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Fierce fight with no end in sight for drug discount program

Tuesday hearing will spotlight the debate over a federal program that provides discounted drugs to hospitals serving low-income populations

The federal 340B program, which provides lower-cost drugs to hospitals and health centers in exchange for helping low-income populations has become mired in a debate over whether the program has expanded beyond its original intent.
The federal 340B program, which provides lower-cost drugs to hospitals and health centers in exchange for helping low-income populations has become mired in a debate over whether the program has expanded beyond its original intent. (Andrew Lichtenstein/Corbis via Getty Images)

In courtrooms and congressional hearing rooms, drug companies and health care providers are waging a pitched battle over a federal program that allows hospitals and health centers to access steeply discounted drugs in exchange for serving low-income populations.

340B, named for the section of the law that established the program in 1992, hasn’t always been controversial. But in recent years, drug companies have complained it has grown too large and beyond its original intent of helping safety net providers. In response, drug companies have thrown up obstacles to participating and filed a dozen lawsuits challenging the program.

On Tuesday, the fight moves to the House Energy and Commerce Oversight and Investigations Subcommittee, which has scheduled a hearing on the issue. 

That hearing comes after the U.S. Court of Appeals for the D.C. Circuit on May 21 issued a ruling limiting the scope of the program — a win for drugmakers.

“It’s a journey where we’re all working for something and are really not sure what the end result will be,” said Maureen Testoni, president and chief executive officer for 340B Health, a membership organization of 1,500 340B hospitals. “It’s hard to imagine 340B legislation going through overnight because it has such a big impact.”

Her organization argues that the savings from the program allow hospitals to serve their communities and stretch limited resources.

By contrast, drug companies argue wealthy hospitals are taking advantage of it to pad their bottom lines instead of passing savings to patients.

It’s a dispute between two of the most powerful lobbying interests in Washington, hospitals and drug companies, that has lasted for several years now with no resolution in sight.

Contract pharmacies

Much of the controversy, as well as litigation, revolves around the use of outside pharmacies by 340B providers.

Providers say using these so-called contract pharmacies allows them to increase access to drugs for patients so they don’t have to go to the hospital pharmacy if it isn’t convenient for them. And many providers, like some community health centers, don’t have in-house pharmacies.

But drug companies say the use of contract pharmacies has allowed the program to grow too large with little oversight, with both hospitals and pharmacies pocketing the savings generated by drug discounts and charging patients the full prices.

Total discounts were about $38 billion in 2020 compared with $4 billion in 2009, according to some estimates, with the bulk of those discounts going to disproportionate share hospitals, which must prove they serve large numbers of Medicaid patients.

In 2020, several drug companies began stating they would no longer give those discounts to providers who use multiple contract pharmacies. At least 20 pharmaceutical manufacturers have such restrictions in place as of this month. 

In the May 21 decision, the U.S. Court of Appeals for the District of Columbia Circuit ruled against the Health Resources and Services Administration, which had argued that under federal law drug companies are required to offer discounts to 340B providers that use outside pharmacies to dispense drugs to their patients. 

That ruling follows a similar one in a case in the U.S. Court of Appeals for the 3rd Circuit. A decision in the U.S. Court of Appeals for the 7th Circuit in a third case based on a similar argument is expected soon.

Lawmakers generally agree that 340B programs should be allowed to use contract pharmacies. But they are divided on when and in what circumstances, which has stalled any potential legislation on the issue. 

And the groups representing 340B hospitals don’t seem desperate for a solution yet. 

“Part of the challenge has really been that some folks don’t want to see any changes to the program, and that has been the whole holdup,” said Vacheria Keys, associate vice president of policy and regulatory affairs at the National Association of Community Health Centers.

Hospital associations and 340B Health have only openly supported legislation from Rep. Doris Matsui, D-Calif., which would require drug companies to offer discounts to providers that use contract pharmacies.

“I think there’s a lot of groups out there who say you can’t do anything to disrupt the program, you must keep it exactly the same, but we need to protect contract pharmacies, and nothing else is on the table,” said Devon Seibert-Bailey, senior vice president at Strategic Health Care, which works with a coalition of 26 health systems she said is ready to negotiate on 340B. “We’re of the mindset that we need to reform this program so that it is strengthened for the future.” 

In the Senate, six lawmakers, led by Sen. John Thune, R-S.D., put out a draft in February that would require drug companies to provide discounts to 340B providers that use contract pharmacies while requiring they be registered with the Department of Health and Human Services.

The lawmakers indicated the final legislation will define a “patient” — another issue that has been the subject of litigation, with drug companies arguing providers are diverting drugs and claiming discounts on people who shouldn’t be eligible for the program.

The Senate draft also calls for registration of off-site outpatient locations of 340B providers, called “child sites,” and a requirement that they be wholly owned and clinically and financially integrated with those providers.  

Drug companies have argued the use of child sites has grown exponentially and they aren’t necessarily located in vulnerable communities despite the mission of the 340B program. 

Hospitals say that there has been unfettered growth of these locations, that there is a trend toward outpatient treatment, and centers open where there is need.

The American Hospital Association, which has said it has concerns with the Senate draft, said it supports provisions to require drug companies to offer 340B discounts to providers who use contract pharmacies and another provision related to pharmacy benefit managers. 

The National Association of Community Health Centers, meanwhile, has partnered with the Pharmaceutical Research and Manufacturers of America and other groups to endorse legislation sponsored by Rep. Larry Bucshon, R-Ind., that would restrict hospital participation in the 340B program, restrict the number of contract pharmacies that hospitals could use in the program and restrict what types of hospitals could participate in the program. 

The bill would also include transparency requirements for disclosing how savings from the 340B program are used. 

Finally, it would include provisions defining a “patient” and requiring some savings to be passed down to patients. 

Hospital groups have dismissed the Bucshon bill, with 340B Health’s Testoni calling it “the legislative version of a pharmaceutical industry wish list” and arguing it would gut the program. 

“The 340B Access Act is a nonstarter,” said Aimee Kuhlman, vice president of advocacy and grassroots at the AHA.

“It’s really hard to negotiate when one side just wants to abandon their responsibilities,” she said, referring to drug companies.

Even some community health centers are divided on the Bucshon bill. Advocates for Community Health, which also represents community health centers, says it does not support the legislation and that it would make it difficult for health centers to continue to benefit from the program. 

The disagreements make it unlikely the debate will be solved anytime soon, Seibert-Bailey said. 

“I think they’re so divided, particularly in the House, on this topic that I don’t know if we’ll ever get anything done,” Seibert-Bailey said. “Certainly not this year.” 

State action 

Advocates for 340B providers in the states have had better luck. 

“States are where the action is, and it has been dramatic,” said Peggy Tighe, principal at Powers Pyles Sutter & Verville’s legislative group, where she focuses on 340B and other issues. 

She said five states passed bills in the 2023-24 sessions protecting contract pharmacy arrangements and bills are pending in 20 states this year. 

In March, the U.S. Court of Appeals for the 8th Circuit upheld an Arkansas law prohibiting manufacturers from restricting 340B prices for contract pharmacies, a boon for providers seeking state action. 

“So far, all of these suggests states have the green light to regulate 340B contracts, if they want to,” said Sheela Ranganathan, an associate with the health policy and the law initiative at Georgetown University. “And the courts are aligning that HRSA does not have the authority.”

This report was corrected to accurately reflect the Energy and Commerce subcommittee holding a 340B hearing on June 4, and the May 21 date of the U.S. Court of Appeals for the D.C. Circuit ruling.

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