Introduction to Episode 448 Part One
[00:00:02] Stacey Richter: Episode 448, Part 1. Today, I'm Talking About 340B With Shawn Gremminger, Where It Started, Where It Is Now, And Who Is Really Benefiting From This Massive Program.
To listen to this episode or read the show notes with links mentioned, visit the episode page.
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Overview of the 340B Program
[00:00:31] Stacey Richter: So after some pondering, I decided to release this conversation with Shawn Gremminger about 340B in two parts. So listen to one, listen to both, pick your poison. Shawn Gremminger came up with three really important takeaways relative to 340B, which is a feat unto itself considering how sprawling this conversation can be.
So if you came here for some concise and actionable takeaways you have come to the right place. This first part you are listening to right now, zeros in on Shawn's first takeaway.
The Original Intent of 340B
[00:01:02] Stacey Richter: Whether or not the original intent, or the presumed original intent, of the 340B program has actually been met. Many do not realize that 340B began life as a caterpillar.
It originally, actually, was conceived as a lowly bureaucratic fix. But over the past 15 years, it has gone into a chrysalis and emerged into a 500 pound gorilla that sits in the corner of a lot of rooms, actually. Probably more than many people realize. All of that being said, when you're done listening to this first part of the convo, you should be able to competently assess whether or not 340B does, in fact, adequately help underserved communities get better healthcare.
Because 340B is supposed to help safety net healthcare providers stretch scarce resources. The second part of the show, which is a separate episode called Part 2, is how all of this impacts employers and commercial plans. And there's two more takeaways there.
So if you already have the gist of how we got from the beginnings of 340B to where we are in 2024 already. And all you want to hear about is why do employers care about what amounts to a low income program or was purported to be a low income program? Feel free to zip over to the second show and cut to that chase. If you're still with me for this Part 1, and I hope you are, because wow, it's a wild and tangled journey.
Here's an outline of where this first part of the discussion is headed. So for the sake of posterity and having this introduction transcribed in your inbox, here you go. Here's the outline.
Expansion and Misuse of 340B
[00:02:42] Stacey Richter: First, Shawn describes how the program expanded over the years due to the rise of Medicaid enrollments and hospital consolidations.
Which leads to more hospitals that will qualify for 340B status. Hospitals and others that qualify, by the way, are called Covered Entities or CEs. This expansion, and other goings on, such as hospital systems linking many outpatient clinics to their 340B eligibility, and also for profit contract pharmacies getting in on the game and exploiting weak patient definitions, All of this has contributed to widespread use, which some may consider misuse, of the 340B program, significantly altering the healthcare market.
Today, 340B is the second biggest drug buying program in the country, after Medicare Part D, to the tune of 53 billion dollars running through it.
Financial Implications and Lack of Transparency
[00:03:31] Stacey Richter: After that, Shawn goes on to point out that there's no statutory requirement for hospitals to reinvest 340B proceeds into charity care or community services.
So the program is supposed to allow hospitals to arbitrage dollars and put those arbitrage dollars into charity care, but yeah, there's no mechanism to track what they're doing with the money. Resulting in a lack of transparency and accountability regarding the financial benefits gained from this program.
And all of this wraps up with Shawn contending that while the original intent of the 340B program might have been well meaning, the current implementation raises serious questions about its effectiveness and fairness. So, significant reform is in order, question mark. Mentioned in this episode is Adam Fine from the Drug Channels Institute, link in the show notes to some of his comments on 340B. And also a new report out from Neil Masia and Health Capital Group.
Guest Introduction: Shawn Gremminger
[00:04:29] Stacey Richter: Shawn Gremminger, my guest today, is the relatively newly installed president of the National Alliance of Healthcare Purchaser Coalitions. But rounding out the why, as in why did I ask Shawn to come on the show today and talk about what is or was supposed to be a program for low income adults and children, Shawn started his career doing government relations for the Children's Hospital Association. He spent nine years at America's essential hospitals, which represents the big kind of urban safety net public hospitals around the country. And since then, he has been in a number of different roles representing consumers and employers.
So he's seen this 340B juggernaut from many perspectives, I guess, is the main point. And it's a big point because it was hard with a capital H to find a guest so situated.
My name is Stacey Richter and this podcast is sponsored by Aventria Health Group.
Shawn Gremminger, welcome to Relentless Health Value.
[00:05:23] Shawn Gremminger: Delighted to be here, Stacey. Thank you.
