A Deep Dive into CBO’s New 340B Report and Why It Significantly Misses the Mark

By Ted Slafsky

The respected, nonpartisan Congressional Budget Office (CBO) doesn’t often study the 340B drug discount program; therefore stakeholders need to take its findings seriously and closely examine them when the situation arises.  

Reports from agencies like CBO often have a lot of influence, particularly ones that assess the budgetary impact of such an important program as 340B.   

CBO has a very good reputation for producing nonpartisan results based on facts. However, even a well-respected organization can sometimes be mistaken, steered in the wrong direction, or miss the mark. That is clearly the case with its latest 340B study. 

CBO’s Findings 

The new report looked at 340B program growth between 2010 and 2021. It found covered entities (CEs) in the prime vendor program (PVP) spent nearly $44 billion on 340B drugs in 2021—up from $6.6 billion in 2010.  

From the report: 

• Estimated that a third of the increased spending during that period can be attributed to “trends in market wide growth in drug spending and disproportionate growth among drug classes that account for a greater share of spending through the 340B program than the overall market.” Those drug classes include cancer, anti-infective drugs and immunosuppressants. 

• Looked at three additional factors, which it said contributed to 340B spending growth: the integration of hospitals and off-site clinics; increased facility participation following the Affordable Care Act’s (ACA) implementation; and expanded use of off-site pharmacies. It noted that CBO “does not have sufficient data to quantify those factors’ effects, but in the agency’s assessment, the largest of those three factors was the integration of hospitals and clinics.” 

• Offered a controversial viewpoint that “the 340B program encourages behaviors—including the prescription of more and higher-priced drugs.” It also cited the expansion of services and the integration of hospitals and off-site clinics—that tend to increase federal spending. 

However, the CBO report noted that “the evidence about the behaviors is limited, and the magnitude of each is unknown.”  

CBO did not look at how legislation affecting those behaviors could affect federal spending, according to the report.  

Important Context 

When considering the report’s findings, it is important to look at who requested it: the Republican chairs of the U.S. Senate’s Health, Education, Labor, and Pensions (HELP) Committee and House’s Energy & Commerce (E&C) Committee.  

HELP Committee Chairman Sen. Bill Cassidy (R-La.) is the Senate’s leading 340B critic and recently conducted a multiyear investigation into the program. Meanwhile, under Chairman U.S. Rep. Brett Guthrie’s’ (R-Ky.) leadership, the E&C committee has held hearings that appeared aimed at raising doubts about the program and promoting drug industry-supported legislation. That includes the controversial 340B ACCESS Act, which would, among other things, prevent most hospitals from accessing 340B discounts for insured patients. Hospital groups have rightly pointed out that this bill could force 75% of urban hospitals out of the 340B program. Community health centers and other grantees have also raised significant concerns about the GOP-backed legislation.    

340B supporters have also argued that what the chairs asked CBO to examine in the report were likely leading questions designed to elicit negative responses. Both influential committee leaders, who could play a key role in determining what type of 340B legislation advances in Congress, capitalized on the report.  

Guthrie quickly sent a press release entitled, “CBO Confirms that 340B Pricing Program Increases Costs for Federal Taxpayers,” while the Cassidy’s team posted on social media platform X, “CBO confirms 340B reform is critical to lower costs for patients.’’ 

340B Does Save Money for Taxpayers 

While some of the CBO’s findings are factual—like the significant rise in 340B drug purchases over the past decade—many are just frankly wrong.  

For example, one footnote mentions that 340B providers bill Medicaid fee-for-service (FFS) plans at acquisition cost. In addition, the footnote also acknowledges that state AIDS Drug Assistance Programs and the CEs that that provide these services do not receive reimbursement when providing HIV medications to low-income and uninsured patients. But there is no recognition that this saves Medicaid and other federal-state health care programs significant amounts of money. That savings goes directly to the government’s coffers, rather than states trying to collect rebates from drug manufacturers on the back end—money that 340B providers simply hand over to the government.   

In another footnote, CBO acknowledges that Medicaid FFS pays CEs no more than acquisition cost, but states that, as of 2022, 75% of Medicaid patients are in managed care plans. The CBO fails to recognize that some states require 340B providers to bill Medicaid managed care organizations at acquisition cost. And a growing number of states, including California and New York, have recently moved their pharmacy benefit plan back to FFS, in part to save money for their cash-strapped Medicaid plans. 

In fact, every CBO study conducted in the past has shown that 340B saves money for the government, instead of raising costs.  

As my former colleague William von Oehsen, who helped draft the 340B law and expansion of the program to rural hospitals in 2010, rightly pointed out recently: “Congress carefully defined ‘covered entity’ in the 340B law to qualify only hospitals and clinics that are highly dependent on taxpayer support. How a program that lowers the cost of drugs for federal grantees and other tax-dependent providers could increase the burden on federal taxpayers is beyond comprehension. Moreover, when Congress expanded the 340B program under the Affordable Care Act and Deficit Reduction Act, it scored a cost savings, not a cost increase.”   

