340B advocacy group releases survey results showing the financial toll of drug manufacturers’ curbs on discounts

The dispute between providers and manufacturers is being decided in the federal court system.

A new report finds that for hospitals participating in the 340B Drug Pricing Program, steps taken by drug manufacturers to restrict discounts have had a significant impact.

The advocacy group 340B Health released survey results in late January showing that critical access hospitals (CAHs) especially have been affected by manufacturers’ efforts to curtail discounts on outpatient drugs purchased for distribution at contracted community pharmacies. A dozen manufacturers have issued such restrictions, although when the survey was conducted in November and December, only eight had taken that step — meaning the data doesn’t show the full scope of the ongoing losses, 340B Health said.

Discounts that cover community pharmacy partnerships account for anywhere between a quarter and 52% of 340B savings on average, according to the survey of 510 hospitals.

The losses from that pool of savings are substantial, the survey found. CAHs had lost 39% of their community pharmacy savings at the time of the survey, amounting to a median $220,000 per year.

Among larger and more urban 340B participants — such as disproportionate share hospitals, sole community hospitals and rural referral centers — the loss was 23%, for a median of $1 million per year. For 10% of those hospitals, the reported annual loss was $9 million or more.

“Losses of this magnitude can have a significant impact on safety net hospitals,” 340B Health states in the report. “Options for hospitals include reducing the scope of services and programs supported by 340B savings, eliminating services and reducing the number of people employed to provide those services.

“In the most severe circumstances, a hospital could be forced to close if its losses grow. CAHs consistently have reported that 340B savings are one of the ways they keep their doors open and that a loss of savings could lead to closure.”

The courts are asked to weigh in

In explaining their decisions, manufacturers have cited a desire to avoid offering duplicate discounts when providers distribute drugs both in-house and through community pharmacies.

The Health Resources and Services Administration (HRSA), which administers the 340B program, sided with providers in 2021 guidance. HRSA issued letters to manufacturers stating that the restrictions amount to a violation of federal law (e.g., see the letter to Eli Lilly).

The manufacturers have challenged that interpretation in federal court. Among three lower-court rulings to date, two mostly sided with HRSA and one said the statute gives manufacturers the right to impose conditions on 340B discounts. Appeals are pending in all three cases, and at least two of the lower-court rulings said the ideal solution would be for Congress to weigh in on whether the manufacturers’ restrictions are permissible.

CMS also has reduced 340B payments

Another 340B-related issue being decided in court is CMS’s decision in 2018 to reduce payment rates for Part B drugs purchased through the 340B program from average sales price (ASP) plus 6% to ASP minus 22.5%.

Three hospital associations and three hospitals challenged the decision, and the case made its way to the Supreme Court for a November 2021 hearing. A decision is expected by the time the court’s current term ends in late June.

A ruling in favor of the plaintiffs may not alter payment policy going forward because in 2020, CMS began collecting survey data from 340B hospitals on the prices they pay for covered drugs. CMS appears to have statutory authority to use such data to impose payment changes. CMS has said the data actually justify lowering the rate further, to ASP minus 28.7%, but after proposing to implement that rate as part of the 2021 rule for hospital outpatient payments, the agency reversed course in the final rule.

In the event of a favorable court ruling, however, hospitals would stand to be reimbursed for the amount — 28.5% of ASP — that they were denied during the first three years of the new payment rate, which took place before CMS began gathering survey data.