Detailed Discussion on 340B
[00:05:25] Stacey Richter: So today we're going to talk about 340B. We had talked earlier and you had come up with what I'm going to call three takeaways.
Just three ways to kind of organize what's going on with 340B, which I think is really necessary in a conversation that can be such a hairball. I mean, this is such a big, many pronged demon of a topic. So the first takeaway that you had put forth is that, kind of exactly what I just said. That the intent of the program is different from what has wound up happening.
So maybe we just begin at the beginning. What do many people think that the intent of the program is?
[00:06:08] Shawn Gremminger: So despite the program being, oh, let's see, 32 years old, created back in 1992, what is the original intent of 340B continues to be a significant area of debate. So the place that most people go back to is a line that you will actually find on HRSA's website.
So HRSA actually oversees this program and in this line that's often repeated is that 340B is designed to help covered entities, so safety net providers that participate in 340B, quote, "stretch scarce federal resources as far as possible, reaching more eligible patients, and providing more comprehensive services".
So a pretty broad definition of what 340B is supposed to do. What people don't realize, and I think sometimes very much intentionally, is that that line is actually taken from the last paragraph on the 12th page of a 32 page committee report issued by the Energy and Commerce Committee when it originally passed 340B's statute out of the committee.
[00:07:05] Stacey Richter: Okay, so let me just, let's just recap because, yeah, plot twist. Alright, so in 1992, that's when 340B started and it was under the domain of HRSA, H R S A, which stands for?
[00:07:21] Shawn Gremminger: The Health Resources and Services Administration.
[00:07:24] Stacey Richter: And that's a part of CMS?
[00:07:25] Shawn Gremminger: It is actually not a part of CMS, uh, it is its own agency.
The primary role of HRSA actually is to oversee, it does a number of different things, but its biggest area of focus is to actually oversee the community health center program.
[00:07:37] Stacey Richter: Okay, so HRSA decided, or conventional wisdom holds, that the intent of HRSA allegedly began 340B to stretch scarce federal resources as far as possible to reach more eligible patients and providing more comprehensive services.
So like, that's what is commonly held as the beginning of 340B under the purview of HRSA. And what you're basically saying is, hmm, not so fast there. That where that sentence actually came from was from the Energy Committee. The Energy and Commerce Committee on the 12th page of something else.
[00:08:21] Shawn Gremminger: Correct. So if you go back and read, and anybody who really wants to learn a lot about 340B, I recommend actually reading that full committee report, all 32 pages of it. Because what you'll find...
[00:08:31] Stacey Richter: The Energy and Commerce Committee report.
[00:08:34] Shawn Gremminger: Correct. What you'll find is that the creation of 340B was actually basically a technical correction to fix the unintended consequence of a law that Congress had passed two years earlier. So in 1990, it's amazing to think about, about how long these same debates occur, Congress had passed an omnibus budget reconciliation act in which the budget resolution told the Energy and Commerce Committee, which oversees parts of Medicare and Medicaid, to find savings in the Medicaid program.
And at the time the committee decided that the way to do that was to actually create what we now know as basically the Medicaid pricing regimen that still currently is in effect. So Medicaid effectively has to get the best price available on prescription drugs in the outpatient side.
So people are very familiar with sort of Medicaid rebates and the fact that Medicaid is able to purchase at a lower price. What happened was an unintended consequence that nobody really raised in 1990, which is, drug manufacturers had previously, voluntarily, been giving certain safety net providers, in particular community health centers and large public hospitals, a discount on their drugs.
They did that, you know, perhaps out of the goodness of their own heart, or perhaps because they thought it looked good, but those key sort of safety net providers were able to purchase drugs at a lower price. Once OBRA in 1990 went into effect, those prices, those voluntary price discounts became effectively the best price, which meant that those manufacturers had to sell those drugs to all of Medicaid at that lower price.
So not surprisingly, the manufacturer said, well, I'm not going to do that anymore. I can afford to do it for a couple of safety net providers, where I have a relationship, but I can't afford to do it for all of Medicaid. So they stopped offering those discounts. Which meant for community health centers and public hospitals, their underlying cost basis for the price of drugs jumped dramatically. Right? So, they started lobbying Capitol Hill to say, we need to get this fixed.
