340B Series (Part 1): Mandatory drug price discounts are born.

In 1990, drug manufacturers were required by the new Medicaid Drug Rebate Program to provide discounts on outpatient drugs that would match the best price offered to any other buyer. This was implemented by a little piece of legislation known as the Omnibus Budget Reconciliation Act (or “OBRA 90” as it is more generally referred to).[1]

GHWBush-drug discountsPharmacists associate OBRA 90 with the requirement to make the “offer to counsel” patients (it is why they make you check a box each time you pick up a prescription that says “I do not have any questions for the pharmacist”). If I had to guess, President George H.W. Bush associates OBRA 90 as one of the reasons he lost his re-election bid to that engaging governor from Arkansas when it made him look like a “flip flopper” on his 1988 campaign promise not to raise taxes. Interestingly, another Arkansas politician was at the heart of the drug price debates. Senator David Pryor (D-AR) was chairman of the Senate Special Committee on Aging in 1989 and the Medicaid drug discounts were part of the compromise that was reached in OBRA 90.[2] But I digress…

Anyway, OBRA 90 gave Medicaid the best possible prices on drugs from manufacturers in exchange state Medicaid programs would be required to include these drugs on their formularies.[2]

HR 5193 aka “Veterans Health Care Act of 1992”

On November 4, 1992, President George H. W. Bush signed the Veterans Health Care Act into law and the focus of his speech after the signing was primarily on the provisions of the bill that established the Persian Gulf War Veterans Health Registry, counseling services to women sexually assaulted or harassed during military service, and other Veterans Affairs (VA) specific benefits.[3]

Introduced by conservative Mississippi Democrat Sonny Montgomery, HR 5193 has had a lasting impact on the VA system, but has had a much broader impact thanks to the provisions in the bill related to limiting the prices of drugs “procured by covered entities”. More specifically section 340B was added to the Public Health Services Act to extend the Medicaid-like rebates to the Veterans Affairs (VA) and other public health care systems.[4] The idea was that the entities that provided care to a large proportion of uninsured or indigent individuals could use the discounts on outpatient drugs to stretch their resources and provide even more care to this vulnerable population.

Lasting Impact

Policy doesn’t typically happen overnight. This incremental change followed by Bill Clinton’s plan to add outpatient prescription benefits to the Medicare program with the Health Security Act in 1993 that would make Medicare the largest purchaser of drugs and with that HSA would require rebates from manufacturers.[5] However, the country wasn’t ready for the expansion of Medicare to outpatient prescriptions and surprisingly it would be a Republican President that would make this change nearly a decade later. While the early 1990’s would not be the time for sweeping legislation changing our health care system, it was in fact the perfect time for a budget bill & a veteran-focused bill armed with language that would effectively alter the way drugs are priced in this country.

Today, hospital administrators are working through the complexity of 340B and I doubt anyone has time to think about how on earth 340B came to be. Today’s post was just a quick snapshot of two specific pieces of legislation signed into law more than 20 years ago that continue to impact the way health services are provided in the United States. Thanks to the work of a Republican President and two southern Democrats, policy changes that may not have seemed that groundbreaking in the 90’s are still creating ripples in the 21st century.



  1. Omnibus Budget Reconciliation Act of 1990. Pub.L. 101-508, Title IV, sec. 4401(a)(3), 104 Stat. 1388-143.
  2. Pollard MR, Coster JM. Savings for Medicaid drug spending. Health Affairs. 1991;10(2):196-206.
  3. Bush GHW. Statement on signing the Veterans Health Care Act of 1992. November 4, 1992. Available at: http://www.presidency.ucsb.edu/ws/?pid=21737, accessed June 6, 2015.
  4. Veterans Health Care Act of 1992, Public Law 102-585. Health Resources and Services Administration. Available at: http://www.hrsa.gov/opa/programrequirements/publiclaw102585.html, accessed June 6, 2015.
  5. Oliver TR, Lee PR, Lipton HL. A political history of Medicare and prescription drug coverage. Millbank Q. 2004;82(2):283-354.
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Joey Mattingly, PharmD, MBA is an assistant professor at the University of Maryland School of Pharmacy located in Baltimore, Maryland. Joey has managed retail and long-term care pharmacy operations in Kentucky, Illinois and Indiana. Leading Over The Counter is a blog of Joey's views and opinions on the topics of pharmacy leadership and management and do not represent the University of Maryland, Baltimore. Joey can be followed on Twitter @joeymattingly.

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