The 340B Program’s Recent Changes Impact a Critical Program for Community Health Centers

By Loren Anthes, Head of Policy and Programs at Yuvo Health

Many safety-net providers have lower margins because the population they serve may not have insurance coverage or rely on public insurance like Medicaid and Medicare, which typically reimburse at lower rates than commercial insurance. To help support these providers in delivering care, the 340B program was created in 1992. The 340B program gives discounts on outpatient drugs for providers serving low-income communities, including safety-net providers like community health centers (CHCs), to ensure access to life-saving medications for the millions of patients they serve.

However, on January 30, 2023, a three-judge panel ruled in favor of drug manufacturers — restricting providers’ use of community and specialty pharmacies to dispense drugs in the 340B drug discount program. As a result, many CHCs will be impacted not only in terms of finances, but in ensuring the needs of their patients are met.

(You can read a summary of the changes to the 340B drug discount program in the National Association of Community Health Centers’ report and infographic.)

In recent years, manufacturers have led the charge to diminish the 340B program and mute the providers’ ability to keep drugs cost effective for their patients. In the January 30 court case, the manufacturers focused on contract pharmacies. These contract pharmacies often provide a means for smaller organizations without in-house pharmacies to access discounts. Recent rapid growth in the number of contract pharmacies made oversight of their participation within the 340B program more difficult to manage. Many large pharmacy chains have started to participate as a result.

It’s a valid policy concern that 340B’s benefits may be going to entities not primarily focused on the marginalized population the program intends to serve. For example: According to a 2018 report from the United States Government Accountability Office (GAO), many hospitals do not provide discounted drug prices to individuals who filled their prescriptions at the hospital’s contract pharmacies. This happens because 340B funds come from the difference between market-rate pharmacy reimbursement (paid by Medicare or private insurance) and the drug’s discounted price from the manufacturer. As a result, people with coverage often pay higher prices at the contract pharmacy, which generates 340B rebates to the provider. Additionally, with the growth of large chain pharmacies becoming contract pharmacies, profit margins have been as high as 15 to 20% with benefits growing in size from from $9B to nearly $20B per year between 2014 and 2019.

But when looking at the data, CHCs are the organizations with the greatest financial risk from this recent decision about 340B — and the organizations who have not exploited its potential for direct financial gain.

While the relationship between certain types of hospitals and contract pharmacies has grown, CHCs account for less than 2% of these arrangements and account for 13% of purchases. And as opposed to hospitals, who generate two-thirds of revenue from commercial insurance, CHCs usually have more uninsured than they have privately insured patients, with nearly half covered by Medicaid. This is but one reason why the Department of Health and Human Services and the Health Resources & Services Administration have been ardent supporters of the 340B program, particularly for CHCs. In fact, they recently stated they disagree with the recent decision despite other recent District Court rulings in support of safety net providers.

In the end, the shift in the program has deep implications for CHCs’ financial health and patient wellbeing. The 340B program enables health centers to be more financially solvent and ensure their patients have access to the medications they need to manage their primary care. And while there may be some need to reform pharmacy policy — particularly to protect consumers from price increases on the part of manufacturers — the change may lead to many forgoing care and further constrain safety-net providers from serving their community.

It is with this in mind Yuvo Health stands with its CHC partners and the patients they serve in expressing frustration and concern over the court’s recent decision. In addition, given the challenges that CHCs may face, the Yuvo team stands ready to explore every contractual opportunity to recoup any losses or continuum interruptions this may cause and will work to ensure providers and their patients are protected.

Loren Anthes is Head of Policy and Programs at Yuvo Health, as well as an industry-renowned health care policy expert with experience in the public and private sectors, particularly in Medicaid. With a career spanning nearly 20 years, he offers public- and private-sector experience with the legislative and executive branches of local, state, and federal governments, which includes serving as manager of state and local government relations for The MetroHealth System and working for the Ohio Department of Medicaid. Currently, Loren serves as a Visiting Fellow in Value-Based Health Care for The Center for Community Solutions, a nonpartisan think tank focused on solving health, social, and economic issues in Northeast Ohio.