The Dire Reality of 340B Hospitals at War with Big Pharma

Top 3 Things You’ll Learn

  1. COVID-19’s negative impact on hospital budgets and ability to provide patient care
  2. How top drug manufacturers have restricted 340B discounts to eligible covered entities
  3. Recent legislation impacting the 340B program and what the Biden Administration may do

It’s no secret that hospitals are struggling. Virtually every health system we meet with is facing economic pressure and cashflow issues related to COVID that make cost savings more necessary than ever. The situation is critical, especially for hospitals that rely on 340B drug pricing discounts to offset cost of care for the community. Several factors have played a part in creating the dire reality that 340B covered entities are experiencing.

COVID-19’s Impact on 340B Eligibility

Generally, hospitals receive most of their funding from elective procedures. When COVID-19 hit last year, those procedures were delayed or outright canceled as hospitals across the country dealt with overwhelming surges of COVID-infected patients. This shift changed the number of people coming into the hospital, which resulted in a greater payer mix and a major problem for 340B covered Disproportionate Share Hospitals (DSH).

One of the many rules and requirements to qualify for 340B as a DSH is maintaining a Medicaid payer mix of 11.25%. Because of COVID-19, many hospitals struggled to meet this requirement. In spring 2020, the American Hospital Association asked then-Secretary of the U.S. Department of Health and Human Services (HHS), Alex Azar, to waive the 340B eligibility rules that might disqualify DSH hospitals. The Health Resources and Services Administration (HRSA), an agency operating under HHS, allowed for some flexibility to DSH entities, but this result has been stressful on hospitals regarding 340B and generally with COVID-19 challenges.

HHS Rulings Cut 340B Reimbursement

On July 31, 2020, the D.C. Circuit upheld a 2018 ruling, called 2018 Medicare Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Payment System final rule, cutting 340B reimbursement by nearly 30%. Shortly after, in early August, a ruling issued by the Centers for Medicare and Medicaid Services (CMS) cut 340B payments even further. This caused a huge ripple throughout the hospital community, especially among smaller hospitals that rely on the program to keep their doors open for patients. The fact that 340B was cut not once but twice, and during the COVID-19 pandemic when hospitals were already experiencing other stressors, was a rough blow.

Hospitals that rely on 340B drug pricing discounts to offset cost of care for the community are facing critical challenges. As those entities struggle to manage several ongoing challenges, it’s important to understand the forces at play and what’s threatening their access to 340B discounts.

Drug Manufacturers Restrict 340B Discounts

Adding to those stressors is big pharma and the changing stance the pharmaceutical industry added to the program, specifically around antidiabetic medications. Over the last six months, six prescription drug manufacturers cut off or threatened to cut off the 340B discounts they provide to covered entities. They say they want extensive patient data on their medications before continuing to provide the discounts. However, hospitals are resisting sharing patient and drug utilization information with pharmaceutical companies because it’s not theirs to have.

In an effort to protect the 340B program and prompt action, five national hospital organizations, along with 340B Health, filed a lawsuit against the U.S. Department of Health and Human Services (HHS) in early December 2020. The ultimate goal was to prod HHS into taking a stand in protecting the 340B program by enforcing the program guidelines. In response, an advisory opinion was filed by the HHS General Counsel in early January 2021 stating that drug manufacturers must provide 340B drug discounts to contract pharmacies. Drug manufacturers AstraZeneca, Eli Lily, and Sanofi retaliated on January 12 by filing separate lawsuits seeking to continue restricting 340B discounts for their covered drugs. On Feb 26, a bi-partisan group from the House of Representatives sent a letter to HHS urging them to take immediate action against drug companies that have cut off 340B discounts.

This is a major issue because many hospitals, especially smaller hospitals, do not have their own pharmacies and rely on contract pharmacy relationships. For small hospitals, having access to 340B drug discounts allows them to expand their pharmacy network and services for the communities they serve. Their patients need to be able to access 340B discounts and fill critical medications at their contract pharmacy locations. We will continue to follow the developments in the 340B debate and how this will impact our hospital partners.

What We Expect Under the Biden Administration

Hospitals are hoping for some relief under the Biden Administration. When he was Vice President, the Affordable Care Act (ACA) expanded 340B eligibility to free-standing cancer centers, critical access hospitals, and some other entities. As President, Biden is expected to be more pro-340B and may act to protect it from further cuts. Whether he’ll want to reverse the previous rulings, or even be able to, remains to be seen. The timeline is unknown at this point and is something we’ll continue to watch.

The 340B program is vitally important for safety-net hospitals providing valuable care to low-income patients. Under the current rulings as they stand now, hospitals serving the highest number of low-income patients face the deepest cuts. Without funding from 340B, hospitals may be forced to cut critical services, including cancer care and other infusion services, utilization management efforts, medication adherence, diabetes care, mental health and substance abuse care, and pulmonary services.

To learn more about challenges facing hospitals and how to lower costs and optimize care, download our free ebook, Pharmacy Benefit Strategies for Hospitals & Health Systems.



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