Association of 340B Contract Pharmacy Growth With County-Level Characteristics

ABSTRACT

Objectives: To estimate the association of 340B contract pharmacy growth between 2009 and 2019 with county-level characteristics, including availability of health care providers, health care spending, population, and socioeconomic characteristics.

Study Design: Observational study.

Methods: We constructed county-level maps of 340B contract pharmacy penetration for the years 2009 and 2019 by 340B participant type (hospital or safety-net clinic). We then used a multivariable linear probability regression model to estimate the association of county-level characteristics in 2009 with the probability of gaining at least one 340B contract pharmacy within the county by 2019. We estimated separate regressions for safety-net clinics and hospitals.

Results: We find that growth of contracts with 340B hospitals was uncorrelated with uninsured rates, poverty rates, or areas of medical underservice. By contrast, we find that growth of contracts with 340B safety-net clinics was positively correlated with poverty rates and metropolitan statistical status. These findings suggest different patterns of access for patients.

Conclusions: Our results add systematic evidence of a difference in how the 2 main types of 340B participants—hospitals and safety-net clinics—use the 340B program. Policy proposals to reform 340B should consider reforms for safety-net clinics and hospitals separately.

Am J Manag Care. 2022;28(3):133-136. https://doi.org/10.37765/ajmc.2022.88840

Takeaway Points

Our results demonstrate that the pattern of expansion of contract pharmacies differs between 340B hospitals and 340B safety-net clinics, suggesting that the 2 types of participants may use the program differently.

• Contract pharmacies have grown substantially in the past decade, especially for hospitals participating in 340B.
• Growth of contracts with 340B hospitals was less likely in areas with higher uninsured rates and in medically underserved areas.
• Growth of contracts with 340B safety-net clinics was more likely in areas with higher poverty rates and in metropolitan areas.
• Policy proposals to reform 340B should consider reforms for safety-net clinics and hospitals separately.

The 340B Drug Pricing Program was created in 1992 to support safety-net health care providers by offering them federally mandated discounts on outpatient prescription drugs.¹ The program increases access to care for safety-net–reliant populations in 2 ways. First, it entitles eligible safety-net clinics and hospitals to substantial discounts on outpatient drugs that can be given for free or at a low cost to patients with limited ability to pay. Second, the program has been widely interpreted as allowing safety-net providers to charge insured patients full price for discounted outpatient drugs, using the difference between reimbursements and discounted costs to fund safety-net activities. To this end, the Health Resources and Services Administration (HRSA) states that 340B enables participants to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”²

Participants include federally sponsored safety-net clinics with an explicit mission to provide care regardless of cost, as well as certain nonprofit and public hospitals. Hospitals’ participation in the program has garnered controversy in recent years due to the growth of clinics registered to dispense 340B-eligible drugs.³ Evidence from numerous studies has called into question whether 340B hospitals are using the program to enhance safety-net care, as clinics registered to dispense discounted drugs grew disproportionately in higher-income communities that contain relatively fewer safety-net patients.⁴ Moreover, participation in 340B is not associated with increases in care to safety-net patients or more comprehensive services.³ Perhaps as a result of these and other findings, CMS is attempting to reduce Medicare reimbursements to hospitals for physician-administered 340B-eligible drugs.⁵

Although researchers and policy makers have been focused on the growth of clinics through which 340B-discounted drugs could be administered by physicians, so-called “contract pharmacies” have grown exponentially. Contract pharmacies are community retail pharmacies authorized to dispense 340B-eligible drugs to patients of 340B participants. The spread between the reimbursements and the discounted price is split between the pharmacy and the 340B-eligible provider, who remits a portion of the savings to the pharmacy in the form of a fee.⁶ Since 2010, when the limit of 1 contract pharmacy per 340B participant was eliminated, the number of contract pharmacies has increased more than 6-fold, from less than 3000 to more than 20,000 by 2017.⁷

Despite this rapid growth, the characteristics of communities in which contract pharmacies were established since 2010 are unknown. Furthermore, it is also unknown whether growth in 340B contract pharmacies was proportional between the 2 main types of 340B participants: safety-net clinics and selected hospitals. In this study, we analyzed county-level data on growth of 340B contract pharmacies between 2009 and 2019 and estimated associations between growth of pharmacy contracts with either 340B hospitals or 340B safety-net clinics and community-level measures of the availability of health care providers, health care spending, population, and socioeconomic characteristics.