[00:10:34] Stacey Richter: Recapping what you just said there, Medicaid has to get best price, it's a thing, it's called Medicaid best price. Everybody that you talk to that has anything to do with a pharmaceutical manufacturer is going to know that very well. And pharma does a lot to ensure they're not doing anything that would inadvertently have them selling a drug at less than the best price. Because the second that they do that, if Medicaid figures it out, they have to offer it to entirety of Medicaid. So they're really careful not to violate the best price.
Meanwhile, we had them prior to 1990, the pharma manufacturers who were, you know, kind of charitably, I guess, selling the drug at discounted prices to about a hundred, I think, safety net hospitals and some health clinics. Suddenly, they were like, yeah, we can't do that anymore. And then you had the safety net hospitals and the health clinics who suddenly got themselves into a financial pickle, right? So they exactly like you said, they lobby Congress. The Energy and Commerce Committee puts together this 32 page report fixing that best price problem. Did I kind of get that right?
[00:11:38] Shawn Gremminger: Yeah, that's exactly right. They built it into actually another bill that was also providing discounts for the Veteran Affairs Department.
And so this was very much sort of an add on to say, okay, well if we're doing this for VA, let's make sure we are taking care of these safety net hospitals and these community health centers. We will have this new statutory discount that applies just to them. That way it's not violating Medicaid best price. But it is sort of holding those hospitals harmless so they aren't seeing this big jump in their price of buying drugs.
[00:12:06] Stacey Richter: So hilariously, or ironically, or I'm not sure what the right adverb is there, but like, even within the space of two years, this program is misunderstood.
[00:12:17] Shawn Gremminger: 100%. And so, yeah, it was really, it was a technical fix.
And if I can sort of flash forward for just a moment, for a long time, it was, relatively well targeted. Community health centers participated, other HRSA grantees, so like Ryan White AIDS clinics, and black lung clinics, and etc, participated. And this sort of select group of core safety net public hospitals, of which, if you read the Energy and Commerce Committee report, they think that 90 or 100 hospitals would qualify. That's kind of where the program sat, and continued to operate for, you know, 10 plus years.
[00:12:53] Stacey Richter: So we have, for about a decade, the program, despite it not being for what two years later they said it was about, right? It kind of is fulfilling that, that secondary mission, which sounds a whole lot better than fixing a technical error in our Medicaid best price bill, right?
You know, this whole idea of stretching federal resources to help underserved communities. That is a noble and worthy cause for about 10 years. It goes pretty well, then what starts to happen?
Hospital Consolidation and 340B
[00:13:26] Shawn Gremminger: So, starting in kind of the mid 2000s, we start to see a significant growth in the size of the program. And that occurs for a number of different reasons.
So the first one is that far more hospitals started to qualify for 340B. Again this goes back to some complexity in the program. The way that the HRSA grantees qualify is just under statute. If you're an FQHC, you get 340B, period, right? If you are an acute care hospital, however, you have to qualify under a different metric.
One of them is you have to be not-for-profit, so tax paying, for-profit hospitals are statutorily not able to participate in 340B. But the other thing is you have to serve, effectively, a disproportionate share of low income patients. So they have what's called a DSH adjustment, that every acute care hospital has a DSH adjustment number, and you can kind of see where they fall on sort of the spectrum of what I'll call safety netness, right?
Interestingly, the way that the DSH adjustment is calculated is it looks at your number of Medicaid patients and your number of low income Medicare patients, which are defined as Medicare patients that qualify for SSI, Supplementary Security Income, kind of divided by your total number of patients, right? So it's a percentage.
What's interesting is the qualifying metric does not look at your uninsured numbers. So, if you're a hospital that is treating uninsured people, and that, that, let's say an uninsured individual, and that person converts into Medicaid, right, they get picked up by Medicaid, interestingly, your DSH adjustment, your hospital qualification, goes up a little bit.
So, in 1992, there weren't that many hospitals that qualified for 340B. The DSH adjustment is set at, it's kind of a random number, but it's 11.75%. Over time, states on their own have expanded their Medicaid program and then particularly under the Affordable Care Act, as we know, a significantly larger number of people started going into Medicaid.
So it's good news for the country, right? Fewer uninsured people, more Medicaid people. But what that means is that a whole bunch of hospitals that might have had a DSH adjustment of 8, 9, 10, 11 percent are now sitting at 12, 13, 14, 15 percent and all of them suddenly go from being not 340B eligible to being 340B eligible.
