Source: Colorado Sun

January 22, 2025

Colorado is on the verge of a massive fight at the state Capitol over a multibillion-dollar federal health care program you may have never heard of.

The program goes by the super-unsexy name of 340B, and it pulls together a battle royale of health care industry heavyweights: hospitals versus pharmaceutical companies versus pharmacies versus insurers.

Advocates on various sides of the issue have already started sponsoring panel discussions and buying up ads (one of which appeared this week in The Colorado Sun’s politics newsletter, The Unaffiliated). And that’s before the legislation this fight is all about has even been introduced.

So what the heck is 340B? It’s a prescription drug discount program that benefits hospitals that treat a lot of people covered by Medicaid, the state and federal insurance program for people with lower incomes or certain disabilities.

How 340B works

340B is part of the duct-tape-and-chewing-gum system the federal government uses to help those hospitals make up for the fact that Medicaid generally doesn’t pay them enough to cover what it costs to provide services.

Pharmaceutical companies are required to participate in it and offer discounts to eligible hospitals if they also want to participate in the Medicaid system. Hospitals become eligible by having a certain percentage of their patients covered by Medicaid. Other than the costs of administering the program, the federal government doesn’t spend any taxpayer dollars on it.

The program requires manufacturers to allow eligible hospitals to buy certain drugs at a steep discount. The discounts apply only to outpatient drugs — prescriptions dispensed at a pharmacy for patients to take home.

Hospitals can still charge patients and insurers their normal rate for the drug, meaning the discount creates a lot of extra money for the hospital.

This can translate to millions or tens of millions of dollars per year for a hospital, allowing it to boost its bottom line and also provide community benefits, including charity care and drug savings programs.

Hospitals say the program is vital

Because many of the hospitals that participate in the program run on thin margins — the result of treating so many Medicaid patients — the money from 340B can be critical.

Chris Thomas, the president and CEO of Community Hospital in Grand Junction, said 340B brings in $12 million to $14 million a year for his hospital. His overall year-end profit margin is much less, in the low single-digit millions. So seeing a cut in 340B could be devastating.

“This is the difference between Community Hospital being, I guess, an ongoing entity,” he said.

The Colorado Hospital Association estimates the benefit of the program in Colorado stretches into the hundreds of millions of dollars. Nationwide, the benefit of the discount compared to wholesale price in 2023 was close to $60 billion.

The 340B controversy

So why the controversy around the program?

Though it has been around since the early 1990s, it has grown enormously in a short time. In 2023, there were more than $66 billion worth of discounted purchases through the 340B program, up 50% from just two years prior.

Over the years, Congress has expanded the kinds of hospitals and health care facilities that can participate in the program. And those providers have contracted with a bigger number of pharmacies, making even more sales subject to 340B discounts. It’s the growth of these so-called contract pharmacies that fuels the fight.

Kevin Forbush, the 340B program director for the Intermountain Health hospital system, said some hospitals don’t have in-hospital retail pharmacies where patients can pick up a prescription upon discharge. That means the hospital would need to contract with an outside pharmacy to get the patient their meds.

Contracting with a variety of pharmacies also allows patients to get their medications closer to home or through a pharmacy OK’d by their insurer, Forbush said. And, because of vertical integration, hospitals now must contract with whole pharmacy networks, bringing a lot of pharmacies into the program.

According to a fact sheet by the pharmaceutical lobbying group PhRMA, Colorado has roughly 60 hospitals participating in the 340B program. But those hospitals are linked with more than 1,000 contract pharmacies, some of which are based out-of-state.

Critics claim abuse of the program

To many in the pharmaceutical industry, these contract pharmacies bloat the program and distort its intent. And that’s just one criticism of how the program has evolved.

Critics also say the benefits some hospitals receive from 340B far outweigh what the hospitals provide in charity care. They say the program gives hospitals an incentive to “buy low and sell high” when it comes to drugs — pushing drugs with the biggest discounts. And they question whether all of this really helps patients.

“Today, the 340B program has become less about patients and more about boosting the bottom lines of hospitals and for-profit pharmacies,” PhRMA writes on a website devoted to the issue.

“We don’t want to see the program go away,” said Katelin Lucariello, the deputy vice president of state advocacy at PhRMA. “We support the program as it was originally intended.”

To back up their position, PhRMA cites several studies (at least one of which was commissioned by the organization) that found outpatient prescription costs are higher at 340B pharmacies than at non-340B pharmacies — suggesting that hospitals may be benefitting from the program’s discounts, but patients aren’t.

The New York Times recently published an investigation of a little-known company that works with hospitals to maximize their take from the program.

“For commercially insured patients, they typically have no idea they’re being dispensed a 340B drug,” Lucariello said. “They’re often paying the same amount they would pay through commercial insurance. They’re not getting any kind of discount on their medicine.”

The legislative battle

Both hospitals and pharma groups say fixes are needed at the federal level to solve the big problems. But, without that, a testy back-and-forth has emerged at the local level that is dragging in state legislatures.

In response to the expanded number of pharmacies selling 340B drugs, pharmaceutical manufacturers have started trying to limit hospitals’ use of contract pharmacies. In response to that, some states have passed laws blocking pharma companies from limiting the use of contract pharmacies.

And that brings us back to the coming fight in Colorado.

The Colorado Hospital Association and its member hospitals this year are planning to push a bill that would prohibit limits on contract pharmacies in the state. Pharma companies are expected to fiercely oppose. In other words: Expect a lot more ads.

“This is going to be a fight at the Capitol,” said Zach Zaslow, the vice president for advocacy and community health at Children’s Hospital Colorado. “This is going to be a contentious conversation.”