Trump Administration Wants to Overhaul Drug Discounts for Hospitals

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By Bronwyn Mixter

The Trump administration’s 2018 budget envisions big changes to a drug-pricing program that offers discounts to hospitals and other providers.

The president’s budget request for fiscal year 2018 released May 23 directs the Department of Health and Human Services to work with Congress to develop a legislative proposal to improve the 340B drug pricing program’s “integrity and ensure that the benefits derived from participating in the program are used to benefit patients, especially low-income and uninsured populations.”

The Health Resources and Services Administration, part of the HHS, administers the 340B program, which was created by a 1992 law. However, HRSA has had trouble in the courts with implementing 340B program rules due to a lack of statutory authority. For instance, in 2014 a federal district court said HRSA lacked the authority for a rule that would have allowed rural hospitals and free-standing cancer hospitals to purchase discounted “orphan” or rare-disease drugs when the drugs aren’t used to treat a rare disease or condition.

The 340B program requires drug manufacturers to provide discounts on outpatient prescription drugs to certain safety-net health-care providers specified in the statute. In 2015, total sales in the 340B program were approximately $12 billion, according to HRSA’s budget justification. Covered entities saved on average between 25 percent to 50 percent on what they would have otherwise paid for covered outpatient drugs. HRSA said it estimates 340B sales are approximately 2.8 percent of the total U.S. drug market.

Enhanced Regulatory Authority

Bloomberg Intelligence Analyst Brian Rye told Bloomberg BNA in a May 24 email given “HRSA’s repeated difficulty in promulgating new rules or guidances, Congress appears increasingly likely to revisit the 340B program’s underlying statute.”

Kyle Vasquez, an attorney with Polsinelli in Chicago, told Bloomberg BNA May 26 “while the 340B drug pricing program has operated in an efficient and effective manner for several decades and program integrity continues to improve, there seems to be a consistent effort by certain stakeholders to modify 340B program requirements.”

The budget language “indicates HRSA’s continued interest in taking the lead in issuing program changes by seeking enhanced regulatory authority to avoid future legal challenges,” Vasquez said. “It will be interesting to see if any changes come to fruition this year given the variety of interests involved and considering Congress’s other priorities.”

Vasquez represents health-care clients including community hospitals.

Drugmakers: Reform Needed

The Alliance for Integrity and Reform of 340B (AIR 340B), a coalition that includes drugmakers and patient advocacy groups, “is encouraged by the call for improved 340B program integrity as part of the President’s budget,” Stephanie Silverman, a spokeswoman for the group, told Bloomberg BNA in a May 24 email. Members of AIR 340B include the Pharmaceutical Research and Manufacturers of America (PhRMA) and the Biotechnology Innovation Organization (BIO).

“We have long advocated for reform of the program to address its unchecked growth and lack of oversight, and to ensure it is properly targeted to true safety net facilities and the uninsured, vulnerable patients they treat,” Silverman said. “We look forward to working with Congress and the Administration on efforts to reform this critical program and ensure its sustainability to truly benefit the patients for whom it was intended.”

PhRMA “is pleased the President’s budget recognizes the need for improving transparency and program integrity” in the 340B program, a PhRMA spokeswoman who asked not to be named told Bloomberg BNA in a May 23 email.

Legislation on 340B Coming

Some lawmakers have already said they plan to introduce legislation to change the 340B program. Sen. Bill Cassidy (R-La.) said May 2 at an event hosted by AIR 340B he is working on a drug pricing bill that will include 340B overhaul ideas.

A different kind of bill related to the 340B program is also in the works. Rep. Peter Welch (D-Vt.) plans to introduce legislation on the 340B program and the orphan drug exclusion the week of June 5, Kate Hamilton, Welch’s press secretary, told Bloomberg BNA May 26.

Welch’s proposal, the Closing Loopholes for Orphan Drugs Act, would limit the 340B drug discount program’s orphan drug exclusion to apply only when drugs are used to treat the rare diseases or conditions they were developed to treat. But it would allow the drugs to be discounted under the 340B program when they are being used for a wider, nonorphan indication. Orphan drugs, which treat rare diseases that affect 200,000 or fewer Americans, are excluded from the 340B program.

Welch previously introduced this bill in 2016. At the time, his office said the bill is an effort to fix the “broken prescription drug market that has led to unrestrained price increases for consumers and providers.”

Hospitals on Legislation

340B Health, a group that represents hospitals and health systems participating in the program, said in a statement it “supports program integrity and transparency but believes legislation is unnecessary to accomplish those goals.”

“The 340B program has operated for a quarter century with numerous requirements for how hospitals must use the program. We support the Health Resources and Services Administration’s increased oversight of the program in recent years, and we encourage HRSA to continue its educational efforts to make sure all 340B stakeholders understand the rules,” 340B Health said.

It also said hospitals “are among the most transparent of all healthcare providers” as “they have to report their costs and charges to the HHS” and also “must report various categories of revenue spent to serve low-income patients and communities at large to the Internal Revenue Service.”

“We look forward to working with the administration and Congress to protect and maintain the 340B program so it continues to enable hospitals to stretch dollars and serve more patients without tax increases,” 340B Health said.

Possible Program Changes

“There are many things Congress could do to return the program to its original purpose of reducing the cost of drugs used to treat low income patients,” Donna Lee Yesner, an attorney at Morgan, Lewis & Bockius in Washington who focuses on the drug industry and public health-care programs, told Bloomberg BNA in a May 23 email. “It could require 340B drugs be provided only to eligible patients and define that term, or require a pass-through for uninsured/underinsured patients and eligible Medicare Part B patients to reduce the cost share of physician-administered drugs, which is often very high.”

Yesner also said “the regulatory authority intended to increase transparency and integrity could be used to lift HRSA’s restrictions on manufacturer audits and make the disputes process fairer, and require transparency into contract pharmacy transactions so that manufacturers can stop paying double discounts on prescriptions dispensed to beneficiaries of government plans.” According to the HRSA budget documents, the agency performs audits of manufacturers as well as covered entities such as hospitals.

Additionally, “Congress could impose penalties on noncomplying covered entities and require HRSA to enforce manufacturer audits if it concurs in the results,” Yesner said.

Stephanie Trunk, a health-care attorney with Arent Fox LLP in Washington, told Bloomberg BNA in a May 24 email she thinks “the Trump administration is interested in either restricting the patient definition so 340B drug inventory can only be utilized with certain types of patients such as an income threshold, uninsured or the like or having 340B covered entities justify that profits from the 340B program are used to assist uninsured or low-income patients only.”

“I can see both ideas being attractive to some members of Congress given there has been concern over the explosion of the program and particularly the negative effects on community oncology clinics, many of which have closed due to purchase/consolidation with disproportionate share hospitals that are 340B covered entities,” Trunk said.

Yesner and Trunk are Bloomberg BNA advisory board members.

To contact the reporter on this story: Bronwyn Mixter in Washington at bmixter@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

For More Information

HRSA's FY 2018 budget justification is at https://www.hrsa.gov/about/budget/budgetjustification2018.pdf.

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