So the percentage of hospitals qualifying for Medicaid dramatically increased. The percentage of people in the country that are in the Medicaid program has increased by two and a half fold since 1992. And what that means is that today, if you include rural hospitals, which have a somewhat different way of qualifying for, for 340B than other hospitals, more than half of the acute care hospitals in the country now qualify for and participate in 340B.
[00:16:19] Stacey Richter: So if I am interpreting what you're saying, that DSH number, as you, as you called it, that was sort of set arbitrarily. Like probably somebody back in the day looked at how many people they thought might make sense to be in the 340B or to qualify for 340B, whatever that ratio should be. They set the number based on the environment at the time, then nobody changed that number, but the underlying scenario changed such that a whole bunch of new people enter Medicaid, which as you said, I mean, it's, you know, I don't, I don't want to be a first world country that has a whole lot of people who cannot get healthcare.
So it's great people have access to healthcare and are insured, but nobody looked at that arbitrarily set number. So now all of a sudden you have half the hospitals in the country that are qualifying, which really changes the underlying economics of this program.
[00:17:19] Shawn Gremminger: Yeah, that's exactly right. And I think you're right. The number was, set arbitrarily, probably based on a, target in 1992. Say how many hospitals do we think we want to have qualified? And let's set a number that sort of hits that number. So, again, because they didn't think to go back and readjust the number, suddenly so many more hospitals now qualify.
So that's probably, that's by far the biggest reason for 340B program growth, but there are some others that I think are really worth noting because they help us understand why the program has become what it's become.
[00:17:48] Stacey Richter: Okay, so one big reason for the growth of 340B is just that there's so many new covered entities, entities that qualify for 340B, given the growth of Medicaid, which because the consolidated entity eligibility is determined by how many Medicaid patients someone has as a percentage.
When the uninsured patients get Medicaid, suddenly there's many more institutions that qualify. But okay, let's go there. Let's talk about number two big reason why 340B program has expanded.
[00:18:23] Shawn Gremminger: Another big area, and I know you've talked about this on the podcast in the past, is hospital consolidation and the proliferation of sort of outpatient clinics, right?
Since 1991, the way that we deliver care in the United States has shifted substantially from the inpatient side to the outpatient side. Which is actually, I think, good news, right? So, just like covering more people under Medicaid is good news compared to having them uninsured. Moving people out of kind of the expensive and often sort of relatively dangerous inpatient side of a hospital into an outpatient setting is a good thing for patients.
But one of the things I didn't mention at the beginning is that 340B only qualifies for outpatient drugs. Hospitals don't get a discount on their inpatient drugs. So as more people, more patients have moved from inpatient settings to outpatient settings, that's more people that are now eligible for being in 340B.
As hospitals have moved towards outpatient settings, again good news, they've also, as you know very well, consolidated substantially, buying up physician practices all over the country to the point that now you drive around any suburb in America and it feels like every what formerly was an independent physician practice is now owned by the local hospital system.
If that hospital qualifies for 340B, then all of those outpatient sites are now 340B hospital sites. They are now hospital clinics that qualify for 340B.
[00:19:42] Stacey Richter: So just making sure I understand this, let's just say that there is a hospital system and certain of the hospitals are in urban settings, so most of the people that show up in the ER, in fact, have Medicaid.
But that same hospital system has a significant presence in suburban communities, in outpatient clinics, in ambulatory settings, right? So they've got scattered far and wide and lovely suburban communities with tree lined streets. You know, they have these outpatient clinics. It's the hospital that's driving the percentage, not those outpatient clinics, that's part of that math.
So somebody walking into one of those outpatient clinics in a suburban area, they might wind up getting a drug that the hospital's getting a 340B discount on, even though obviously this person is not disadvantaged.
[00:20:34] Shawn Gremminger: Yes, precisely right. And there is a certain irony. The way to qualify for 340B as an acute care hospital is based on your DSH adjustment, which is an inpatient number.
It doesn't even look at outpatient stats. It's just your inpatient number. But the whole benefit of 340B is on the outpatient side. So there's a, there's a huge misalignment there. And there are plenty of examples where, as you said, the hospital that qualifies is maybe an urban sort of core, safety net hospital, but they may have a large number of outpatient clinics spread throughout a metro area, often in higher income areas, that are participating in 340B.
There was an expose in the New York Times a year or two ago about a system in Richmond, Virginia, Bon Secours, a health system, that qualified for 340B because they had a sort of core small hospital located in a very low income, underserved area of Richmond. But they'd use that 340B status to then drive huge profits from all their large set of outpatient clinics, none of which were serving the patient population that was being served at their low income disadvantaged population downtown.
