340B Program Drug Pricing
The 340B program emerged in the early nineties under the Bush administration to provide a pharmaceutical purchasing reductions for specific covered entities. In essence, pharmaceutical manufacturers were asked to provide discounted drug pricing to private, non-profit or government-owned institutions where high drug costs can be detrimental to the intended public service. More specifically, children’s hospitals, cancer centers, HIV clinics and hospitals in an economically indigent region are among the prime beneficiaries of this special drug pricing.
340B drug pricing is a negotiated process between pharmaceutical companies and the government where sometimes cost reductions can be immense. It is safe to assume that 340B savings can show 30-50% reductions comparative to retail cost. Keeping this in mind, the true economic edge of the program lies on the back end with the billing process. No insurance can differentiate between a 340B drug and a non-340B drug, therefore the price is adjudicated at average acquisition cost (AAC) at all times. This is the intended design of the program: Let the pharmaceutical industry concede profits to permit the entity to bill insurances at AAC and increase savings.
The process is defined under the Public Health Service where the Pharmaceutical Pricing Agreement (PPA) was instituted. In exchange for front-end 340B pricing, the prescription formularies for government funded Medicaid and Medicare agreed to reimburse for brand-name medications, such goes for the PPA.
The limitations to the PPA for entities lies in the concept of double dipping and outlines specific requirements for each patient. Primarily, 340B medications may not be used for any patient who is covered under Medicaid thereby stating that any such usage is considered a “duplicate discount”. It is the responsibility of the entity to determine patient specific eligibility to maintain good faith status.
The 340B program has undergone little changes in its lifetime. Recently, the government prevented covered entities from using a group purchasing order (GPO) account in addition to its 340B account. GPO accounts are designed for the benefit of both pharmaceutical companies and entities where the company provides a wholesale-type discount to the entity under the assumption that the entity will purchase large volumes of their brand. The GPO discount typically does not yield as large of a profit margin as the 340B account and as a result, most systems elected to retain their account.
The initial program design provided the entities with an opportunity to balance high cost pharmaceuticals within an indigent atmosphere. However, with an increasing indigent population, the program is becoming mainstream in the financial infrastructure of the entities across the country. This being said, the 340B program is likely to gain greater attention and the sooner an entity can benefit, the better. With the introduction of the ACA and the increase in 340B covered entities, pharmaceutical industries will certainly begin to take notice and a revision of the PPA could be on the horizon. Money talks, and big pharma has a lot of it.