Golden State Today

The federal 340B drug program is estimated to reduced state and local tax revenues by $3.5 billion annually, on top of reductions in federal tax revenue. 

That's according to an analysis by Dan Crippen, the former director of the Congressional Budget Office, who wrote a report for the Alliance for Integrity and Reform of 340B. 

"Even at current levels, the 340B Program results in a large transfer of taxable income to non-profit entities," Crippen wrote. "As a result, last year alone, federal and state tax revenues were reduced by as much as $17B."

"The value of the 340B discounts is estimated to be $70 billion last year alone," said Crippen. "When state and local taxes are included in the calculation, the average combined tax rate for pharmaceutical manufacturers is roughly 25 percent. The addition to the tax rate results in a possible reduction of state and local tax revenue by $3.5B per year."

California has 172 hospitals participating in the 340b program, which is a federal initiative that enables eligible hospitals and healthcare organizations to purchase outpatient medications at significantly discounted prices.

The 340B drug pricing program was created in 1992 to support uninsured or low income patients by enabling 340B covered entities like hospitals or health care organizations to purchase drugs for eligible patients at lower costs, passing on those savings to the patients. Since inception, there has been little oversight added to the program, leading to hospitals and health care institutions pocketing the savings instead of lowering costs for patients

The 340B ACCESS Act was proposed to address these issue, and would add new requirements for transparency and eligibility to protect 340B patients. The legislation provides a clear definition of which patients are 340B eligible as well as a detailed list of requirements for hospitals to be eligible for participating in the 340B program. 

"Today, despite its purpose, hospitals are using the program as a cash cow, racking up profits without passing the savings on to patients, as Congress intended," Dean Clancy, a senior health policy fellow at Americans for Prosperity, said in a recent Americans for Prosperity blog post. "According to one comprehensive study, discounts reach as few as 1.4% of patients."

"The estimated dollar value of total 340B drug sales has grown from $7 billion in 2012 to $54 billion in 2022," Clancy wrote. "Tellingly, from 2018 to 2023, while non-340B sales grew by 41.4%, 340B sales grew by 129.4%, more than three times as fast."

A 2022 Milliman analysis revealed that outpatient medicine costs at 340B hospitals are over 150% higher than at non-340B hospitals. These larger facilities, found more often in affluent areas, provide less charity care than non-340B hospitals.

"The 340B Program has grown by double digits every year over the last five years," said Crippen. "Unlike many other off-budget programs, the indirect impacts of the 340B Program on the federal budget and the deficit have not been documented. The effects of the 340B Program, however, are nonetheless contributing to the federal deficit."

While much of the growth of the 340B program can be attributed to more hospitals and patients partcipating in the program, Crippen also notes in his report that a lack of oversight has contributed to the increase of cost across the program. "In 2018, GAO audited a sample of hospitals participating in the 340B program and found HRSA had a lack of clear definitions, a lack of rigorous enforcement of 340B requirements, and a lack of guidance."

"GAO continued that this unconstrained environment has likely contributed to 340B transactions that are inappropriate," Crippen wrote. "GAO also found that HRSA had failed to effectively enforce the prohibition against covered entities receiving duplicate discounts from both Medicaid and 340B."

The Alliance for Integrity and Reform of 340B (AIR340B) is a coalition of patient advocacy organizations, healthcare providers, and biopharmaceutical innovators committed to enhancing and maintaining the 340B program. Its goal is to ensure that it effectively supports access to outpatient prescription medications for uninsured and vulnerable patients.