Big Pharma Pushes for Changes to Drug Discount Program

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By Bronwyn Mixter

The pharmaceutical industry is continuing to push for legislative and regulatory changes to the federal 340B drug discount program, which it says has grown tremendously in recent years.

Under the program, drug manufacturers provide outpatient drugs to covered entities, such as safety-net hospitals, at significantly reduced prices. Hospitals aren’t required to share the discount they receive with patients, so patients aren’t benefiting from the program, according to industry executive Lori Reilly. Reilly, executive vice president of policy, research, and membership at the Pharmaceutical Research and Manufacturers of America (PhRMA), spoke Nov. 1 at a briefing the group held for reporters.

Repeating the industry’s long-standing position, Reilly said fundamental reforms are necessary. She said the program needs a clear definition of what constitutes a 340B patient because some hospitals are using the lack of clarity on the definition to “game the system.” She also said the program needs a new metric for determining which hospitals are eligible to ensure only true safety-net hospitals are participating.

In 1992, just 51 hospitals participated in the 340B program, but in 2017, more than 2,300 hospitals participate, Reilly said. Also, she said 340B drug sales were $2.65 billion in 2004, and that number grew to $16.2 billion in 2016. Overly broad guidance, historically weak oversight, and other factors have led to this dramatic growth, the PhRMA executive said.

PhRMA also is pushing for a revision of an Obama-era guidance that vastly expanded the program by increasing the use of contract pharmacies and wants a sliding-fee scale to ensure that low-income and/or uninsured patients benefit from discounts, Reilly said. No bills have been introduced that would make any of these changes.

Drugmaker Penalty Rule

On the other side of the 340B debate, a group of Democratic lawmakers wants the Trump administration to implement an Obama-era rule punishing drug companies for charging too much.

Sen. Gary Peters (D-Mich.) and 11 other senators recently sent a letter to the Health and Human Services Department asking it to stop delaying implementation of a final rule that would hold drug companies accountable for overcharging in 340B.

The final rule, which was announced in January by the Obama administration, requires drug manufacturers to pay a penalty if they intentionally charge above what is known as the ceiling price, but the Trump administration delayed the rule four times and the rule now won’t go into effect until July 2018.

Hospitals Push Back

In response to the pharmaceutical group’s assertions about the need for reforms, a hospital group leader said the changes would harm patients’ access to care.

Jeff Davis, vice president with 340B Health, told Bloomberg Law Nov. 1 all of PhRMA’s proposals “would significantly reduce the size of the 340B program and shrink the benefit that hospitals and their patients are able to access from 340B.” Davis’s group represents hospitals and health systems that participate in the program.

PhRMA’s proposals would reduce the savings that hospitals get from the 340B program, which would directly impact patient care, Davis said.

Data show that 340B hospitals are providing much higher levels of care to low-income patients than non-340B providers, Davis said. He added that the “the eligibility criteria for 340B hospitals is working properly to make sure only safety-net hospitals, hospitals that treat a high level of low income patients, are in the program.”

An Oct. 11 congressional hearing gave providers the chance to explain how important 340B is to their ability to care for patients, Davis said. That hearing was held by the House Energy and Commerce Oversight and Investigations Subcommittee.

Hospitals are using 340B savings to provide comprehensive care to patients and are using the savings to do things like opening up clinics that provide services to people with chronic conditions like AIDS/HIV, diabetes, and cancer. “To be able to continue providing those services, they need to rely on 340B,” he said.

Interaction With Medicare

Davis said 340B Health is concerned about the impact of PhRMA’s proposals, as well as a final rule that would cut payments on Medicare Part B drugs. The Medicare outpatient hospital rule, which was proposed during the summer and issued in final form Nov. 1, will cut Medicare reimbursements for hospitals that get 340B discounts. The Centers for Medicare & Medicaid Services said it’s making the pay change for certain Medicare Part B drugs purchased by hospitals through the 340B Program in order to lower the cost of drugs for Medicare beneficiaries.

In a Nov. 1 press release on the Medicare pay rule, the CMS said it “looks forward to working with Congress to provide HHS additional 340B programmatic flexibility, which could include tools to provide additional considerations for safety net hospitals. These hospitals play a critical role in serving our most vulnerable populations.”

Who Is a 340B Patient?

Reilly said it’s not always clear when a person is considered a patient for purposes of the 340B program.

PhRMA thinks that a patient should be seen by a doctor employed by the 340B hospital and that doctor should be overseeing the patient’s care, Reilly said. Also, a patient should be at a 340B hospital for more than just infusing medicine, she said.

Reilly also said the current metric for determining whether a hospital is eligible for the product is based in part on how many low-income Medicare and Medicaid patients a hospital admits. The metric isn’t based on how much charity care a hospital provides or how many uninsured patients the hospital servers, which allows wealthy hospitals to qualify, Reilly said.

Too Many Pharmacies?

The statute that governs the 340B program doesn’t mention contract pharmacies, Reilly said.

In 1996, the Health Resources and Services Administration (HRSA), the part of the HHS that administers the program, issued a guidance that said it would allow a hospital to contract with one pharmacy if they didn’t already have a pharmacy. But in a 2010 guidance, HRSA changed that to allow hospitals to have an unlimited number of contract pharmacies.

Reilly said 340B discounts can be extended to for-profit retail pharmacies through contract pharmacy arrangements. The hospital and pharmacy profit while the patient may see no direct benefit from the discount, she said.

When the guidance came out, there were just 6,293 contract pharmacy arrangements in the 340B program, and in 2017, there are now 51,963, Reilly said.

To contact the reporter on this story: Bronwyn Mixter in Washington at

To contact the editor responsible for this story: Brian Broderick at

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