And they were probably on the far extreme of misusing the 340B program, but that same dynamic plays out all over the country. And I'll add just one more thing, because we know more and more hospitals are now, you know, they're not onesies and twosies anymore, they tend to be systems that might have 5, 10, 15 hospitals spread across often multiple metro areas.
To qualify for 340B, only one of those hospitals has to be a 340B hospital. And then the hospital system can then attach all of their outpatient hospitals to that one hospital with no reference to whether there's a referral pattern or what the, what the geographic distance is. Once you have one qualifying hospital, your entire outpatient network can be now directly tied back to that one hospital and you can drive profits from that one hospital.
[00:22:30] Stacey Richter: And I just want to break in here because I have also read articles that showed that a driver of consolidation is 340B, because there's so much money to be made here. And this is also a reason why hospitals really want to buy, for example, oncology practices. You know, like, think about this. We all know how much these oncology drugs cost, but yet if the hospital can buy the drug at a 340B discount, which is considerably less expensive.
So there's some oncology clinic in a suburban area, right? Like a patient comes in with commercial insurance, let's just say, to get that drug infused. The clinic is able to buy that drug at a 340B discount. But they are selling it to the employer. They are selling it to the patient at the regular price.
So the markup becomes substantial. But what also remains exactly the same is the copay and the coinsurance or whatever that patient would pay. It's not like that discount gets passed along to the patients at the receiving end there.
[00:23:38] Shawn Gremminger: Right.
[00:23:39] Stacey Richter: You can definitely see why if you managed to get that 340B certificate why you would want to get as many oncology practices or anybody that's prescribing high cost drugs. Like you would want to get as many of them as you can get your mitts on because just the profitability is certainly a thing.
[00:23:57] Shawn Gremminger: Absolutely. And I think that gets to the key point, which is that 340B is designed as, and this is implicit or even explicit in, the program design, it's designed as a statutory price arbitrage mechanism.
The way you make money as a 340B hospital is you buy at the statutory discount and then you sell at whatever the prevailing market rate is. And the difference is your markup. It's the 340B profits. If you're a non 340B hospital, or even worse, if you are an independent private practice oncologist, or any other specialist, you don't get that statutory discount.
So you can understand, just as you said, if you're a kind of profit motivated tax exempt hospital, of which sadly there are so many, your incentive is to find practices where they're prescribing a lot of drugs, they're prescribing a lot of high cost drugs. And to focus in that area, oncology being the obvious, the obvious place, you can drive huge profits and the independent oncologists out there can't do that, right?
Independent oncology practices do mark up the price of their drugs, just like just about anybody else, but they can't mark them up anywhere near the same way that 340B hospitals can, which then, as you said, is a key driver on why independent practices say, forget it, I just, I can't afford to do this, I'm being out competed because of, you know, a program that I don't have access to. And they give up and they just align with the 340B hospital and the situation gets worse.
[00:25:20] Stacey Richter: So basically, if we're talking about an oncology practice, we're talking about a medical benefit drug. We're talking about buy and bill kinds of things. But then on the other side of the equation, we have drugs that, you know, you would pick up at the pharmacy and, there we're also seeing a ton of consolidation, right?
Because a lot of hospitals have pharmacies. In the building, that they are associated with. So, I also understand, Shawn that there's also consolidation there in kind of a pharmacy grab, if you will, because same rules apply.
[00:25:53] Shawn Gremminger: Right. There is a program that actually has no place in statute. You can go back and look at the original 340B statute and read it if you like.
You will not see the words contract pharmacy anywhere in statute, but come the late 90s, early 2000s, a number of community health centers went to HRSA and made a pretty compelling case to say, hey, look, we're a small FQHC, we don't even own our own pharmacy, like we just don't have one, right? We refer all of our, all of our scripts out to, you know, folks in the community, so we can't participate in 340B, right?
I mean, if this is a price arbitrage program, we don't have a pharmacy for which to arbitrage. So, they set up a pilot program, at HRSA, that allowed each covered entity, so whether that's a small community health center or any hospital system, you're allowed to contract with one community pharmacy in your area.
So this is a third party, this is, you know, at least at the beginning it was usually a kind of community, or a community pharmacy, right? And we'll test this out, we'll see whether you can sign contracts with these pharmacists. You get the discount, the price arbitrage discount. They get some share of that through a probably enhanced filling order and see whether that works.
