A bipartisan group of 163 lawmakers is urging the Department of Health and Human Services (HHS) to cancel an upcoming pilot of after-the-fact rebates for drugs hospitals purchase through the 340B Drug Discount Program—or to at least provide more information on how it intends to shield hospitals and the government itself from additional administrative costs and burdens.
The letter, dated Sept. 8, lands as hospital and drugmaker lobbying groups grapple over the controversial rebates ahead of the pilot’s application deadline and a new Congressional Budget Office (CBO) analysis detailing the scale and causes of the drug subsidy program’s substantial growth.
“Congress intended the 340B Program to enable the nation’s safety-net providers to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services,” the lawmakers wrote (PDF). “An unchecked rebate model would severely undermine that purpose.”
The HHS and the Health Resources and Services Administration’s (HRSA’s) one-year test run was announced in late July, with applications from drugmakers due Sept. 15 and the whole program set to begin Jan. 1. It will require hospitals eligible for the discounts to purchase a subset of drugs (those on the Medicare Drug Price Negotiation Selected Drug List) at their wholesale cost and file with the manufacturer for a rebate.
Hospital groups have warned the approach would require their members, including those with limited liquidity, to float the funds while waiting for a payment that drugmakers could choose to deny. 340B Health, an industry group representing participating hospitals, estimated an average float of $72.2 million for disproportionate share hospitals.
The pharmaceutical industry, meanwhile, has said the rebate approach will help increase transparency in the program and head off instances in which duplicate discounts are applied (which hospitals contend is nearly nonexistent). Individual companies had already tried to implement such arrangements last year but were blocked by the HRSA and the courts due to statute requiring the government to sign off on such changes.
In public comments submitted Monday (PDF), lobbying group PhRMA voiced its full-throated support for the pilot and told the administration it “should quickly expand this Rebate Pilot to all 340B covered outpatient drugs and allow for the broad use of rebates in the 340B program. This would be an important step towards safeguarding the program, without sacrificing support for true safety net providers and the patients they serve.”
But it’s the argument from 340B providers that appears to be resonating with the members of Congress behind this week’s letter. In addition to citing program participants’ tight operating margins, the lawmakers wrote they “are concerned that this rebate model will be used by manufacturers as a backdoor to recoup their own profits that may have been lost as a result of lowering prices through the Medicare Drug Price Negotiation Program.”
Should the HHS decide to move forward with the pilot, the lawmakers requested the HRSA provide more details about the program and its guardrails by Sept. 15.
Broadly, they asked for justification for the pilot’s rushed public comment and application period, details about the IT systems drugmakers will use to coordinate the rebates, how the HHS will audit claims validity and rebate issuances, plans for enforcement to prevent hospital burden, justification for the administrative burdens of running the pilot program and insight into the HHS’ long-term plans for the rebate model.
CBO details 340B growth factors; lobbying groups trade jabs
Annual total spending on drugs through the 340B Program has grown from $6.6 billion in 2010 to $43.9 billion in 2021, or an average of 19% per year, according to an analysis released Tuesday (PDF) by the nonpartisan CBO. About 50,000 hospitals, clinics and other providers participated in the program in 2021, with 61% of participating facilities representing 87% of all purchases being hospital-based.
The 19% annual growth far outpaces the 4% rise of industrywide spending on brand-name drugs from publicly traded companies. By the CBO’s measure, about a third of the program’s spending growth between 2010 and 2011 is tied to marketwide drug spending trends and 340B hospitals’ greater purchasing of specific higher cost categories, such as cancer drugs and anti-infective drugs, for their populations.
That said, the CBO also said the remainder of the growth is tied to the increasing vertical integration of hospitals and off-site clinics, expanded facility participation due to the Affordable Care Act and a 2010 change allowing hospitals to contract with multiple off-site pharmacies. Though the CBO said it didn’t have the data to quantify each of those factors, it suspects provider consolidation had the greatest impact on growth.
The CBO noted that it has no insight into how hospitals and health systems are using their 340B net revenues as specific use requirements and transparency are not outlined in the statute—a common point for pharmas as well as legislators advocating for program reform.
Though the HRSA’s impending pilot is currently the main item to watch, hospitals and pharmaceutical groups continue to spar over their conduct and interpretations of the broader program.
Last week, PhRMA kicked off a nine-figure advertising campaign villainizing hospitals and describing their 340B net revenues as “a hidden tax on patients, employers and taxpayers.” The American Hospital Association, meanwhile, penned a letter (PDF) this week to the Federal Trade Commission and the Antitrust Division of the Department of Justice urging an investigation into several drugmakers that attempted to impose rebate models last year—which the group described as “a concerted effort” bearing “the strong stench of parallel conduct.”