The 340B Drug Pricing Program: Existing Evidence and Policy Implications for Kentucky

Charles Courtemanche
University of Kentucky

Joseph Garuccio
University of Kentucky

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Executive Summary: 

        The 340B drug pricing program was instituted to bolster the health care safety net without relying on taxpayer money. It allows participating health care facilities, called covered entities, to purchase drugs filled at in-house or contracted external pharmacies at discounts from manufacturers. This generates additional funds that can help safety net providers sustain or expand relatively unprofitable departments as well as services for low-income individuals. 
        However, providing these discounts leads to a potentially important reduction in revenue for drug manufacturers. They have raised concerns about the rapid growth in the network of contract pharmacies, which has increased the number of drugs receiving the discount. Drug companies responded by enacting restrictions that in turn led to a flurry of lawsuits and legislative activity. In particular, eight states have enacted laws intended to preserve contract pharmacy networks, and many others – including Kentucky – are considering such legislation.      
        This paper aims to inform policymakers and other stakeholders – particularly those in Kentucky – as to the history of the 340B program, scholarly evidence on how covered entities respond to the program, and the implications of this evidence for public policy moving forward. While the volume of studies is substantial, challenges with distinguishing correlation from causality and generalizing results beyond specific settings have largely prevented a consensus from being reached as to whether covered entities respond in desirable or undesirable ways. 
        Although the evidence thus far is suggestive rather than conclusive, it points to potentially important impacts that warrant further investigation. First, the 340B program appears to enable at least some covered entities to better serve vulnerable populations by providing more charity care or adding lines of service, particularly oncology. Some evidence also suggests that it reduces Medicare Part B drug spending. At the same time, contract pharmacies and associated outpatient clinics are on average located in more affluent communities than the covered entity itself, raising questions about the appropriate reach of the program. Finally, some evidence suggests that the fact that 340B discounts are larger for more expensive drugs slows the adoption of low-cost biosimilar drugs by covered entities.  
        However, given the limited and inconclusive nature of much of this evidence, the only indisputable effect of the program is to redistribute money from drug manufacturers to covered entities. Therefore, the appropriateness of public policy actions related to the program largely hinges on the desirability of such transfers. In states such as Kentucky that do not have a major drug manufacturing presence, a law preserving 340B discounts for contract pharmacies would ensure that the most possible out-of-state money flows into the state.

Published: February, 2025