For some 340B hospitals, the COVID-19 pandemic has brought an unanticipated and unwelcome loss of eligibility

• Bringing longer stays and higher rates of deferred care, the COVID-19 pandemic is adversely affecting 340B eligibility for some hospitals.
• A loss of eligibility can mean a difference of millions of dollars per year in drug costs.
• Hospital advocates hope the Biden administration or Congress will take action to mitigate the issue.

Although it tends to be overlooked next to surging labor expenses and other challenges, a noteworthy aspect of the COVID-19 pandemic’s financial toll on hospitals has been the impact on eligibility for the 340B Drug Pricing Program.

Hospital advocates have been urging policymakers to provide relief for the better part of a year. That effort has gained steam this year as more hospitals face the prospect of having to drop out of the program based on information they’ll provide on their FY21 Medicare cost report.

The problem stems from changes to the patient mix at many hospitals amid the pandemic. Those changes affect the formula used to determine 340B eligibility.

“It is resulting in literally millions of dollars being lost for hospitals and them still incurring [an] additional cost of providing those medications to families,” said Craig Cordola, executive vice president and COO of the Ascension health system.

Cordola spoke Feb. 10 during a policy briefing hosted by the American Hospital Association (AHA), which is lobbying policymakers to offer adjustments that allow hospitals to stay in the program.

A distorted formula

The formula that establishes 340B eligibility has “worked pretty well for a long time,” Cordola said, but the pandemic has skewed the calculation.

Eligibility hinges on a hospital’s disproportionate share hospital (DSH) patient percentage, which is conveyed on Medicare cost reports and is based on:

• Share of Medicare patient days attributable to patients who are eligible for Medicare Supplemental Security Income
• Share of total inpatient days attributable to patients who are eligible for Medicaid but not for Medicare

The pandemic especially has reduced the second ratio by substantially increasing total patient days — due to higher acuity and longer length of stay — while the number of Medicaid patients has decreased as beneficiaries defer care.

“And the next thing you know, we are no longer eligible for 340B,” Cordola said. “So this is a significant issue for our hospitals — and, I believe, many hospitals across the country — that this was not an expected outcome whatsoever as a result of us doing what we need to do to care for COVID patients.”

High-stakes concerns

Cordola cited the cases of two Ascension hospitals — Lourdes Hospital in Binghamton, New York, and Ascension St. Mary’s Hospital in Saginaw, Michigan — that have been rendered ineligible for 340B.

According to Ascension’s website, Lourdes, a designated rural referral center, saved $32.7 million in drug costs through the 340B program in FY21. That money was applied to initiatives such as charitable pharmacies, a medication affordability program and a dental care clinic.

In a 2019 survey released by 340B Health, hospitals reported average annual 340B savings of $11.8 million.

“340B drug pricing is incredibly important to hospitals and organizations that serve the poor and the vulnerable,” Cordola said.

The lost savings, he added, mean “we can’t then move on and share [savings] with patients for reduced or free medications.”

Potential solutions

The quickest fix to the 340B eligibility dilemma would be for the Biden administration to issue a waiver locking in a hospital’s DSH patient percentage based on pre-pandemic ratios. The AHA says the administration has the regulatory authority to implement such a waiver through Section 1135 of the Social Security Act. For example, at the start of the pandemic, the Trump administration used that authority to waive designation criteria for sole community hospitals for the duration of the public health emergency.

A Senate bill likewise would allow hospitals to maintain 340B eligibility. Hospitals are hoping such an accommodation — along with other forms of support such as an increase in provider relief allocations — can be included in a pending appropriations bill to fund the government through the remainder of FY22.