community health center operations.
First, the Congressional purpose of giving qualified safety net health care
providers access to 340B discounts is to enable those providers to “reach
more patients” and furnish “more comprehensive services.”224 The 340B
Program was not established to bolster for-profit company’s profit
margins.225 The 340B Program was enacted by Congress to benefit eligible
safety net providers, their patients, and the taxpayers that support them in an
effort to finance critically needed health care services delivered by these
providers without appropriating additional federal funds.226 This purpose
cannot be achieved if 340B providers have to pass on the savings they have
received through the 340B Program to third parties.
The difference between a 340B drug’s lower acquisition cost and standard
non-340B reimbursement represents the very benefit that Congress intended
to give covered entities when it established the 340B Program. HRSA
explains that if “covered entities were not able to access resources freed up
by the drug discounts when they . . . bill private health insurance, their
programs would receive no assistance from the enactment of section 340B
and there would be no incentive for them to become covered entities.”227
Compensation to a pharmacy dispensing 340B drugs should be fair market
value, and the pharmacy has no legal claim to revenue generated by the cost
spread under 340B.228 To the extent the financial benefits of 340B wind up
significantly in the hands of vendor pharmacies, the basic purpose of 340B is
Second, as tax-exempt organizations under Section 501(c)( 3) of the
Internal Revenue Code, private community health centers have a special
interest in establishing a prudent procurement process. Section 501(c)( 3)
organizations risk revocation of their tax-exempt status if their arrangements
with any vendors unreasonably benefit the vendor, such as by paying service
fees higher than market rates or disproportionate to their value, or through
impermissible revenue sharing arrangements.229 A prudent procurement
224. H.R. REP. NO. 102-384, pt. 2, at 12 (1992).
225. See id.
226. See id.
227. See HEALTH RES. AND SERV. ADMIN., HEMOPHILIA TREATMENT CENTER MANUAL
FOR PARTICIPATING IN THE DRUG PRICING PROGRAM ESTABLISHED BY SECTION 340B OF THE
PUBLIC HEALTH SERVICE ACT (2015), http://www.hrsa.gov/hemophiliatreatment/
228. See, e.g., KATHERYNE RICHARDSON & DAVID SCHWED, IMPLEMENTING A
COMPREHENSIVE 340B CONTRACTS PHARMACY SERVICE 29 (2004) (Dr. Richardson is a Senior
Director of Apexus).
229. Section 501(c)( 3) requires, as a condition of tax exemption, that the organization’s
assets be used exclusively for religious, charitable, or scientific purposes. Although a
charitable organization may contract with and compensate private vendors to provide services,
excessive compensation (or other unreasonable transfer of the organization’s assets to the