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The Purpose of the 340B Program


Both the regulatory HRSA as well as the 340B hospital advocacy group SNHPA describe the intent of the program by quoting the House of Representatives report 102-384, Part II. The relevant paragraph is transcribed here, from page 12:

Finally, the Committee bill would also condition the availability of federal matching funds with respect to any covered outpatients drug of a manufacturer on the agreement of the Manufacturer to provide the DVA a minimum discount on each drug and to comply with applicable reporting and auditing requirements. In the case of single source drugs (outpatient or inpatient) purchased under the DVA’s depot contracting system or listed on the FSS, the DVA may not be charged more than 76% of the non-Federal average manufacturer price (less an additional discount to offset price increases in excess of inflation). The 24% discount represents the median “best price” rebate under the Medicaid program for the first quarter of 1991, which was the last quarter before manufacturers begin substantially increasing prices to the DVA. The use of this percentage is intended to capture what the Committee on Veterans Affairs believes to be the level of discounts the DVA was receiving before the Medicaid rebate program went into effect. The Committee bill requires that an additional discount be paid on a drug when the increase in the non-Federal AMP exceeds the increase that would have occurred if the CPI had been applied to the non-Federal AMP (measured in the 3-month period ending one year before the end of the 3-month period for which the discount is calculated).
The Committee bill also provides protection from drug price increases to specified Federally-funded clinics and public hospitals that provide direct clinical care to large numbers of uninsured Americans. Like the prices charged to the DVA, prices charged to these “covered entities” would be exempt from the calculation of the Medicaid “best price” for purposes of determining the Medicaid rebate. The Committee expects that this exemption will remove any disincentive that the Medicaid rebate program creates to discourage manufacturers from providing substantial voluntary or negotiated discounts to these clinics, programs, and hospitals.
In addition, manufacturers, as a condition of receiving Federal Medicaid matching funds on their covered outpatient drugs, would have to enter into an agreement with the secretary of HHS to provide price reductions (whether through a discount, rebate, or other mechanism) to these “covered entities” on covered outpatient drugs. These price reductions would be at least as great as those which Medicaid receives under the rebate program. They would be implemented, at the discretion of the Secretary, either by a point-of-purchase discount, a rebate, or other mechanism. “Covered entities” receiving these price reductions would be prohibited from obtaining payment for these drugs under Medicaid or from reselling or transferring the drugs to individuals other than their patients, and they would be subject to audit to verify compliance with these requirements. In giving these “covered entities” access to price reductions the Committee intends to enable these entities to stretch scarce Federal resources as far as possible, reaching more eligible patients in providing more comprehensive services.

  1. “DVA” refers to the Department of Veterans Affairs

  2. “FSS” refers to the Federal Supply Schedule

  3. “AMP” refers to the Average Manufacturer Price, the price at which each drug is actually sold