A new pilot program from the federal government has hospital and pharmacy leaders bracing for what they describe as a fundamental dismantling of the 340B drug pricing program, which many health systems rely on to sustain care for their most vulnerable patients.
In August, the Health Resources and Services Administration unveiled a pilot program inviting drug manufacturers to test alternative 340B discount models using a post-sale rebate system instead of the traditional up-front discount. By mid-September, applications were due, leaving health systems scrambling to prepare for an untested and, to many, unwelcome shift.
This comes in response to efforts by drugmakers to shift the 340B program by imposing some restrictions, including limiting the use of contract pharmacies and testing rebate-based alternatives to traditional discounts.
Lawmakers sound alarm on fast-tracked pilot
A bipartisan group of 162 lawmakers recently warned HHS Secretary Robert F. Kennedy Jr. that the rebate model threatens to unravel the core mission of 340B: supporting safety-net providers. In their letter, lawmakers criticized the pilot’s fast-tracked timeline and questioned HHS’ legal authority to enact such a sweeping change with only 30 days for public input.
Hospital participation in 340B has tripled since its creation to more than 53,000 sites. In 2023, the program reached a record $66.3 billion in outpatient drug purchases, a 24% increase from 2022, with disproportionate share hospitals accounting for $51.9 billion.
Hospital leaders brace for cash flow squeeze
At the health system level, pharmacy leaders say they are grappling with the fallout of the ongoing policy changes and are doing their best to brace for the uncertainty ahead, especially with the new 340B pilot program. Urshlila Shah, PharmD, former chief pharmacy officer at Paterson, N.J.-based St. Joseph’s Health, told Becker’s the financial and operational concerns she has tied to recent reforms.
“Absolutely huge problems, both on the financial and operational side,” Dr. Shah said. “With the Inflation Reduction Act, there is now a potential erosion of 340B benefits, so there’s going to be smaller gaps between 340B cost and reimbursement, which reduces that program’s beneficial benefits. So that’s a huge problem.”
To manage amid the growing uncertainty with the 340B program, Dr. Shah said her team at St. Joseph Health has been focused on forecasting the financial impacts and finding ways to preserve program value. This includes spotting different opportunities for expanding 340B eligibility and ensuring prescriptions are being captured through system-owned pharmacies.
“Ensuring that any eligible prescription … at a health system-owned specialty or regional pharmacy, so that revenues … stay within that health system and benefits stay within that health system, is a huge part of managing,” she said.
However, Dr. Shah said her main concern currently is the federal government’s new pilot program, which would replace upfront 340B discounts with post-sale rebates.
“This is going to be a fundamental shift in the program, because we’re going to move away from that upfront discount program to a post-purchase rebate,” Dr. Shah said . “And this is going to be an administrative and an operational nightmare.”
She warned that under the proposed pilot, this would give manufacturers 60 days’ notice before making changes and allow covered entities only 45 days from the date of dispensation to submit claims. In addition, she raised concerns about the expected increase in claim denials and the added documentation required to validate program eligibility.
“This is going to significantly impact cash flow, because there’s also going to be lots of denials,” said Dr. Shah. “There also will be additional documentation that might be required to qualify that a claim is to refer to the eligible entity. So I think this voluntary rebate model is something that we’re absolutely not supportive of and we’re not looking forward to implementing.”
Hospitals warn rebate model shifts risk to providers
340B Health President and CEO Maureen Testoni also expressed concerns.
“Our recent analysis shows that shifting to rebates for all 340B drugs would force each disproportionate share hospital to front an average of more than $72 million to drug manufacturers while waiting for rebates, straining their ability to deliver critical care services,” Ms. Testoni said. “340B rebate models shift financial burden from highly profitable drug companies to hospitals with the fewest resources serving the most vulnerable patients.”
Across the country, other hospital leaders expressed similar worries.
“It’s a program we’ve continued to take advantage of to support the costs we incur and don’t get reimbursed for — the uninsured and underinsured within our community,” Mike Gleason, executive vice president and CFO of Baton Rouge, La.-based Franciscan Missionaries of Our Lady Health System, said during an episode of the Becker’s Healthcare Podcast. “It’s worth approximately $150 million annually to our organization … and it has continued to grow at double-digit rates over the last several years.”
CFOs build specialty pharmacies to fight restrictions
Franciscan Missionaries of Our Lady Health, a 10-hospital system, focuses on pharmacy management skills and medication therapy management to reduce pharmaceutical costs for patients in its managed care plans.
“It’s very important for us to be able to get discounts on the cost of these drugs upfront to help treat these patients,” Mr. Gleason said.
At St. Peter’s Healthcare System in New Brunswick, N.J., CFO Garrick Stoldt said the health system is developing a specialty pharmacy to bypass contract pharmacy restrictions increasingly imposed by drug manufacturers.
“Drug manufacturers are very active in violating HRSA regulations and prohibiting 340B discounts, especially with contract pharmacies,” Mr. Stoldt said during an episode of the Becker’s Healthcare Podcast. “They’re using artificially created geographic restrictions to decide when they will or won’t give a 340B discount. Our way to combat that is with a specialty pharmacy. So, we have strategies to address what’s going on in the industry.”
Spiros Hatiras, president and CEO of Holyoke (Mass.) Medical Center & Valley Health Systems, said the 340B program is top of mind when considering potential cost-cutting scenarios.
“My biggest concern would be the 340B program,” Mr. Hatiras told Becker’s. “Pharmaceutical companies have been lobbying to reduce or restrict it. If cuts came there, we’d first likely stop capital investments — hold off on buying new equipment for the year. That would be the first step before impacting services. But we haven’t identified any services we’d cut first, and we hope we won’t have to go there.”
National groups push back against rebate proposal
The industry pushback is not limited to individual hospitals. In an Aug. 27 letter to HRSA Administrator Thomas Engels, the American Hospital Association condemned the rebate model, citing concerns about implementation, increased administrative burden and the threat of higher drug costs for hospitals. The AHA also called on the Federal Trade Commission to investigate pharmaceutical companies’ handling of 340B pricing.
The American Medical Group Association also added its voice in opposition in a Sept. letter to Congress.
“Safety-net providers operate on razor-thin margins. The rebate pilot would destabilize these institutions, directly threatening access to affordable medications for patients,” AMGA President and CEO Jerry Penso, said. “HHS should withdraw the proposal and strengthen the existing upfront discount model that has successfully supported providers and patients for decades.”
For health systems already grappling with staffing shortages, rising labor costs and increased demand for charity care, the prospect of reduced 340B savings feels like another financial blow.
“There have been a lot of proposals on the 340B program, so it’s not just Medicaid monitoring, it’s also proposals on changes to the 340B benefit plan. A huge element of our success is the way we’ve been able to manage the 340B program effectively,” Mr. Stoldt said. “There are a lot of compliance rules, so we’re constantly focused on maintaining compliance with all the regulations.”
Hospital leaders warn changes to 340B could jeopardize their ability to care for vulnerable patients. As policymakers weigh reforms, they argue the consequences will fall on providers already stretched thin, not on drugmakers.
