Access to the 340B Drug Pricing Program: is there evidence of strategic hospital behavior?

Karen Mulligan, John A. Romley, Rebecca Myerson

The 340B Drug Pricing Program allows hospitals to purchase covered drugs at a discount and potentially generate profit if they are reimbursed at rates that exceed 340B acquisition prices. Disproportionate share hospitals (DSH) are eligible to participate in 340B if their DSH adjustment-a measure that identifies hospitals that treat a disproportionate share of low income Medicare or Medicaid patients-is above 11.75%. To assess whether hospitals behave strategically to gain access to the program, we examined data on the number of hospitals just above versus below the DSH adjustment threshold for 340B eligibility and conducted McCrary density tests to assess statistical significance. In 2014-2016, the number of hospitals increases by 41% just above the 340B eligibility threshold. McCrary density tests found this increase to be statistically significant across a range of bandwidths in 2014-2016 (p < 0.01). From 2011-2013, the findings are sensitive to the bandwidth around the threshold, but insignificant in 2008-2010. We found no comparable change among hospitals ineligible for the 340B program. These data are consistent with the hypothesis that some hospitals adjust their DSH to gain 340B eligibility. Our findings support recent calls from the Government Accountability Office to improve oversight of the 340B program.