The future of the 340B drug pricing program

Healthcare is full of complicated jargon, and while “340B” may sound like just another boring, inconsequential healthcare term, the 340B drug pricing program actually plays a critical role in making healthcare accessible for low-income and uninsured patients.

The program, created in 1992, requires Medicaid-participating drug companies to sell certain drugs at discounted prices to qualifying hospitals. More than 2,600 hospitals—or more than one-third of all US hospitals—participate in the program, through which they receive an average of 25%–50% off drug purchases. In 2022, 340B entities made $53.7 billion worth of drug purchases through the program.

“It really allows our hospitals that are already treating a larger number of lower-income, publicly insured people to provide more services than they would otherwise be able to,” Maureen Testoni, president and CEO for the trade group 340B Health, which represents participating hospitals, told Healthcare Brew. She added that hospitals in the 340B program are “much more likely to have specialized services that tend to be money-losers but are really important, like trauma care.”

In the past few years, the program has seen many challenges, from federal lawsuits to proposed legislative changes and a Supreme Court ruling. Healthcare Brew sat down with Testoni to get an idea of what may be in the future for the 340B drug pricing program.

The No. 1 challenge

“By far the biggest issue” threatening the future of the 340B program, according to Testoni, is that some drugmakers have placed restrictions on hospitals with contract pharmacies.

Many 340B hospitals contract with pharmacies to help dispense 340B-covered drugs. But some drugmakers have claimed that contract pharmacies force them to provide “duplicate discounts” on drugs, i.e., the reduced 340B price plus the rebates drugmakers already give pharmacies through pharmacy benefit managers (PBMs).

Several drugmakers began imposing restrictions in the summer of 2020, saying they’d no longer provide 340B discounts to hospitals using contract pharmacies to avoid paying those duplicate discounts. As of September 2023, at least 25 drugmakers have implemented restrictions, according to 340B Health.

In early 2021, after the US Department of Health and Human Services (HHS) said drugmakers weren’t allowed to impose such restrictions, three drugmakers—Eli Lilly, Sanofi, and AstraZeneca—each sued HHS, arguing that the law doesn’t say drugmakers have to provide 340B discounts for drugs dispensed via contract pharmacies.

The US Court of Appeals for the 3rd Circuit ruled on Sanofi’s lawsuit in January 2023 that “largely sided with the manufacturers,” according to Testoni. The court said that drugmakers aren’t required to provide 340B discounts to an “unlimited” number of contract pharmacies, but they must do so for at least one contract pharmacy per hospital.“When that came out, a lot of the really big manufacturers said, ‘OK, great—we’re doing the bare minimum. We’re only doing what we absolutely have to do around contract pharmacy.’ So, that was a lot of money that kind of went away overnight,” Testoni said.

The other lawsuits are still making their way through the courts, according to Testoni, and “in the meantime, hospitals aren’t getting discounts on the drugs that are dispensed through their contract pharmacy partners.”

The top advocacy priority for 340B Health is reversing the appellate court decision and pushing legislation that requires drugmakers to provide 340B discounts to all contract pharmacies hospitals partner with, Testoni said.

340B versus PBM

Another issue threatening the future of the 340B program involves PBMs, Testoni said.

“We have been seeing over the past few years that many [PBMs] have started to pay 340B hospitals less than what they pay to non-340B hospitals for drugs,” she said. “That’s really concerning because it basically means that they are taking part of the 340B discount that Congress intended for providers that are treating low-income people.”

In April 2023, Representatives Dusty Johnson, a Republican from South Dakota, and Abigail Spanberger, a Democrat from Virginia, introduced a bill that would prohibit PBMs from giving 340B hospitals and contract pharmacies lower reimbursement rates.

The bill would “prevent companies from treating 340B providers differently with regards to reimbursement of fees, participation in standard or preferred networks, or inventory management systems, and it would block them from interfering in a patient’s choice to receive drugs from a 340B pharmacy,” according to a joint announcement.

Ensuring PBMs don’t give 340B hospitals and contract pharmacies lower reimbursement rates is “certainly a big issue for us,” Testoni said.

IRA’s potential effect on 340B

The Medicare Drug Price Negotiation Program could also greatly affect the 340B program in the future, Testoni said.

Under the program, created as part of the 2022 Inflation Reduction Act, Medicare gets to negotiate prescription drug prices directly with drugmakers. At the end of August, the Biden administration revealed the first 10 drugs CMS can negotiate Medicare prices for, Healthcare Brew previously reported.

While it’s unclear just how big of an effect Medicare drug price negotiations could have on 340B hospitals, Testoni said it has the potential to significantly reduce the current savings 340B hospitals receive for certain drugs.

“Because the drugs are being chosen based on volume and cost, [and] presumably those are going to be a lot of drugs that hospitals use,” Testoni said. “If there are big reductions there, that’s gonna really impact the benefit that a hospital gets from 340B.”

An uncertain road ahead

It’s been a somewhat tumultuous few years for the 340B program, and the future remains uncertain with more court decisions pending.

Looking forward, Testoni said 340B Health is waiting for court decisions on the contract pharmacy issues, and has urged the Biden administration “to vigorously defend the 340B law.”

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