Congress has grown silent on the controversial 340B program—but here's why it still matters

Topics: Industry, Prescription Drugs, Providers, Hospitals, Politics and Policy, Federal Government, Regulatory, Legal Issues

Controversy around the 340B Drug Pricing Program may have died down in Congress for now, but experts believe that major changes to the program could come from the looming 2020 Hospital Outpatient Prospective Payment System rule.

Before diving into what experts speculate could happen next, let's take a step back and go over the basics.

About 340B program

The 340B Drug Pricing Program allows hospitals and clinics serving a disproportionately high percentage of low-income or uninsured patients to purchase outpatient drugs at a discounted price. The discounts typically range from an estimated 20 to 50% off the product's Average Manufacturer Price.

Federal law outlines 16 classes of eligible 340B program participants, including:

  • Certain publicly owned hospitals, including children's hospitals, critical access hospitals, disproportionate share hospitals, and freestanding cancer hospitals;
  • Disease-specific programs, such as AIDS Drug Assistance Programs;
  • Federal grantees under specified programs;
  • Federally qualified health centers;
  • Rural referral centers; and
  • Sole community hospitals.

340B eligible participants, also known as "covered entities," are allowed to dispense the drugs they purchase under the 340B program to patients with any income provided the patient is that entity's patient.

Why 340B is controversial  

HHS' Health Resources and Services Administration, which oversees the 340B program, estimated covered entities saved $6 billion under the program in 2015. But critics of the program have argued covered entities are pocketing much of the savings, instead of using them to improve care for vulnerable populations.

For instance, a House Republicans on the Energy and Commerce Committee in a report concluded that the program does not have a clearly defined intent or requirements for covered entities to track program savings. Further, it doesn't designate how covered entities should use those savings to help low-income and uninsured patients.

Ann Maxwell, assistant inspector general for evaluation and inspections at HHS' Office of Inspector General, in testimony before the Senate Committee on Health, Education, Labor, and Pensions, said there is "a lack of clarity regarding program rules that creates uncertainty, resulting in inconsistent program implementation and limited accountability."

Further, as the number of covered entities has increased, some critics have suggested that 340B has outgrown its initial vision of being a limited benefit for providers serving significantly disadvantaged populations. For instance, a 2015 Government Accountability Office report estimated about 40% of U.S. hospitals qualified as covered entities.

To address these concerns, CMS last year implemented a final rule that reduced Medicare Part B reimbursements for drugs under the 340B program by 28%. Previously, hospitals purchased drugs at a discounted rate and were reimbursed at 6% on top of a drug's average sales price. But as of Jan. 1, 2018, hospitals were reimbursed at average sales price minus 22.5%, a change CMS estimated would cut payments by $1.6 billion. Those cuts were budget-neutral, and CMS said it would redistribute the savings by raising Medicare payments to hospitals for non-drug items and services under the Hospital Outpatient Prospective Payment System (OPPS).

Hospital groups filed a lawsuit seeking to halt the Medicare payment cuts, which they claimed would put services at safety-net hospitals in jeopardy. And in January, U.S. District Judge Rudolph Contreras in January sided with hospitals and ruled the cuts were unlawful. However, instead of blocking the rules entirely, Contreras in a May decision ordered HHS to come up with a remedial measure to address the cuts. He told HHS to provide a status on the remedial measure by Aug. 5.

Could changes to 340B come from HHS instead of Congress?

Last year, the 340B program was at the top of federal lawmakers' minds. They floated more than a dozen proposals to reform 340B program and address critics' concerns. Ultimately, none of those measures passed, and lawmakers this year have indicated they're focusing on broader health care issues, including high prescription drug costs and so-called "surprise" medical bills.

However, President Trump's fiscal year (FY) 2020 budget proposal suggests the administration could be considering a number of proposals to change the 340B program. For example, the budget proposal calls for a new methodology for distributing savings under the program. Other proposals include:

  • Establishing user fees for covered entities participating in the 340B program;
  • Granting the Health Resources and Services Administration more authority to oversee the 340B program; and
  • Requiring that covered entities report their 340B savings and how they used their savings.

Given the Aug. 5 deadline Contreras gave HHS to address the invalidated reimbursement cuts, some experts believe HHS could use the 2020 Hospital Outpatient Prospective Payment System rule, which is expected to be released by the end of July, to implement some of those proposals.

American Health Line will be providing in-depth coverage on the looming OPPS rule, so stay tuned for details.