John Goodman of the National Center for Policy Analysis (NCPA) says in a June 8 Health Affairs Blog entry that the Public Health Service 340B drug discount program is part of a “web of [federal] regulations that are preventing life saving drugs from reaching the patients who need them.” More specifically, he says that the program, which provides discounted drugs to safety-net institutions such as hospitals and clinics that treat large numbers of indigent patients, is “contributing” to severe prescription drug shortages.

His essay, however, offers no factual support for its claim that the 340B program is somehow causing shortages. His entire case against 340B drug discounts rests upon his belief that “when prices are kept artificially low, shortages develop.”

Last month, the Pharmaceutical Research and Manufacturers of America (PhRMA) issued a statement on drug shortages and their causes. Citing the Food and Drug Administration (FDA) and other experts, the industry group says shortages can occur

for any number of reasons ranging from natural disasters; shifts in clinical practices; wholesaler and pharmacy inventory practices; raw material shortages; changes in hospital and pharmacy contractual relationships with suppliers and wholesalers that can cause fluctuations in the availability of certain products; adherence to FDA-mandated distribution protocols, which can impact patients’ timely access to medicines; individual company decisions to discontinue specific medicines; and manufacturing challenges.

The absence of any mention of 340B, or of government limits on drug prices more generally, is noteworthy given that PhRMA is not very fond of such programs.

Why The 340B Program Does Not Cause Drug Shortages

A recent analysis conducted by my organization, Safety Net Hospitals for Pharmaceutical Access (SNHPA), found that a vast majority of the more than 200 drugs listed by the FDA as being in short supply are generic products. According to the American Society of Health System Pharmacists (ASHP), which has been studying and keeping track of drug shortages for more than a decade, between 50 and 60 percent of the drugs in short supply last year were injectable products and a majority of them were generic. (Reilly, Cynthia. Telephone interview with SNHPA. June 10, 2011.)

That’s highly relevant because hospitals that do not participate in 340B can often buy generic drugs for less than hospitals that are enrolled. (That’s not the case for more expensive brand-name drugs.) In other words: If generic drugs are in short supply, it is unlikely to be because safety-net health care providers are buying them up at prices lower than anyone else can get.

In addition, the Health Resources and Services Administration (HRSA), the unit within the U.S. Department of Health and Human Services (HHS) that oversees 340B, estimates that purchases under the program make up less than 2 percent of the U.S. prescription drug market. We think it is reasonable to believe that shortages probably have more to do with the other 98 percent of the market.

Moreover, to the degree that government price controls might be playing a role in shortages, we note that the 340B program is dwarfed by the Medicaid drug rebate program, with 340B-enrolled providers spending $6 billion on covered outpatient drugs annually, compared with the approximately $23 billion that Medicaid spends yearly on prescription drugs. We also note that the Department of Defense (DOD) and Department of Veterans Affairs (VA) pharmacy benefit programs use statutorily mandated discounts to limit drug spending. In fiscal year 2009, DOD spent about $7.7 billion and VA about $3.7 billion on prescription drugs.

Listening To The Hospitals

Mr. Goodman expresses concern about drug shortages at our nation’s university hospitals. My organization, Safety Net Hospitals for Pharmaceutical Access, includes virtually every academic medical center in the country. None, to my knowledge, has cited the 340B program as a factor in actual instances of drug shortages.

In fact, The Johns Hopkins Hospital, one of those mentioned as rationing the cancer drug cytarabine says, “there is no evidence that the 340B program has contributed to shortage problems.” “Cytarabine is a generic drug, and the 340B program has a very small impact on pharmaceutical sales, yet it is of great importance to hospitals that treat large populations of uninsured and underinsured patients,” according to Vanessa Wasta, associate director of media relations at Hopkins.

Take the word of Shirley Geize, assistant director of purchasing and contracting for pharmacy at Hopkins, a 340B-enrolled institution serving inner city Baltimore. (Geize, Shirley. Telephone interview with SNHPA. June 10, 2011.) She says that, thanks to its participation in 340B, her hospital saved $15 million in fiscal 2010 out of $90 million in total combined ambulatory and inpatient drug expenditures. Most of the money saved is on outpatient chemotherapy agents.

Participation in 340B, Ms. Geize says, “means the ability to maintain our contribution to this community.” “Without it, in these financial times, it would mean having to limit our charity care program or finding other sources of support,” she continues. “No, we couldn’t fill the gap if 340B disappeared.”

Michael Powell, executive director of pharmacy services at The Nebraska Medical Center, another hospital cited in Goodman’s post, says that the 340B program “is critical to our institution’s ability to provide access to pharmaceutical care for our most vulnerable patient populations, who would otherwise not be able to obtain prescription medications.” (Powell, Michael. Telephone interview with SNHPA. June 15, 2011.) “The savings achieved through 340B pricing help us to sustain other vital services, in addition to pharmaceutical care,” he says.

A Letter To Secretary Leavitt And What It Really Said

Mr. Goodman says that shortages have been getting progressively worse since 2005, when hospitals complained to Health and Human Services Secretary Michael Leavitt that drug manufacturers and distributors were citing drug shortages on expensive products such as blood supplies. Mr. Goodman’s article links to the letter that the hospitals sent to Secretary Leavitt.

That was our letter. We used to be the Public Hospital Pharmacy Coalition (PHPC) before we became SNHPA, which represents more than 700 hospitals enrolled in the 340B program, from the largest urban hospitals to the smallest ones in remote rural areas.

We support 340B. We would like to see it expanded to the inpatient setting. We would like to see a ban on discounts on orphan drugs lifted for rural and cancer hospitals. And we do not think 340B causes drug shortages. In fact, it’s disconcerting to see our letter used to advance the argument that 340B should be repealed.

We wrote to Secretary Leavitt to inform him that some pharmaceutical companies, most notably those that make the blood product intravenous immunoglobulin (IVIG), were refusing to sell their products to 340B providers, ostensibly because there was no supply. In fact, there was plenty of supply available to commercial and retail entities that contracted directly with the companies, but nothing available to 340B providers.

The 340B Program: A Small Investment For A Large Return

The federal government spends a little over $2 million a year (that’s million with an M, not billion or trillion) administering the 340B program. The program has fewer than 20 workers. It recently had to cut its technical assistance program to the bone due to inadequate funding. And yet the 340B program saves taxpayers a vast amount of money, since 340B providers share their savings from the program with Medicaid and many entities in the program are federal grantees or state or local government institutions.

It’s beyond us why anyone would seriously question the value of a program that is proven to improve care and save money.