Understanding the Current State of 340B in 60 Seconds

Specialty pharmacy has dominated healthcare industry headlines for several years now. As the costs for these medications have increased and more of these high cost medications have continued to enter the pipeline, the market emerged and the value chain developed. The resulting ecosystem of stakeholders relies on healthcare policies to define the interactions and influences that ultimately create value and improved health outcomes for patients by improving access to specialty medications.

One such policy is the federal 340B Drug Discount Program. This program was put into place in 1992 and affords covered healthcare provider facilities with significant drug-manufacturer discounts on specialty medications. The main objective of the program is to support covered entities in spreading scarce resources further for vulnerable patient populations.

Due to the scale and complexity of this program, and several policy-related events that took place at the end of 2017 and into 2018, it can be cumbersome to keep up with changes in the specialty pharmacy landscape. We’ve developed the following streamlined timeline highlighting three key events that distill the substantive changes to the 340B Drug Discount Program.

  • November 2017: The Centers for Medicare and Medicaid (CMS) revealed its intent to cut 340B drug payments (i.e. reimbursement to covered entities) by $1.6B, achieved through reducing Medicare Part B payment rates from 6% above the average manufacturer price (AMP) to 22.5% below AMP.
  • December 2017: The U.S. District Court for the District of Columbia ruled in favor of the government’s motion to dismiss a lawsuit filed by covered entities (including the American Hospital Association (AHA), America's Essential Hospitals, and Association of American Medical Colleges) that objected to CMS’s proposed rate cuts.
  • January 2018: A new Outpatient Prospective Payment System (OPPS) rule took effect, whereby CMS reduced Medicare Part B reimbursement rates by approximately 28%, or $1.6B.

These changes have the following implications:

  • The rule only affects Medicare Part B reimbursements.
  • Three types of hospitals are not affected by the new rule: children’s hospitals, OPPS-exempt cancer hospitals, and rural sole community hospitals.
  • Drug manufacturers will continue to supply 340B-covered entities with the same discounts as in the past.
  • Plaintiff hospitals announced they plan to appeal the court’s decision that allowed the cuts to take effect.
  • A 340B report was released by the House Energy and Commerce Committee, highlighting program shortcomings along with 12 policy recommendations.

With this new rule in effect, many hospital systems and industry groups fear a resulting decline in patient access to healthcare services and pharmacotherapy. However, AHA president, Rick Pollack, along with other key industry stakeholders, have firmly committed to continue working with lawmakers to reverse the CMS cuts.

The legislative picture around 340B is rapidly evolving, with news this month citing legislators’ desires to create more transparency around the program, and to further restrict eligibility and uses of 340B to benefit the intended patient populations.  Unfortunately, there is no clear picture yet of where these initiatives will go, but health system leaders are watching with keen interest to determine how changes in this critical program will affect their hospital’s financial picture, and their ability to continue to serve patients in need.

Check out our perspective on the key to specialty pharmacy success and stay tuned for an upcoming blog that explores the new 340B environment and what the evolved specialty pharmacy market looks like for health systems.



Jennifer Machado is a Manager on North Highland’s strategy team and specializes in helping high-growth organizations develop and deliver on business strategies. Her industry focus is healthcare, with specific expertise in building and growing patient-centric specialty pharmacy services.