How the CBO came to the opposite conclusion remains a mystery. 

The Many Benefits of 340B Growth  

Even the CBO’s finding that spending through 340B has grown significantly needs to be taken into context.  

The report acknowledges spending growth is largely attributable to the 340B program’s expansion to rural and other hospitals in 2010, the growth of 340B use among community health centers, and the allowance of multiple contract pharmacies.   

However, it failed to acknowledge that 340B expansion has enabled rural hospitals and many health centers to stay afloat, and enabled patients to access their medications closer to home and at an affordable price. Wouldn’t it cost the government more if rural hospitals closed and health centers reduced prescription drug services that help keep patients healthy and out of the emergency room?  

And as for the expansion of multiple contract pharmacies, wouldn’t it cost more if patients drive farther and go through more hoops to access medications, rather than getting them closer to home? 

CBO’s report briefly nods to these questions: “If expanded services at 340B facilities improve patients’ health and need less costly care as a result, those expansions could reduce federal costs, but when and why is uncertain.” 

Questionable Findings on Behavioral Impact 

Further, CBO’s report stated that, in its “assessment that the 340B program encourages behaviors, including the prescription of more and higher-priced drugs.” This view has been debated for years, and the results are inconclusive.  

Some studies, including a 2015 Government Accountability Office report, have made this conclusion, while other respected reports have found no evidence. The Medicare Payment Advisory Commission (MedPAC), a nonpartisan congressional advisory committee, in 2020 found no evidence that higher drug spending at 340B hospitals is related to “incentives created by 340B discounts.” 

What MedPAC did find is that: 

• 340B hospitals are more likely to be larger, be teaching hospitals and serve patients who are younger, disabled and qualify for Part D’s low-income subsidy. 

• There is no consistent pattern in cancer drug spending at newly enrolled 340B hospitals relative to other hospitals, suggesting that change in 340B status had no effect. 

Two years later, a JAMA study found “no statistically significant difference in Medicare Part B drug spending between 340B hospitals and non-340B hospitals” after controlling for differences in patient population and hospital characteristics.  

Study after study has shown that if there is more spending at 340B facilities, it’s because patients are poorer and require more complicated treatments. It is not because 340B physicians want to make more money by prescribing more expensive drugs. 

Vertical Integration 

The CBO report also cited the integration of hospitals and off-site clinics as one of the factors contributing to 340B spending growth. Therefore, the agency concluded that it increases federal spending.  

CBO noted that it “does not have sufficient data to quantify those factors’ effects, but in the agency’s assessment, the largest of those three factors was the integration of hospitals and clinics.”  

However, the CBO then goes on to provide the following glaring caveat: “To the extent the program amplifies those incentives, it increases the federal deficit. However, evidence the 340B program intensifies broader market-based incentives is mixed.”   

A footnote accompanying the statement acknowledged that “some evidence suggests the program leads to additional integration, and other evidence shows similar trends in integration between 340B hospitals and non-340B hospitals and physician practices.” 

Penny Pricing Policy 

One of CBO’s more far out conclusions related to so-called “penny pricing.”   

Under 340B and Medicaid rebate laws, drug manufacturers are penalized if they jack up the price of a drug much higher than the rate of inflation.  

When drug companies flagrantly raise their prices, it can result in a drug product’s price dropping to a penny under the 340B program. This component of the law, along with the best price requirement, has been tremendously helpful in keeping costs down and helped rein in manufacturers’ arguably abusive tactics.  

However, the report concludes that both of these factors increase federal spending. 

CBO argued that Medicaid would do better financially if it chased down rebates from drug manufacturers, which could result in even higher rebates since the price would be zero or negative. If that is the case, how about we change the law and allow 340B providers to access these overpriced drugs at less than a penny or have drugmakers pay them for the penalized products? 

CBO Should Return to the Drawing Board 

The CBO’s findings are incredibly important given the agency’s position as the nonpartisan scorekeeper that determines federal legislation’s budgetary impacts.  

If the 340B program is seen as increasing the federal deficit, it will be much easier for program opponents to convince lawmakers to change the program in ways that could undermine safety-net providers’ missions. The new CBO report was already referenced repeatedly during a hearing in the Michigan State House this week on a 340B contract pharmacy access bill and you can expect it will be a constant refrain in the messaging used by 340B opponents on both Capitol Hill and state capitols.

It’s time for Senate Majority Leader John Thune (R-S.D.), a longtime 340B supporter who is also respected by the drug industry, to ask CBO to re-evaluate its findings before more damage is done.