The idea being the small community health centers get to participate in the program and at least theoretically we are now making 340B more accessible to low income communities and people out in the public. That works okay. That worked pretty well. And people were pretty happy and so HRSA decided that they were going to take the limits off and said, you know, we can just, we're just going to do unlimited contract pharmacy.
So, any hospital system, any community health center, etc, can have an unlimited number of contract pharmacies if they so choose. It took a couple of years for people to pick up on this. But today, there is now, let's see, I have it here. In 2023, there are more than 30,000 340B contract pharmacies across the country.
Of these, 75 percent are owned by the five large for profit pharmacy networks. So this is now an enormous driver of revenue, not for, you know, your mom and pop pharmacy in a low income community or a small city around the country, but for the CVSs and Walgreens of the world.
[00:28:05] Stacey Richter: Yeah, let me take my take away from this.
Hospital system gets a 340B certificate, whatever it's called. Now they're a covered entity. You see the initial CE a lot. So, so they're a covered entity. They hook up with a pharmacy provider who comes to them and says, look, together we can make a lot of money. It's like that Pet Shop Boys song. You're a covered entity. I've got the pharmacy services. Let's make lots of money, right?
Contract Pharmacies and 340B
[00:28:31] Stacey Richter: Together they come in and now they can buy drugs at 340B discounts and sell them to anyone that wanders into the pharmacy at list price.
[00:28:38] Shawn Gremminger: That's right. So long as that person is a patient of the hospital, which gets to the next subject. Under 340B statue, there is no definition of what a patient is.
And most of us think, oh, I can kind of define what a patient is at a hospital, right? Like, were you seen by a clinician at the hospital? Did they provide you with some healthcare? Did they, you know, write you a script? I'm a patient, right? At least for some period of time after that, that encounter took place.
But that's not in statute. They just say it's a patient in the hospital, and there is actually a whole set of stuff in the statute around avoiding diversion, which is making sure you're not selling 340B drugs to people who aren't patients in the hospital. HRSA has, at various points, tried to write a real patient definition, and at each point has been blocked, sometimes by the courts.
So, most recently, there was a case, I want to say this is about two years ago, Genesis Healthcare versus HRSA. In which Genesis, the courts basically decided that HRSA's fairly weak definition of a patient didn't hold up to scrutiny. And so at this point, hospital systems and community health centers and others can basically write their own definition of what they think a patient is.
[00:29:53] Stacey Richter: Just bottom line, any patient that probably wanders into the pharmacy could be considered a patient of the hospital at the end of the day. Effectively, this kind of weak definition, just kind of cutting to the chase here, this kind of weak definition just sort of enables the hospital system slash pharmacy, contract pharmacy, to get a 340B discount on pretty much anybody that comes into the pharmacy.
[00:30:17] Shawn Gremminger: Yes, and I'll add just one additional point. The clinician at the hospital need not even write the script. So if you got seen by somebody at a hospital or an outpatient clinic, somebody affiliated with the hospital, that person need not even write the script that you bring to the contract pharmacy to get filled.
Just the fact that there is some record of you going in is sufficient to establish a connection between you as the patient and the hospital system. You could have then gone back to your, primary care physician who isn't affiliated with the hospital and gotten a script for a drug, you're still a 340B patient under the current regime.
[00:30:53] Stacey Richter: Which is why you see, if you look at the data, there was a bit of a mystery that I was part of a couple of months ago where we couldn't figure out that there were ambulatory practices like far and wide, that had no prescription volume. No prescriptions if you looked at the data.
Only to discover that all of their scripts were getting filled by a contract pharmacy hundreds of miles away. Which I think proves your point that this ambulatory practice had patients who went to that hospital at some point or another and now they're getting a script for whatever, it doesn't even matter.
And those scripts can be filled by the contract pharmacy. They get the 340B discount, therefore.
[00:31:38] Shawn Gremminger: That's absolutely right. And that's exactly why you're seeing that in the data.
[00:31:41] Stacey Richter: All right. I'm just going to make a point here and then we need to move on. But I would probably be okay with this, Shawn, if the dollars that these hospital systems were making were put into charity care. If there was a, some connectivity between all of this money that's flowing in and underserved communities getting better healthcare and community programs and public health and all the things. Then sure, right? You know, like we're, we're, we're funding an entity and actually achieving the original mission of the 340B. I mean, maybe even in an expanded scaled way. So is that happening?
