous immune globulin (IVIG), a lifesaving drug in inherently limited supply; and (2) when there was a significant drop in the 340B price for a drug resulting in increased 340B demand. In both situations, manufacturers may restrict distribution of drugs at 340B prices because of actual or anticipated shortages. Stakeholders reported that restricted distribution of IVIG resulted in 340B hospitals having to purchase some IVIG at higher, non-340B prices. They also reported that restricted distribution when the 340B price of a drug dropped significantly helped maintain equitable access for all providers.

    My take: Gottlieb seems to be recycling a 2011 GAO Report and making it seem like it is mainly Obama’s fault. Gottlieb makes more interesting comments on oncology reimbursement, which I plan to discuss in a future post. HHS just published the 340B orphan drug rules in the Federal Register on July 23, 2013 and I need to read them carefully first.

    h/t Brad F.


    • Putting aside the (largely) bogus issue of who’s at fault, there are arguments to be made on all sides about whether to reverse or expand the program based, in large part, on now entrenched interests.

      340B was enacted at the time the Medicaid rebate (read price control) was created (by a Republican Administration) to protect certain institutions who might otherwise have lost discounted prices they’d long had.

      What can’t be argued is that 340B does not limit its benefits to needy patients — institutions qualify not patients. What also can’t be argued is that there is no free lunch. Someone is paying for these discounts.

      Today, the 340B program represents another case of health care cross-subsidies, unintended consequences, and distorted incentives. Any serious examination of its future should start with understanding its origins, its current impacts, and whether we can even agree on what its goals should be.

    • I have worked some on 340B for a consulting company’s pharma clients. I’d like to offer some additional info:

      1. 340B limits the types of entities that can qualify. It covers critical access hospitals, FQHCs, some specialized clinics, and disproportionate share hospitals. FWIW, I agree with Gottleib that it’s questionable that UPenn and Duke hospital are in on 340B, since academic medical centers tend to be basically for-profits. But like many academic medical centers do take a large share of Medicaid patients. From his tone he makes it sound like all the hospitals in America are on 340B, but the list of covered entities is MUCH larger than hospitals.


      2. 340B covers outpatient drugs.

      3. Drugs are very expensive. In my opinion, drugs are the best racket in healthcare. 340B pushes down the price of some drugs in a rather scattershot fashion. Drug manufacturers hate the program, and Gottleib consults for them, so of course he would say that he hates the program!

      Disclosure: I, like Gottleib, currently invest in and have consulted for pharma companies. Therefore, I can say firsthand that pharma is the best racket in healthcare, and possibly in the whole economy. I would love to do away with 340B and have some sort of government rate setting.

    • Oh, and on page 24 and a couple of other places in their 2011 report, GAO says that there are documented instance of manufacturers overcharging covered entities for the drugs.


      So, misconduct goes both ways.

    • You guys are slow learners. Don’t you yet understand that everything bad that has happened since 1776 is Obama’s fault.

    • During the era of the IGG shortage, I was a member of the Formulary Committee for a large multi-hospital healthcare system. It represented a sentinel event because we initiated a rationing system to be sure that there was supply always available for the small population of patients with a hereditary IGG deficiency. This required a policy and decision process supported by wide-spread transparency, collaboration and trust within the medical staff. The event also led to an assessment of the shortage cause. To generate supplies of IGG, the companies producing this product also generated large supplies of Albumin. During that time, the use of albumin nationally dropped precipitously. With large supplies of albumin, the production of IGG was reduced to a level that would prevent unsold albumin. The shortage was basically a marketplace issue. Most importantly, our hospital system never ran out of IGG, and we set a small but widely supported precedent for the requirements of managing limited resources.

      Interestingly, there was only one exception to the basic Policy. It involved the use of a small dose of IGG for a toddler who might have had Kowasaki Disease. The exception was made at 2:00 AM one morning based on the ethical standard of “greater good.” That is, a small dose to prevent the risk of life-long coronary artery disease.
      The Policy required that any exception be reviewed to ensure that the unpredictable character of healthcare was honored but not allowed to subvert the provisions of the Policy.