A report by Advocates for Community Health, November 2024

The 340B Drug Discount Program is in critical danger and must be protected to serve the more than 32 million community health center patients at stake.

Federally qualified health centers (FQHCs) have long been at the heart of the U.S. primary healthcare system, especially in underserved communities. The nation’s largest primary care network, FQHCs serve over 32.5 million patients, of which 90% of patients live below 200% of the poverty line and 63% of patients identified as a racial/ethnic minority. One in eight patients are children under 18 years of age. One of the primary reasons FQHCs can serve so many people, with a comprehensive range of high-quality services, is the 340B Drug Pricing Program.

Since 1992, under Section 340B of the Public Health Service Act, this program has required drug manufacturers participating in Medicaid to sell certain outpatient drugs to eligible safety net entities at significantly reduced prices. The program allows safety-net providers to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services” (HRSA). Eligible organizations include FQHCs, hemophilia treatment centers, and several other types of clinics and hospitals.

Different entities rely on 340B to differing extents. While entities like hospitals typically have access to multiple flexible revenue streams, 340B is a game changer for FQHCs, which have limited flexible funding streams at their disposal and often use their 340B savings for services that are non-reimbursable. The financial impact of these savings cannot be overstated, as they allow FQHCs to stretch their already scarce federal resources as far as possible, enhancing their services and expanding their reach in often overlooked communities.

In 2023, health centers accounted for just 5.4% of overall 340B program purchases.

340B Covered Entity Purchases, 2023, HRSA data

Unlike other entities, CHCs are required to reinvest any “program income,” including 340B savings, "to defray program costs” (29 CFR § 1470.25). Therefore, community health center 340B savings will always directly support expanding clinical services and improving patient care. For CHCs, who already operate on tight budgets and with slim margins, the 340B program can be the deciding factor between cutting services and expanding them.

At times, policymakers underestimate the program's impact on community health centers and their patients because of their small purchase volume. In 2023, health centers accounted for just 5.4% of 340B purchases (HRSA). Despite this small piece of the pie, the funding has an outsized impact on helping CHCs meet the most pressing needs of their communities: offering free or discounted health care to patients who need it the most, expanding hours and services, and providing access to vital medications.

With 340B savings, centers can afford to provide access to a wider range of medications, ensuring that low-income patients receive the treatments they need without financial strain.

The 340B program also helps many FQHCs sustain a comprehensive pharmacy service, which is essential to their model of care. FQHCs treat the most medically underserved populations, providing care to patients with complex, chronic conditions. Removing patients’ medical financial burdens often improves medication adherence, improves health outcomes, and reduces hospitalizations and emergency room visits. The money saved from the 340B program is used to hire more staff and specialized doctors, set up mobile clinics, and create new programs designed to meet the unique needs of their community.

Under federal guidance, covered entities may also dispense 340B drugs through external contract pharmacies. These pharmacies allow patients easier access to 340B medications, including conveniently mailing patients their medications. These arrangements are particularly beneficial in rural communities, where health centers may be farther apart, and access to a local pharmacy is a better way to facilitate patient access to care. It is also essential for health centers that do not have an in-house pharmacy, which are expensive to establish and resource-intensive to maintain. Health centers rely on contract pharmacies to ensure access to low-cost medications to all patients, no matter where they live and regardless of insurance status.

By enabling FQHCs to provide comprehensive and affordable care management and medication, the program also contributes to broader community health and economic stability.

340B Savings in Action

The 340B program’s value is eroding for health centers, due to the actions of state policymakers, pharmaceutical companies, and pharmacy benefit managers (PBMs). The contract pharmacy networked, access-oriented approach – that has worked well for CHCs and their patients for over a decade – is under threat. Drug manufacturers are unlawfully limiting access to contract pharmacy services through burdensome restrictions, which hinder access to care for vulnerable populations. Examples include limiting covered entities to use only one contract pharmacy and restricting 340B medications only to contract pharmacies within a 40-mile radius of a covered entity.

In addition, contract pharmacy arrangements are often set up to overcompensate pharmacies, which doesn’t allow for maximum accrual of savings that could be used to improve patient care.

Across all pharmacy settings, insurance companies and PBMs engage in discriminatory practices by limiting the terms of their 340B reimbursement rates, only participating in certain networks, or adding additional dispensing fees, chargebacks, clawbacks, and payment adjustments. This reduces 340B savings to covered entities and makes it more difficult for patients to get the medications that they need. These actions undermine the intent of the 340B program, and only create more profits for big business.

Finally, state Medicaid programs are reclaiming 340B savings through mandatory arrangements that reduce savings for health centers. When California eliminated 340B savings for Medicaid patients at health centers, California+ Advocates estimated a total loss for the primary care network of $205M per year. New York faces similar challenges a year after the state stopped the 340B program for Medicaid and transitioned to a “carve out” state NY Medicaid Pharmacy Program, NYRx. Community Health Care Association of New York State estimated that their CHCs were set to lose $100 million annually.

The time is long overdue for reform of the 340B program, but it must be achieved without destabilizing our country’s safety net. Federal reform of the 340B program should hold entities accountable for the use of their 340B savings, and entities should be required to maintain auditable records to document compliance. As entities commit to these important accountability standards, Congress should ensure that the program is fully benefiting those entities.

One possible solution is 340C, a proposal that creates a new opt-in provision under the 340B program that balances the need for protection, transparency, and accountability. Under 340C, once a 340B covered entity- hospital or CHC- opts in, any funds generated from 340C program savings must be reinvested into program operations, patient care, and the community the entity serves. Entities would be subject to audits to ensure all savings go to patients and their communities.

Entities that meet accountability standards would then be entitled to: (1) Protection against discriminatory network and reimbursement actions by health insurers and PBMs, (2) Unlimited use of contract pharmacies, and (3) Reimbursement at wholesale acquisition cost (WAC) for all Medicaid drugs. The bill maintains key provisions of the original 340B program, including the prime vendor, certification processes, and a prohibition on resale of drugs. It provides HRSA regulatory authority to implement the legislation and authorizes appropriations in such sums as necessary.

For policymakers and health care leaders, maintaining robust support for the 340B program should be a priority to ensure that FQHCs continue to perform their critical role in the healthcare system. 340B remains one of the few precious sources of support for CHCs’ care, and it doesn’t use a dime of taxpayer dollars to provide it.

The 340B program enables FQHCs to meet their mission every day, and without it, the nation’s strongest primary care network would falter. This program directly contributes to healthier communities by supporting the centers that serve them. Through careful management and continued advocacy, the benefits of the 340B program can be maximized to meet the health needs of the nation's most vulnerable populations.

Advocates for Community Health urges Congress to reform the 340B program and ensure its sustained ability to function as a vital resource for health centers for years to come.