[00:32:26] Shawn Gremminger: So I totally agree. And I will say, I think that's part of the reason why 340B is popular among policymakers. Is this is at least theoretically a regime to take, effectively take money from pharmaceutical manufacturers who aren't always terribly popular, sift them through theoretically safety net systems and deliver more care to people in low income communities and it doesn't cost taxpayers money, at least nominally, right?
So, on face, it's like I could see why a person on Capitol Hill looks at this and says, this is great. It's like free money to do good things. Underlying question is whether it is actually doing good things. And I think the answer is, it is a little. There's some data out there to suggest that some hospitals, interestingly, particularly the core safety net hospitals, for which the program was originally designed back in 1992, are taking their 340B dollars and reinvesting in low income communities.
But there's actually no requirements under federal law that they have to do that, and there is no tracking whatsoever on what hospitals are doing with the 340B dollars they get. So there's no systematic way to know whether or not underserved communities, low income patients, uninsured patients are actually getting access to drugs or any other services due to 340B.
And when you're talking about a program that is now over 50 billion dollars, the second largest drug purchasing program in the country after Medicare Part D, the fact that we have no data to suggest whether or not this is actually achieving its purpose is obviously highly problematic.
[00:33:56] Stacey Richter: Yeah, and, there was a show with Vikas Saini and Judith Garber from the Lown Institute, which basically said the same thing about all charity care, right?
You know, like you get your nonprofit status because allegedly you're doing things of charity and yet there's no definition of what is charity. For example, if I do a public service announcement about getting a mammogram on a bus depot, which some might consider advertising and others might consider education and contribute to charity care.
You know, come get a mammogram at my hospital or medical education, having a medical school. So like there, there's no definition of like what actually is charity care and nobody's necessarily keeping track of it. And if you try to dig into annual reports and stuff, it's tough to figure it out. And it sounds like that same issue plagues 340B.
There was just a study that I saw, and I'm embarrassed to say I can't remember the name of the study author, but they really dug into this to determine who was actually using their 340B dollars and directing that windfall into charitable community things. And they found that it was only health clinics and the public hospitals, not nonprofit hospitals, the public hospitals.
[00:35:10] Shawn Gremminger: Right. I think that study was by Neal Masia. Absolutely right. And I, you know, take it with something of a grain of salt. It was funded by a manufacturer, so you have to just look at it from that perspective. But I think it was a, it made a very compelling argument about what's going on and what's not going on.
And I'll just say, I recall a conversation when I was a lobbyist for folks in the hospital industry. The last time Congress kind of looked closely at 340B, this is now roughly 10 years ago, and this staffer made a request that is so eminently reasonable. He said, I don't understand why hospitals can't just say how much money they're making from 340B. And what they're doing with it in a systematic way. Why can't you just report to HRSA, you know, here's how much money I'm making and here's what I'm doing and follow the dollars and remains true today in 2024 that hospitals are not required to say how much money they're making on 340B and they're not required to say to anybody what they're doing with it.
Like, if that isn't crazy, the black box in which we continue to live in a program that's now $50 billion and growing rapidly, I don't know of any other more significant indictment of a program in desperate need of reform.
Conclusion and Next Steps
[00:36:22] Stacey Richter: So let's just sum up takeaway number one here, which is kind of the big kahuna of the takeaways I'm going to say.
And that's just simply the point that the original, or maybe not quite original, intent of the program, there's some doubt that it's being met. I mean, to your point, who knows, because there's no systematic way to evaluate whether these 340B dollars are in fact being applied to help underserved communities.
But without a doubt, the program has grown to by 2022, it's a $53 billion program, right? So it started out as kind of this small thing to help safety net hospitals continue to buy drugs for their AIDS clinics. And now it's a $53 billion kind of behemoth.
Shawn Gremminger, thank you so much for being on Relentless Health Value today.
Thank you so much, Stacey. It's been an absolute pleasure.
Okay. So you have just listened to part one of the 340B conversation with Shawn Gremminger from the National Alliance. Wherever you get your podcasts, let me just let you know, you will find Part 2 of this conversation at the ready. We released both parts one and part two at the same time.
In Part 2, we talk about how the 340B program gins up market distortions. Market distortion's big enough that employers and other plan sponsors should really be aware of. So, again, if you haven't already listened to it, please go listen to Part 2 if you are interested in why employers should care.
Thanks so much for listening.