Abstract
The 340B Drug Pricing Program allows qualifying public and not-for-profit hospitals to acquire most outpatient drugs from manufacturers with discounts ranging from 20 to 50 percent of the cost of the drugs. Since the Affordable Care Act (ACA) extended hospital eligibility for 340B, over 1,000 Critical Access Hospitals (CAHs) have joined the program. Because CAHs are reimbursed by Medicare at 101% of costs, they receive less payment per Part B-covered outpatient drug under the 340B program. This creates a unique circumstance in which the behavioral response of CAHs and the implications to their patients remain not well understood. Leveraging the 340B expansion and the geographic variation in the outpatient market share of CAHs, I show in a difference-in-difference (DiD) framework that allowing CAHs to participate in 340B led to a significant reduction in total payment and beneficiary cost sharing for Part B drugs per patient with little change to Part B drug utilization. Since Part B coinsurance for services provided by CAHs is based on charges (list prices) instead of total payment, I find that the observed reduction in beneficiary cost sharing under 340B was driven by CAHs lowering outpatient drug charges upon becoming eligible for 340B (DiD) or participating in 340B (event study). I argue that the pass-through of 340B discounts to patients was not financially motivated.