Hospitals facing financial headwinds can't afford to ignore the mounting threats to 340B

As cuts in Medicaid and the ACA begin to bite, healthcare leaders are entering a period of extraordinary financial pressure. Rising uncompensated care and persistent margin pressures will force difficult decisions about staffing, service lines and investments in community health.

Against that backdrop, health systems face a persistent threat to a crucial financial resource that deserves more attention in hospital C-suites and boardrooms: the escalating campaign by drug manufacturers to weaken the federal 340B Drug Pricing Program to boost their high profits. Efforts to undermine 340B are becoming more aggressive, mischaracterizing aspects of the program.

A common misconception spread by drugmakers spread is that the sole purpose of the 340B program is to provide direct discounts to individual patients at the pharmacy counter. The health-system pharmacists who ensure access to medications and pharmacy services for millions of patients in hospitals and clinics have a front-line view of the benefits that 340B brings to patients and communities. These pharmacists understand that Congress never intended the program to be solely a medication discount program.

Rather, Congress created the program to support a wide range of patient care services by leveraging 340B savings. The amazing thing about 340B is that it supports essential patient care services without increasing federal or private healthcare spending. Medicare, Medicaid and private insurers pay their standard rates for care, but because qualifying hospitals purchase medications at a discount compared with drug manufacturers’ astronomical list prices, the program generates a margin on the sale of the drugs. Hospitals use that margin to cross-subsidize low- or negative-margin patient care. These funds subsidize emergency departments, maternity care, behavioral health, burn and trauma units, dialysis and medication assistance programs.

The unfortunate reality is that the provision of many key services provided by hospitals exceeds the reimbursement rates of public payers. Without 340B savings as a lifeline, hospitals face reductions in service or even closure. More than 700 rural hospitals are currently at risk of closing due to severe financial problems, according to the Center for Healthcare Quality and Payment Reform’s most recent analysis.

As part of their lobbying strategy, drugmakers imply that 340B has grown too large. But several factors explain the program's appropriate growth over the years. First, healthcare has undergone a significant shift from inpatient to outpatient care, a shift that payers and policymakers have actively encouraged because it is often more convenient for patients and less costly. Because 340B applies only to eligible outpatient drugs, growth in outpatient care naturally results in greater use of the program.

Second, the value of 340B savings is driven by the extraordinarily high prices drug manufacturers place on new products. The program's value is measured relative to manufacturers' list prices. So naturally, the dollar value of the discounts associated with these drug prices increases. Manufacturers have no one to blame for this growth but themselves. That does not mean hospitals actually capture the difference between high list prices and the 340B discounted price. On the contrary, hospitals capture only the difference between the 340B price and the reimbursed prices, which are usually far less than the list price.

Third, health systems have appropriately invested in greater care coordination, including outpatient pharmacy services provided through partnerships with pharmacies in their patients’ communities. Medications filled in these contract pharmacies have always been associated with patients receiving care from the covered entities and eligible for 340B pricing. Hospitals are simply capturing discounts they were already entitled to receive under the program.

Despite the benefits of the program to patients and communities, drug manufacturers do not like providing 340B discounts because they reduce profits, so they are spending millions of dollars lobbying to undermine 340B. Healthcare leaders need to be prepared to expose these tactics to their state and federal policymakers as the threats they are to healthcare access.

Discounts vs. rebates

One tactic is drugmakers’ push to convert the program's upfront discounts to manufacturer-controlled rebates. Making hospitals pay full prices upfront would force them to finance higher-cost inventory and devote additional staff time and money to administration and compliance. These delays and disputes mean hospitals will never receive some portion of the discounts they’re owed.

Resources for patient care also suffer under drug companies’ tactic of refusing to ship discounted drugs to the pharmacies that hospitals partner with to reach their patients in the communities where they live. Healthcare leaders can defend against this tactic by asking legislators to prohibit manufacturers from restricting distribution of 340B discounted medications to these contract pharmacies.

More recently, drugmaker Eli Lilly threatened to cut off discounts from 340B hospitals that do not accede to their demands for reams of proprietary claims data, ostensibly to prevent improper payments. Such conditions have never been a requirement of the 340B program, and there is already a process enabling manufacturers and the federal government to audit hospitals when there is a dispute over claims. Manufacturers should not be allowed to dream up new requirements for hospitals as a condition of providing discounts that are legally required.

Health system leaders can and should push back on these drug company tactics. Steps include quantifying how hospitals are using 340B savings to support vital patient programs, clinical services and community benefits.

This is essential because decisions being made today in legislatures, regulatory agencies and courtrooms will determine whether hospitals retain a vital resource for sustaining care in vulnerable communities. We must demonstrate the importance of preserving this program that is crucial to maintaining access to care before its benefits are taken away from our patients.

Tom Kraus, J.D., is chief advocacy officer and vice president of government relations at ASHP (American Society of Health-System Pharmacists) and a member of the Managed Healthcare Executive editorial advisory board.