Anthony DiGiorgio, Assistant Professor of Neurological Surgery at the University of California, San Francisco Medical Center, said that California should not protect the current 340B structure because large hospital systems are using it as a revenue stream rather than clearly directing savings to vulnerable patients.
The discussion centers on the 340B drug pricing program, which requires pharmaceutical manufacturers to provide discounts on outpatient medications to eligible hospitals. DiGiorgio said this program is being used by hospitals to generate revenue instead of passing savings directly to patients.Â
“The 340B program requires that drug manufacturers give large discounts on outpatient medications to eligible hospitals. But instead of passing these savings on to patients, too often these hospitals are reselling the drugs for much higher prices. As soon as hospitals gain 340B eligibility, they preferentially expand into wealthy neighborhoods and contract with pharmacies hundreds of miles away — with no requirement of benefit to the poor or uninsured,” DiGiorgio said in an opinion piece published by the San Francisco Chronicle.
“Few states have transparency laws, and those that do, such as Minnesota, note serious abuses and a lack of oversight in the program. What’s worse, the 340B program doesn’t just hurt pharmaceutical companies; over 80% of its revenue comes from commercial payers, Medicare, Medicaid and patients themselves,” he added.
After federal rules allowed unlimited contract pharmacy arrangements in 2010, participation by U.S. pharmacies in the 340B program increased significantly. The share of pharmacies contracting with a 340B institution rose from 5.9% in 2011 to 29.9% in 2019, with retail pharmacies making up 92% of all participating pharmacies by that year according to JAMA Health Forum.
Minnesota’s most recent legislative report found that covered entities paid more than $120 million to outside parties for operating their programs under the law. For every $100 generated statewide through gross 340B revenue, about $16 went toward external administrators and contract-pharmacy operations according to Minnesota Department of Health.
A California-specific analysis estimates an annual employer and worker burden from the program at $586 million—about $33 per beneficiary—with projections rising if new mandates are added. The same analysis projects about $89 million annually in costs for state and local government health plans.
California’s involvement with the program is substantial: there are currently 177 hospitals participating in the state’s network and nearly 28,000 arrangements with for-profit contract pharmacies—including almost 7,000 outside California—resulting in significant added employer health costs and reduced tax revenues due to lost commercial drug rebates according to PhRMA.
DiGiorgio is an assistant professor at UCSF’s department of neurological surgery and director of spinal neurotrauma at Zuckerberg San Francisco General Hospital and Trauma Center. UCSF Health-UCSF Medical Center was founded in San Francisco in 1907; its current president is Suresh Gunasekaran. In its most recent annual report from 2022, it admitted approximately 41,000 patients for treatment.