DATA

Data on the 340B contract pharmacies came from the HRSA Office of Pharmacy Affairs Contract Pharmacy List. We extracted the zip code of each contract pharmacy and its registration status between 2009, the year before the restriction on 1 pharmacy per 340B provider was removed, and 2019, the most complete year of data. For zip codes that spanned multiple counties, we assumed that the pharmacy was located in the most populous county. By aggregating to the county level, we could link our data to a variety of annual county-level data sets, including (1) the US Census Bureau’s Small Area Health Insurance Estimates⁸ to assess uninsured rates, (2) the Small Area Income and Poverty Estimates⁹ to assess poverty rates, (3) the HRSA Medical Underservice Files¹⁰ to assess measures of access to health care providers, (4) the CMS annual county-level spending file,¹¹ and (5) the US Department of Agriculture’s Rural-Urban Continuum Codes¹² to assess the nonmetropolitan status of each county. After linking all data sets at the county level, removing counties from US territories, and removing counties with missing information, our final data set included 2806 counties of the 3142 total possible counties in the United States and territories. Although community pharmacy markets may not follow county designation, we followed other studies and defined communities at the county level due to the availability of county-level characteristics data.^13,14

METHODS AND OUTCOMES

We first present county maps of 340B contract pharmacy penetration in 2009 and in 2019, separately for pharmacies associated with 340B safety-net clinics and 340B hospitals. We also present in the eAppendix (available at ajmc.com) descriptive statistics of counties with and without pharmacies in 2009 and in 2019. We then used a multivariable logistic regression model to estimate the odds ratio (OR) of gaining a pharmacy contract with either a hospital or a safety-net clinic with respect to county-level characteristics. Our dependent variables of interest were indicators set to 1 if a county gained a pharmacy contract with a 340B hospital or a 340B safety-net clinic between each year, y, and the previous year, y – 1. Our independent variables of interest were county-level characteristics lagged by 1 year: uninsured rates, poverty rates, medically underserved status, rural status, and per capita Medicare spending. We also included measures of annual population growth and state-by-year fixed effects to control for differences in population growth and secular state-specific time trends. We estimated separate regressions for safety-net clinics and hospitals.

RESULTS

The Figure presents county-level penetration of contract pharmacies in 2009 and 2019 by contracting 340B entity type. In 2009, only 3.2% of all US counties contained a pharmacy that had established a contract with a 340B-participating hospital. By 2019, this percentage had risen to 76.3%. In contrast, 20.8% of US counties contained a pharmacy that had contracted with a 340B-participating safety-net clinic in 2009, rising to 64.8% of counties by 2019. Communities with at least one 340B pharmacy contract had similar poverty and uninsured rates in 2009, but by 2019, communities with 340B pharmacy contracts tended to have lower poverty and uninsured rates. Both types of communities were consistently more likely to be located in urban areas and in counties that were not designated as medically underserved. (See eAppendix for results.)

The Table presents estimated associations between the probability of gaining a contract pharmacy and 1-year lagged county-level characteristics, separated by type of 340B entity. The odds of gaining a pharmacy contract with a 340B hospital were lower among counties with higher uninsured rates than those with lower ones (OR, 0.19; 95% CI, 0.04-0.90). There was no statistically significant association between the odds of gaining a pharmacy contract with a 340B safety-net clinic and the uninsured rate. In contrast, there was no association between the odds of gaining a pharmacy contract with a hospital and the county-level poverty rate in the previous year. However, the odds of gaining a contract with a safety-net clinic were significantly higher among counties with higher poverty rates than those with lower ones (OR, 6.60; 95% CI, 2.38-18.29). The odds of gaining a contract with a 340B hospital were significantly lower among medically underserved areas (MUAs) than non-MUAs (OR, 0.84; 95% CI, 0.77-0.92). However, the odds of gaining a pharmacy contract with a safety-net clinic did not differ between MUAs and non-MUAs. The odds of gaining a contract with a 340B hospital did not differ between rural and nonrural counties, but the odds of gaining a contract pharmacy with a safety-net clinic were lower among rural counties than nonrural ones (0.75; 95% CI, 0.66-0.84). The odds of gaining a pharmacy contract with either a safety-net clinic or a 340B hospital did not differ by per capita Medicare spending.

