340B Drug Pricing Program

The 340B Drug Pricing Program is a US federal government program created in 1992 that requires drug manufacturers to provide outpatient drugs to eligible health care organizations and covered entities at significantly reduced prices. The intent of the program is to allow covered entities to "stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services." Maintaining services and lowering medication costs for patients is consistent with the purpose of the program, which is named for the section authorizing it in the Public Health Service Act (PHSA) It was enacted by Congress as part of a larger bill signed into law by President George H. W. Bush. Program description and history Congress created the Medicaid Drug Rebate Program in 1990. It required pharmaceutical manufacturers to provide rebates for medication purchases, based on sales to Medicaid beneficiaries, as a condition of having their products covered by Medicaid. The amount of the rebates paid to the states were based on a "best price" calculation that did not take into account the discounted prices that manufacturers were offering directly to Federally funded clinics and public hospitals serving large numbers of low-income and uninsured patients. Congressional hearings in 1992 found that failing to exempt these voluntary discounts under the Medicaid Drug Rebate Program caused prices to rise "dramatically" for such facilities. According to a detailed study of the most widely used outpatient drugs at five public hospitals, hospital costs for the previously discounted drugs increased, on average, by 32 percent, far in excess of the historical 5 to 9 percent annual increases in drug prices experienced by public hospitals. The steep rise reflected the size of the discounts previously offered, and the dramatic shift once "best prices" were imposed in place of voluntary discounts. Consequently, Congress created the 340B program in November 1992 through the enactment of Public Law 102–585, the Veterans Health Care Act of 1992, which is codified as Section 340B of the Public Health Service Act (created under Section 602 of the Veterans Health Care Act of 1992). The law protected specified clinics and hospitals ("covered entities") from drug price increases and gave them access to price reductions.