Battle Escalates over 340B Drug Pricing Program

What was once an obscure federal policy for providing low-cost drugs to safety-net hospitals has grown into a program that requires extensive discounting to one-third of the nation’s hospitals and health clinics. Pharma companies are pushing back, heightening tensions between “covered entities” that qualify for greatly reduced prices on medicines under 340B - and manufacturers that see the discounts making a big dent in U.S. revenues.

Program advocates maintain that Congress intended the 340B program as a way to reduce costs for public hospitals and enable them to “stretch scarce Federal resources as far as possible” to better serve a greater number of poor and uninsured patients. Thus they consider it appropriate if program growth and provider overreaching ends up shifting more funds from rich drug companies to these important health care providers.

The 340B program was created 20 years ago to preserve traditionally low prices on medicines for a relatively small number of public health facilities, which were threatened by the then-new Medicaid rebate “best price” requirement. Now the discount program involves nearly $7 billion in drugs distributed to some 16,000 facilities and sites – about one-third of all U.S. hospitals. Covered sales are projected to hit $16 billion by 2019, fueled by Medicaid expansion and increased provider use of contract pharmacies to manage 340B discounts. The program is limited to outpatient hospital drug spending, and not inpatient drugs, but now applies to cancer hospitals and other providers under changes made by the Affordable Care Act (ACA) of 2010.

Safety Net Hospitals for Pharmaceutical Access (SNHPA) touts the importance of the program for patient access to medicines and urges more “transparency” in drug prices to ensure appropriate discounts. In an analysis released July 9, 2013,  SNHPA notes that the program represents just 2% of the $325 billion U.S. pharma market and that manufacturer curbs on drug distribution have limited patient access to key therapies such as such as IVIG (intravenous immune globulin), anesthesia gases, contrast media and certain IV solutions.

Biopharma companies cite evidence of a proliferation in ineligible providers claiming discounts, diversion of discounted drugs to other users, and the potential for duplicate discounting related to Medicaid rebates. Manufacturers also fear that expanded 340B drug pricing will distort the market by shifting more patients to 340B providers, compel more independent physicians to link up with hospitals, and boost drug prices for third-party payers, as outlined in a White Paper issued in February 2013by pharma and biotech companies, along with pharmacy and patient organizations.

In addition, some Senators and Congressional leaders have raised concerns about hospitals using the savings from 340B discounts to finance other institutional programs and administrative expenses – including high salaries for hospital officials.

Those biopharma companies hard hit by 340B discounts are implementing strategies to minimize inappropriate provider use of the program. Amgen recently established a limited specialty distribution program for its Neulasta treatment for cancer patients, a move that prompted loud protests from SNHPA. Genentech is conducting more site visits and audits of providers in response to 25% growth in its 340B discounts to $1 billion a year. Several manufacturers are looking more to specialty pharmacy networks to manage distribution of drugs to 340B entities, while also weighing jointly sponsored audits of key providers.

The Health Resources & Services Administration (HRSA) in the Department of Health and Human Services (HHS), which administers 340B through its Office of Pharmacy Affairs (OPA), emphasized the need for more transparency and integrity at the July meeting of the 340B Coalition in Washington. OPA officials outlined efforts to ramp up provider audits and to clarify policies, generating optimism that a long-awaited “mega-reg” would appear next year to map out new requirements and program changes. HRSA also issued a final regulation on orphan drug coverage July 22, which is likely to give 340B providers discounts on certain uses of these often costly therapies. OPA could gain more resources for these initiatives if Congress doubles it meager $4 million annual budget by authorizing new user fees paid by providers. Clearer rules may resolve some of the disputes between covered entities and industry, but problems are expected to continue as more biopharma companies take steps to protect sales from discounting they see as excessive and inappropriate.