The ins and outs of 340B drug pricing — How health systems can track savings and improve operations

The 340B drug pricing program allows hospitals to purchase drugs at substantial discounts to serve low-income patients who can't afford medical insurance. 

During a March 18 webinar hosted by Becker's Hospital Review and sponsored by McKesson, Andy Wilson, PharmD, Vice President for McKesson's 340B Solutions & Services, along with Kevin Scheckelhoff, Assistant Vice President, discussed the details of the 340B program and explained how tracking savings and spendings in the program improves participating organizations' operations. 

The ins and outs of the 340B drug pricing program

The 340B drug pricing program can be thought of as a government-supported group purchasing organization, Dr. Wilson said, as it gives hospitals access to a catalog of discounted drug prices. 

It does, however, have several notable differences from a typical GPO. 

For one, it has a statutory price formula that limits price increases to the Consumer Price Index for Urban Consumers. It also has complex rules for which organizations can participate and requires detailed management of purchases and inventory to make sure discounted drugs are only dispensed to specifically qualified patients. Additionally, savings from the 340B program are on average 20 percent to 25 percent more than typical GPO pricing. 

The 340B program covers hospitals that are either government-owned or controlled or are non-profit hospitals that have an agreement with a government entity. To participate, hospitals must meet the Disproportionate Share Hospital, or DSH, threshold. 

The program has significant government oversight, including business process controls, HRSA audits and manufacturer inquiries and audits, to ensure only participating organizations can purchase 340B-priced drugs. 

The program has grown substantially since it was created in 1992, with over 47,000 registered organizations as of  mid-2016, according to the National Conference of State Legislatures. All drug makers that are covered by Medicaid are also required to offer 340B pricing. 

"340B is now woven into the fabric of nonprofit hospitals everywhere," Dr. Wilson said. "It's big enough to matter now, not just to the folks who participate but to anyone in the drug supply chain."

Dr. Wilson pointed out that on Newsweek's 2020 list of the world's best hospitals, 75 percent of the top 20 hospitals participate in the 340B program. 

In 2018, sales of 340B drugs amounted to $24.3 billion, or between 7 percent and 8 percent of all U.S. drug sales, according to Adam Fein, PhD, CEO of Drug Channels Institute. The program allowed hospitals to save an average of $11.8 million in 2018, and 340B hospitals saw virtually no list price increases in the last six years. 

To illustrate the extent to which hospitals rely on the 340B program, Dr. Wilson shared a quote Mike Mullins, CEO of Huntington, W.V.-based Mountain Health Network CEO Mike Mullins, wrote in an opinion piece in The Herald-Dispatch, in which he said: "If the federal 340B program was ever eliminated, virtually every not-for-profit hospital in West Virginia would have annual operating losses."

Tracking savings and spending with McKesson's 340B dashboard 

McKesson's 340B dashboard allows participating hospitals to track their savings and spending in the program, which allows them to understand how the program impacts their ability to deliver care.

Mr. Scheckelhoff said many variables drive savings in the program, and the dashboard is intended to display the data in an easily understandable format. 

The dashboard drills down the numbers to the individual vial level, meaning users can see which drugs are driving the savings. 

"You have to have these things to be best in class when it comes to 340B," Mr. Scheckelhoff said. 

Tracking savings and spending within the 340B program allows participating hospitals to develop and maintain best-in-class financial reporting. It also allows them to develop strategies for administration communication and service line operations that are consistent with the system's overall strategy. 

Watch the full webinar here.

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