340B D
ISCOUNT
D
RUG
P
ROGRAM
O
VERVIEW
March 2014
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Section 340B of the Public Health Service Act provides access to prescription drugs at
significantly discounted prices for eligible facilities (“covered entities”).
On average, covered entities receive discounts of approximately 50% of average wholesale price
(“AWP”) through the 340B program.
Covered entities include disproportionate share hospitals (“DSH”), federally qualified health centers, and
other healthcare facilities that serve predominately low-income, special need, and indigent patients.
In order to maintain eligibility, covered entities must meet a number of requirements and are
subject to annual recertification by the Health Resources and Services Administration (“HRSA”).
•
Strict inventory control to ensure that medications reach vulnerable patient populations•
Increased billing and reporting requirements•
Maintenance of separate inventories and patient / claims processing records340B Drug Pricing
Sources: Pembroke Consulting and GAO analysis of HRSA data.
340B D
ISCOUNT
D
RUG
P
ROGRAM
O
VERVIEW
1 As of December 2012 100% 66% 64% 51% 42% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
$7.2 $8.7 $10.1 $11.6 $13.1 $14.5 $16.0 $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0 2013 2014P 2015P 2016P 2017P 2018P 2019P
As a result of health reform-driven changes, drug spend through 340B is expected to
reach $16 billion by 2019P from $7 billion currently.
Since 2001, the number of covered entities has increased 6.8% annually.
The Patient Protection and Affordable Care Act (“PPACA”) opened access to rural hospitals,
free-standing oncology centers, sole-community hospitals, and critical access hospitals.
•
Expansion in Medicaid coverage codified by the PPACA has also driven an increase in the number of covered entities340B P
ROGRAM
G
ROWTH
2 8,605 9,193 10,325 11,442 12,162 11,926 12,404 13,139 14,076 14,725 16,572 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011340B Covered Entities
For the Years Ended December 31, 2001 to 2011
Source: Avalere Health analysis of HRSA data.
340B Drug Expenditures
For the Years Ended and Ending December 31, 2013 to 2019P
Covered entities are facing increased scrutiny at a time when discounts from the 340B
program are most needed.
Due to growth in utilization of the program, HRSA increased its 340B audit activity in late 2012.
•
Manufacturers have begun to require independent audits due to revenue lost through discounts
Recent reports by the Government Accountability Office and the Office of the Inspector General
highlight abuse and misuse of the 340B program.
•
Diversion – providing discounted drugs to ineligible patients
•
Duplicate discounts – receiving both 340B pricing and other government program discounts, such as Medicaid
Meanwhile, public sector hospital margins remain under significant pressure, driving the need for
covered entities to maximize savings from 340B.
C
HALLENGES
OF
THE
340B P
ROGRAM
3
Covered entities often lack the expertise and resources to implement and maintain a compliant 340B
program, presenting an attractive opportunity for outsourced providers.
Public Sector Hospital Margins
1(7.0%) (8.5%) (6.7%) (5.9%) (7.2%) (10%) (8%) (6%) (4%) (2%) 0% 2007 2008 2009 2010 2011 Source: MedPac. (1) Medicare margins.
The complexity of managing a 340B program has driven demand for pharmacy service
providers specializing in serving the needs of covered entities.
Pharmacy management firms with expertise in 340B are able to help unsophisticated covered
entities implement efficient, profitable, and compliant 340B programs.
•
Many eligible facilities are not aware that the 340B program is available to them
•
Services include patient eligibility analysis, procurement assistance, licensing and compliance verification, and
inventory control
Contract pharmacies enable covered entities lacking in-house pharmacy services or facilities to
dispense 340B drugs to patients.
•
Covered entity purchases drugs, but contract pharmacy takes physical delivery and manages dispensing to
patients
Source: Avalere Health analysis of HRSA data.
O
PPORTUNITIES
W
ITHIN
THE
340B M
ARKET
4
For the Years Ended December 31, 2003 to 2013
364 699 1,075 1,449 1,733 2,063 2,410 2,981 7,325 9,783 12,240 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Representative 340B Pharmacy Service Providers
Growth in 340B Contract Pharmacy Arrangements
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