DISCUSSION

The fraction of counties that had at least one 340B contract pharmacy increased substantially between 2009 and 2019, but especially so for hospitals, which had lower county-level penetration at baseline. Today nearly three-fourths of all counties contain at least 1 pharmacy that has established a contract with a 340B hospital. The factors associated with growth differed between hospitals and safety-net clinics. Although gaining a pharmacy contract with a hospital was more likely to occur in lower-poverty areas and nonmetropolitan areas, the opposite was true for safety-net clinics. Furthermore, pharmacy contracts with 340B safety-net clinics were more likely to occur in areas that had higher uninsured rates in 2009. This is important because 340B participants can generate revenue from charging insured patients full price. For both types of 340B participants, the probability of establishing at least 1 contract pharmacy has little relationship to the availability of health care in 2009. As a result, it appears that 340B participants are not targeting contract pharmacies in MUAs. Further, it does not appear that newly established contract pharmacies were particularly likely to be in areas with fewer pharmacies per capita.

The costs of the 340B program are borne by taxpayers and individuals who purchase private insurance, as the subsidy is funded by charging Medicare and privately funded patients full price for discounted drugs. The costs are also borne by drug manufacturers who must offer the 340B discounted price to have their drugs covered by the Medicaid program. Additionally, group-specific discount programs, such as 340B, may contribute to drug price inflation.¹⁵

Limitations

Our results have several limitations. First, we were unable to assess the volume of 340B-eligible prescriptions filled; therefore, we cannot rule out that contract pharmacies were established but no 340B-discounted drugs were dispensed. Second, our choice of the county to measure 340B contract pharmacy growth may not serve as a good proxy for retail pharmacy markets. Third, we lacked a unique pharmacy identifier. Therefore, we could not identify the number of unique contract pharmacies, only the number of unique pharmacy contracts with 340B providers. An investigation by the Government Accountability Office found that some pharmacies have multiple contracts with 304B providers.⁶ As a result, the number of contracts is an overestimate of overall growth in contract pharmacies.⁶ Fourth, our geographic unit of analysis, the county, may not fully approximate local pharmacy markets, especially in urban counties. However, we were unable to assess market characteristics at a level lower than the county.

The differential patterns of growth between hospitals and safety-net clinics suggest that these 2 types of entities may be using the program differently. Commercial and Medicare payer mix differs substantially between US hospitals and federally sponsored safety-net clinics, with significantly more uninsured and Medicaid patients at federally sponsored clinics and more privately insured and Medicare beneficiaries at hospitals. Because hospital participants have a greater potential to profit from 340B, it is reasonable to assume that they may be more likely to pursue contracts in counties that target their higher-income and well-insured patients. This pattern of growth is similar to that found for 340B clinics.⁴ By contrast, safety-net clinics have little potential to profit from the program and may be more likely to pursue contracts that serve all patients.

Our results can inform current debates over whether and how to reform the 340B program. These debates center on whether participants use the program to enhance safety-net care or to further strategic objectives such as gaining market share. First, our results suggest that reform efforts must consider and include contract pharmacies, which have been absent from current policy proposals. Second, our results add systematic, albeit descriptive, evidence of a difference in how the 2 main types of participants use the program. Thus, policy proposals must consider reforms affecting each type of participant separately. However, further evidence on differences in how safety-net clinics and hospitals use this program is needed.

CONCLUSIONS

The growth of 340B contract pharmacies since 2010 is unprecedented. Our study’s findings suggest that both the level of growth and the patterns of county-level growth differ between safety-net clinics and hospitals. To the best of our knowledge, this is the first study to investigate the geographic distribution of 340B pharmacy contracts. 

Author Affiliations: Division of Health Policy and Management, University of Minnesota School of Public Health (SN, HG), Minneapolis, MN; Questrom School of Business, Boston University (GG, RC), Boston, MA.

