- The number of drug companies restricting discounted pricing for hospitals in the 340B drug discount program has steadily increased despite government warnings that practice violates the law, stressing the finances of safety net hospitals, according to a new report from hospital association 340B Health.
- Large, mostly urban facilities have lost 23% of the savings they used to get from 340B discounts through partnerships with community pharmacies, according to the survey of 510 hospitals. For critical access hospitals (rural hospitals with up to 25 beds that are the only hospitals within 10 miles of another provider), the losses averaged 39%.
- Drugmakers' ability to restrict 340B discounts is currently being litigated in court. But at the time of the survey — November and December 2021 — only eight of the 12 drug companies that are now limiting 340B pricing had those policies in place, so it likely underestimates hospital losses, the group, which represents some 1,400 U.S. safety net hospitals, said.
The 340B drug discount program enacted almost three decades ago requires drug companies that want to participate in Medicaid and Medicare's drug benefit to agree to charge no more than the statutory ceiling prices for eligible outpatient drugs.
Hospitals and clinics then use the savings from those discounts to care for low-income patients and rural communities, without having to rely on taxpayer dollars. But the program has faced criticism for lax oversight from pharmaceutical manufacturers and lawmakers, given hospitals don't have to account for how they use the savings.
340B providers get discounts for the drugs they dispense to eligible patients, along with those dispensed to their patients by contracted community pharmacies. Discounts on drugs dispensed at community pharmacies make up about a quarter of hospitals' overall 340B savings, and more than half of savings for critical access hospitals.
That makes the loss of discounts from community pharmacies they contract with — the avenue most restricted by drugmakers — particularly acute, 340B Health said.
Large facilities reported a median loss of $1 million from the pared-back savings, while a tenth of the hospitals reported losses of $9 million or more. But the impact is heightened on small, rural providers like critical access hospitals, where the 39% average loss evens out to about $220,000 per CAH. A tenth of those facilities lost $700,000 or more.
Loss of those funds can have a significant impact on safety net hospitals already operating under razor-thin margins. Hospitals might be forced to reduce programs and services or eliminate them altogether, cut jobs for people providing the services and even close doors, the report said.
That's bad for vulnerable populations: According to 340B, hospitals in the program provide 60% of all uncompensated care in the U.S. and 75% of all hospital care to Medicaid patients.
Pharmaceutical manufacturers with existing or planned community pharmacy limits are Eli Lilly, Sanofi, AstraZeneca, Novo Nordisk, Novartis, Amgen, Bristol Myers Squibb, Merck, AbbVie, United Therapeutics, UCB and Boehringer Ingelheim.
"These figures are only the tip of a very dangerous iceberg," 340B CEO Maureen Testoni said in a statement on the report. "These unlawful actions are weakening the health care safety net and pose a threat to patients. They must stop."
Powerful pharmaceutical lobby PhRMA said the report emphasizes the need for greater transparency in 340B, and that hospitals receiving discounts from contract pharmacies was never authorized by Congress and may not result in patients sharing in the savings.
PhRMA also pointed to the report's limitations, noting the 510 hospitals surveyed represent only a small portion of the 2,600 hospitals participating in 340B, and it may not be a representative sample.
"There are no requirements that hospitals report how they use the savings they generate from 340B, which leaves the government, manufacturers and patients left to take 340B hospitals at their word with no proof points. This report appears to be a carefully curated look at a subset of 340B hospitals, not a clear look at how all 340B hospitals use 340B," a spokesperson told Healthcare Dive.
Eli Lilly was the first drug company to impose restrictions in July 2020, kicking off a domino effect among its peers. Some stopped giving the 340B ceiling price on their drugs sold to the providers and dispensed through contract pharmacies, while others limited sales by selling products only after a covered entity demonstrated 340B compliance or released specific data.
Pharmaceutical companies defend the restrictions by arguing the 340B program drives patient costs higher in the long run and that there's no guarantee hospital savings are being invested in patient care. Lobbying group PhRMA has pushed for more oversight into how the savings are spent, pointing to evidence that (among other things) poor oversight may allow the discounts to be received twice for the same drug.
Claims 340B actually increases spending, however, are mostly unsupported by outside research.
But that hasn't stopped some drugmakers from trying to dodge the discounts, which can range from 25% to 50% of the drugs' cost, cutting into profits.
More than 700 drug companies currently participate in 340B, so the 12 drugmakers currently looking to sidestep the drug discount program are a small minority, though they include some of the biggest pharmaceutical companies operating in the U.S.
The Health Resources and Services Administration, which oversees 340B, has notified some manufacturers that they're acting illegally and ordered them to restore 340B pricing and refund overchanges. HRSA has referred six cases to HHS' Office of the Inspector General to consider imposing fines, which could total more than $5,000 per violation if approved.
However, a number of the drugmakers have gone to court to try to block HHS. To date, two district courts in the states of Indiana and New Jersey have ruled in favor of HRSA, while a third court in Washington, D.C., said HRSA's position that pharmaceutical manufacturers can't limit 340B discounts isn't the only possible reading of the law, deciding in favor of the drug companies.
Those three district court decisions are currently pending appeals, while another in Delaware district court has not yet issued a decision.
Drugmakers, hospitals and the government are also fighting over a rule HHS finalized in December 2020 on how hospitals and drugmakers handle 340B disputes. The rule would create a dispute resolution mechanism for hospitals if they believe they were overcharged for 340B medications by at least $35,000. Drug companies can also appeal if they think a provider received duplicative discounts.
Neither providers nor pharma companies liked the rule, with drugmakers arguing the Biden administration didn't follow rulemaking requirements and promulgated the rule due to political pressure from Congress to lower drug prices. Meanwhile, providers said it was insufficient to address drug companies' attacks on 340B.
Eli Lilly filed a suit seeking to stop the rule, and a federal judge granted its request early 2021.
Another piece of 340B litigation has wound its way up to the Supreme Court over Trump-era cuts to 340B drugs dispensed through off-campus hospital outpatient sites.
The American Hospital Association, the American Association of Medical Colleges, America's Essential Hospitals and three freestanding hospitals sued not long after the rule was implemented. The Supreme Court heard arguments in December, and a decision is expected sometime this summer.