Dive Brief:
- Hospitals are suing the HHS for a second time over the agency’s controversial plan to convert 340B drug discounts into a rebate system.
- The American Hospital Association, along with a Maine hospital lobby and four safety-net hospitals, filed the complaint Friday alleging that the switch from upfront discounts to post-purchase rebates threatens the financial viability of hospitals in the drug discount program.
- The hospitals say that the Health Resources and Services Administration, the HHS agency that manages 340B, ignored the high costs and administrative work the rebate program would impose on safety-net providers. They’re asking the court to halt the pilot, which is scheduled to begin in January, while the legal challenge proceeds.
Dive Insight:
The 340B program was created by Congress in 1992 to allow providers that care for a large number of low-income and uninsured patients to purchase outpatient drugs at steep discounts — usually between 25% and 50% off a medication’s list price — and pocket the savings.
Safety-net hospitals say the program is essential, enabling them to stretch their limited resources while maintaining their financial viability in communities where many patients cannot afford to pay for care.
But drugmakers argue that hospitals are unjustly profiting off the program, and that many use illegal duplicative discounts to inflate their savings. Pharmaceutical companies say snowballing 340B spending is evidence of profiteering in the program: Last year alone, hospitals and outpatient facilities purchased $100 billion worth of 340B drugs, up 23% from the year prior.
Growing criticism of 340B has put more pressure on regulators to curtail the program’s scope.
The Biden administration clashed with drugmakers over proposed rebate plans, defending the program’s upfront discount model. In contrast, the Trump administration has been skeptical of how 340B discounts are paid, slashing program payments and proposing the rebate pilot.
The administration’s past attempts to institute rebates in 340b have not been successful. A judge struck down HRSA’s initial attempt to launch a pilot last year following a lawsuit by the AHA and the Maine Hospital Association.
But HRSA made a second attempt earlier this summer, announcing a refreshed rebate program that includes even more manufacturers and drugs than its first attempt.
The same hospital groups are now challenging the revived program, once again arguing that HHS failed to listen to hospitals’ concerns that the program will burden them with unsustainable administrative costs.
HRSA’s cost analysis was “egregiously flawed” and significantly understates the expenses it would force 340B hospitals to shoulder, according to the complaint filed in Maine district court.
HRSA estimated the rebate program would cost $537 million every year, but hospitals argue that figure excludes significant startup, information technology, training, vendor and reconciliation costs. The true administrative costs could surpass $1 billion annually, according to the complaint. Meanwhile, many hospitals would be forced to dip into limited cash reserves to pay for the drugs upfront.
340B hospitals are already operating on thin margins, so the effects of the rebate program would be “devastating” — especially as hospitals face worsening strain from Medicaid cuts and inflation drives up operating expenses, according to the lawsuit.
“Maine hospitals cannot afford this Rebate Program. They already operate with an average of less than two weeks cash-on-hand, so these significant new costs will jeopardize their ability to care for the most vulnerable patients in their communities and affect the affordability and accessibility of care across Maine,” MHA President Jeff Austin said in a statement.
The lawsuit alleges that HRSA is moving forward with the pilot despite receiving hundreds of comments outlining its potential harms, including that it could strain safety-net providers, hurt patients’ access to care and force hospital closures.
“When the government makes a change of this magnitude, it must fully consider what it will mean for the patients and communities that rely on 340B hospitals every day,” Steve Walsh, president and CEO of the AHA, said in a statement.
The Eastern Maine Medical Center, the Nathan Littauer Hospital and Nursing Home in New York, Unity Medical Center in North. Dakota and Dallas County Medical Center in Arkansas also joined the AHA and MHA in the suit.