Source of Funding: This study was funded by a grant from the Commonwealth Fund.

Author Disclosures: Dr Conti has received grants from the Commonwealth Fund and American Cancer Society, has received honoraria from Merck and West Health, and is an associate editor of The American Journal of Managed Care®. The remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (SN, RC); acquisition of data (SN); analysis and interpretation of data (SN, GG, RC); drafting of the manuscript (SN, GG, HG, RC); critical revision of the manuscript for important intellectual content (SN, GG, HG, RC); administrative, technical, or logistic support (HG); and supervision (SN).

Address Correspondence to: Sayeh Nikpay, PhD, MPH, Division of Health Policy and Management, University of Minnesota School of Public Health, PWB 15-211, 516 Delaware Street SE, Minneapolis, MN 55455. Email: snikpay@umn.edu.

REFERENCES

1. HHS. Notice regarding section 606 of the Veterans Health Care Act of 1992; contract pharmacy services. Fed Regist. 1996;61(165):43549-43556.

2. 340B Drug Pricing Program. Health Resources and Services Administration. Accessed February 5, 2021. https://www.hrsa.gov/opa/index.html

3. Nikpay S, Buntin M, Conti RM. Diversity of participants in the 340B Drug Pricing Program for US hospitals. JAMA Intern Med. 2018;178(8):1124-1127. doi:10.1001/jamainternmed.2018.2015

4. Conti RM, Bach PB. The 340B Drug Discount Program: hospitals generate profits by expanding to reach more affluent communities. Health Aff (Millwood). 2014;33(10):1786-1792. doi:10.1377/hlthaff.2014.0540

5. CMS finalizes hospital outpatient prospective payment changes for 2017. News release. CMS; November 1, 2016. Accessed July 21, 2017. https://www.cms.gov/newsroom/fact-sheets/cms-finalizes-hospital-outpatient-prospective-payment-changes-2017

6. Draper DA. Drug Discount Program: improvements needed in federal oversight of compliance at 340B contract pharmacies. US Government Accountability Office. July 11, 2018. Accessed February 1, 2020. https://www.gao.gov/products/gao-18-646t

7. Fein AJ. The booming 340B contract pharmacy profits of Walgreens, CVS, Rite Aid, and Walmart. Drug Channels. July 11, 2017. Accessed February 20, 2020. https://www.drugchannels.net/2017/07/the-booming-340b-contract-pharmacy.html

8. Small Area Health Insurance Estimates (SAHIE) program. United States Census Bureau. Accessed February 3, 2021. https://www.census.gov/programs-surveys/sahie.html

9. Small Area Income and Poverty Estimates (SAIPE) program. United States Census Bureau. Accessed February 5, 2021. https://www.census.gov/programs-surveys/saipe.html

10. Area Health Resources Files. Health Resources and Services Administration. Accessed January 21, 2021. https://data.hrsa.gov/topics/health-workforce/ahrf

11. Medicare geographic variation – by national, state & county. CMS. Updated January 21, 2022. Accessed February 7, 2022. https://data.cms.gov/summary-statistics-on-use-and-payments/medicare-geographic-comparisons/medicare-geographic-variation-by-national-state-county

12. Rural-Urban Continuum Codes: documentation. US Department of Agriculture Economic Research Service. Updated December 10, 2020. Accessed January 21, 2021. https://www.ers.usda.gov/data-products/rural-urban-continuum-codes/documentation

13. Qato DM, Daviglus ML, Wilder J, Lee T, Qato D, Lambert B. ‘Pharmacy deserts’ are prevalent in Chicago’s predominantly minority communities, raising medication access concerns. Health Aff (Millwood). 2014;33(11):1958-1965. doi:10.1377/hlthaff.2013.1397

14. Doucette WR, Brooks JM, Sorofman BA, Wong H. Market factors and the availability of community pharmacies. Clin Ther. 1999;21(7):1267-1279. doi:10.1016/S0149- 2918(00)80029-6

15. Howard DH, Bach PB, Berndt ER, Conti RM. Pricing in the market for anticancer drugs. J Econ Perspect. 2015;29(1):139-162. doi:10.1257/jep.29.1.139