Who benefits from drug discounts?

Aspirus Ontonagon Hospital, a small not-for-profit hospital in Ontonagon, Mich., last year generated about $1 million in revenue from a federal program that allows safety-net providers to purchase deeply discounted drugs.

With improved margins due to savings from the 340B drug discount program since 2011, the 18-bed hospital prevented closures of its emergency department, family practice clinic and skilled-nursing facility. It also filled new positions and expanded services to offer oncology treatment for the first time.

“We would not have been able to start oncology without 340B,” said William Wood, a board trustee for Aspirus Ontonagon Hospital, who called 340B participation a “major contributing factor” in the broader turnaround.

The hospital's turnaround is the kind of success story that makes the case for the 340B program, which was established by Congress in the early 1990s to help clinics and hospitals serving the poor and uninsured by allowing them to purchase certain outpatient drugs at up to a 50% discount and has since been expanded several times.

However, the 340B program has become controversial because of alleged misuse by some hospitals.

Critics say some hospitals may not be using the 340B savings and revenue they generate to improve care for the uninsured and indigent patients for whom the program was designed. Other providers have raised questions about whether physicians will alter prescribing patterns toward more expensive drugs to boost profit margins.

Hospitals in the 340B program purchase discounted drugs for any patient receiving medical care, not only those who are poor or uninsured, although Medicaid beneficiaries are excluded. The providers can then use savings or revenue generated from purchasing the discounted medications to enhance patient care and services for all eligible patients. It's up to the providers to decide how to use the savings.

The number of providers participating in the 340B program has significantly increased in recent years, and roughly one-third of the nation's hospitals now participate in the program.

There were 22,641 covered-entity sites participating in the 340B program as of July 1, nearly 37% more than the 16,572 covered-entity sites in 2011, according to the Health Resources and Services Administration, which oversees the program.

That growth has fueled questions among 340B critics, notably drugmakers, who have said they don't want to see the 340B program expanded to include inpatient drugs.

But groups representing 340B-eligible hospitals say the program is operating as lawmakers intended and that the growth is tied to an expanded eligibility provision included in the 2010 healthcare reform law. The provision expanded 340B eligibility to critical-access hospitals, free-standing cancer hospitals, rural referral centers and sole community hospitals.

“There are a lot more rural hospitals in the program,” said Ted Slafsky, president and CEO of Safety Net Hospitals for Pharmaceutical Access, a trade group that represents more than half of the participating 340B hospitals. “The evidence is that the hospitals are investing whatever savings they have from the program to help patients and to meet their indigent care needs.”

As eligibility has widened in recent years, both the pharmaceutical industry and hospitals have said that some changes may be needed to reform the decades-old program and prevent abuse by providers, drug manufacturers and contract pharmacies.

“There's obviously a lot of potential for abuse, and that's not what anyone wants,” said Lisa Swirsky, a senior policy analyst for Consumers Union.

The Government Accountability Office in 2011 recommended that HRSA tighten its oversight. That would allow the providers that need 340B savings to continue to operate, as well as prevent vulnerable patient populations from being negatively affected, she said.

But legislative changes such as requiring covered entities to use the drug savings directly on care for indigent patients “could hurt the folks they're trying to help,” Swirsky added.

The drug industry, however, believes that the 340B statute requires the discount to be passed on directly to uninsured, indigent patients. The program, they say, should provide these patients with access to prescription drugs.

“While there remains a need for this safety net program, there are rising concerns about the program in its current form,” said Matt Bennett, PhRMA's senior vice president of communications, in an e-mailed statement.

SNHPA and an alliance of trade groups representing drug manufacturers and others have recently published dueling websites addressing separate concerns about the 340B program.

The Alliance for Integrity and Reform—composed of drug companies and organizations, oncology groups and a pharmacy benefit manager—in May established

340Breform.org, which argues 340B savings should be used to directly boost access to medications for indigent and uninsured patients. SNHPA's Slafsky said the launch of that website contributed to SNHPA's decision to put together a report and publish its own website, 340Bfacts.com.

The organization issued its own recommendations for reforming the program. The recommendations included increased transparency of 340B prices and how hospitals use 340B savings, audits of drug manufacturers and more scrutiny of contract pharmacies that participate in the program.

U.S. Sen. Charles Grassley (R-Iowa) has joined in the criticism of the 340B program. Over the past year, he has requested information from stakeholders ranging from pharmaceutical trade groups to hospitals that were reportedly charging a mark-up on drugs purchased through the 340B program.

“Even if the 340B program allows this kind of upselling, that doesn't make it right,” Grassley said in a July 9 statement. “It also isn't right that we don't know how hospitals are reinvesting 340B revenue … They could use the money for uninsured patients or they could use the money toward building a new wing.

Follow Jaimy Lee on Twitter: @MHjlee

(This article has been updated to correct that the 340B drug discount program excludes Medicaid beneficiaries, not Medicare beneficiaries.