Protecting 340B Drug Discount Program for Benefit of Patients and Hospitals

The American Hospital Association’s (AHA) release of its Good Stewardship Principles concerning the Medicare 340B Drug Discount Program is the latest step in a series of actions designed to protect and strengthen this program.  The 340B Drug Discount Program has been under attack in recent years from legislators, policy makers, and oversight agencies that believe some utilizers of the program are not using the savings from the program as Congress intended – that is to fund other vital services and programs that might otherwise not be available to patients in vulnerable communities.

The 340B Drug Pricing Program requires drug companies that participate in Medicaid to sell outpatient drugs to certain not-for-profit hospitals – mainly safety-net hospitals – health centers, and specialty clinics at discounted rates, which range from 20 to 50 percent.  The program was established in 1992 and providers in New York State use savings from this program to re-invest in a variety of community outreach activities, free and low-cost programs, and most importantly, low or no-cost medications to low-income, vulnerable patients.  It’s important to remember that the 340B Drug Discount Program operates at little cost to the federal government.

Despite its inherent value, the Centers for Medicare and Medicaid Services (CMS) reduced by nearly 30 percent the amount Medicare reimburses for some drugs purchased through the 340B Program.  That cut took effect January 1, 2018.  This will result in more than $100 million in cuts this year to eligible 340B hospitals – cuts that will ultimately hurt New York’s most vulnerable patients.  The Suburban Hospital Alliance of New York State (SHANYS) has voiced its opposition to these cuts and supports current bills (H.R. 4392 and H.R. 6071), which would halt these cuts and institute other reforms to strengthen the program.

On the legal front, the American Hospital Association recently refiled its lawsuit against the U.S. Department of Health and Human Services (HHS) agency challenging CMS’ rule that imposed the 30 percent cut.  The first suit was dismissed on procedural grounds.  A U.S. Court of Appeals agreed with a lower court stating that the plaintiffs had not yet exhausted their administrative remedies challenging CMS’ legal authority to implement the cuts.  The new lawsuit demonstrates that the administrative appeals process has been exhausted.  SHANYS is supporting this suit.

Since the 340B Drug Program involves pharmaceutical companies, the issue of pricing and transparency is tantamount to the program’s intent to enable eligible hospitals to reinvest savings.  Those in the program receive a minimum discount or “ceiling price” reduced by a rebate percentage. An additional discount is allowed, if the price of the drug has increased faster than the rate of inflation.  A final rule, awaiting implementation by the HHS regarding 340B drug ceiling prices and civil monetary penalties for manufacturers, has been delayed five times.  The rule is intended to provide transparency on drug manufacturer price increases and hold these manufacturers accountable.  This rule will have an immediate effect on the affordability of prescription drugs.  The AHA just filed a separate lawsuit pertaining to this delay.

The 340B Drug Program is one of the more complicated healthcare policy and financing issues.  But the bottom line is that the program historically has helped hospitals to invest in their community’s health, including funding for social determinant of health interventions, such as subsidized transportation, mobile primary care units, and expanding mental health and substance use services, to name a few benefits.

In light of increased scrutiny surrounding the 340B Program, the AHA’s 340B Good Stewardship Principles for hospitals remind everyone of this program’s necessity and value beyond drug affordability.  More importantly, the principles provide hospitals with a framework to tell the public about how the savings from this crucial program allow their hospitals to deliver a variety of benefits to patients and communities – programs and services that would not exist otherwise.