The state of the 340B program: What the Supreme Court’s Affordable Care Act ruling meant, and which issues still loom

• An under-the-radar aspect of the Supreme Court’s recent ruling on the Affordable Care Act involved hospital eligibility for the 340B program, an industry expert says.
• Federal courts could have a more direct impact on the program by resolving the question of whether contract pharmacies should be eligible for 340B discounts.
• The 340B program also may be in store for regulatory updates.

The 340B Drug Pricing Program generated few headlines in the context of the Supreme Court’s recent decision on the Affordable Care Act, but plenty was at stake for the program.

In ruling that plaintiffs seeking to overturn the ACA lacked standing to bring the case, the court ensured a continuation of the 340B eligibility expansion that was established by the 2010 healthcare reform law.

In a recent interview, Helen Pfister, JD, a partner with Manatt Health and an expert on 340B issues, discussed the implications of the ruling and where the much-scrutinized program goes from here.

Eligibility for many 340B participants was on the line

The 340B program was established by statute in 1992, requiring drug manufacturers participating in Medicare Part B or Medicaid to offer discounts to many Disproportionate Share Hospitals (DSH). The ACA subsequently provided eligibility to all critical access hospitals and to hospitals in the following groups that meet a specific DSH adjustment percentage threshold:

• Children’s hospitals
• Freestanding cancer hospitals
• Sole community hospitals
• Rural referral centers

“If the act had been overturned, then their eligibility would no longer exist and absent congressional action, they wouldn’t be able to participate in 340B anymore,” Pfister said. “So it’s a big sigh of relief.”

Among 340B-eligible hospitals more broadly, another issue with overturning the ACA would have stemmed from a theoretical end to the expansion of Medicaid. Because 340B eligibility is tied to DSH adjustment percentage, a reduction to the pool of Medicaid patients could have affected hospitals that are “right on the cusp of being eligible,” Pfister said.

What’s still at issue in the courts

Following the Supreme Court ruling, the federal court system may yet have a significant impact on the 340B program. Three separate cases are pending in which drug manufacturers filed suit in response to an HHS advisory opinion from December 2020. That opinion stated that contract pharmacies of 340B-covered entities should be eligible for discounts through the program.

“I think the big question on everyone’s mind is: Where is that all going to end up?” Pfister said. “Not only do we not know what any one of those courts is going to end up deciding, we don’t know if they’ll all decide the same thing. We can probably assume that whichever side loses in any of the courts is going to appeal. So, it could be quite some time before this is finally resolved.”

A new twist in the cases came June 18 when HHS withdrew the advisory opinion in an effort to render the litigation moot. But the Health Resources and Services Administration (HRSA), the HHS sub-agency that administers 340B, is standing by letters it sent to six drug manufacturers in which it stated that restrictions on discounts to contract pharmacies “resulted in overcharges and are in direct violation of the 340B statute.”

One of the manufacturers, Eli Lilly, again went to court in May to request an injunction on any civil monetary penalties that HRSA may impose as detailed in the letters.

The advocacy group 340B Health this week applauded the withdrawal of the advisory opinion, with President and CEO Maureen Testoni calling it an “unnecessary distraction created by drug company efforts to challenge the government’s authority to enforce the law.”

“We are pleased that the Department of Health and Human Services continues moving forward to enforce the 340B statute as it demands that six drug companies stop denying required discounts to safety-net hospitals,” Testoni also said in a statement.

Regulatory updates that could be considered

No matter the outcome of the litigation, regulatory updates to shore up 340B may be warranted, Pfister said.

“Although there’s not much agreement between the different stakeholder categories when it comes to 340B, I think one thing they do agree upon is that there are issues with the program that need to be addressed,” Pfister said. “At some point, Congress may feel pressure to act to give HRSA more authority to regulate the program, to try to address some of the issues that have developed over the years.”

One key issue stems from an ACA provision that required states to collect rebates from manufacturers for drugs paid for by Medicaid managed care organizations. Prior to the ACA, that rule had been in place only for Medicaid fee-for-service programs.

The requirement poses administrative challenges because drugs can’t be subject to reduced prices through both Medicaid and 340B, according to the 340B statute. The process of tracking which markdown has been applied to which drugs is daunting and could benefit from updated regulations.

“That’s complicated enough in the fee-for-service world,” Pfister said. “It’s even more complicated when you add Medicaid managed care into the middle of it. One of the issues is that the [HRSA] Office of Pharmacy Affairs only has regulatory authority in certain limited areas, so they’ve been handcuffed a bit in what they can do by regulation.”

If additional regulatory authority is granted, 340B-eligible hospitals and Medicaid managed care organizations could face new requirements when reporting on the use of 340B drugs in care provided to Medicaid beneficiaries.