The Uncertain State of the 340B Program: Where Are We Now?

by Mintz Levin - Health Law & Policy Matters
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In January 2018, in the wake of the publication of the House Energy and Commerce Committee’s Review of the 340B Drug Discount Program, I wrote that it was too soon to know whether 2018 will be a game-changing year for the 340B Program. In sum, there were just too many moving parts to discern whether there was a path forward for legislative change.

Multiple bills are now on file proposing substantive changes to the 340B Program. And the Senate Committee on Health, Education, Labor & Pensions (HELP) convened its first hearing on the 340B Program. There seems to be a rallying cry for “transparency” in the 340B Program.

So three months into the year, are things any clearer? Now may be a good time to take a step back and recap where we are and what the future may hold for 340B. 

1.  Senate HELP Committee Hearing. The Senate HELP Committee held its hearing entitled “Perspectives on the 340B Drug Pricing Program” on March 15, 2018. The testifying witnesses were all 340B stakeholders: the CEO of a Federally Qualified Health Center, the CEO of America’s Essential Hospitals, a representative of Health System Pharmacists, and a representative from PhRMA. Unlike the House hearings, there was no HRSA or any other government participation in the hearing, although several Senators did express a desire to hear from HRSA at a future hearing. In his opening remarks, Senator Alexander decried the lingering confusion over 340B, stating that the initial legislation failed to make clear the purpose of the Program. Senator Alexander went on to argue for transparency, stating that for effective oversight the government needed to know how much hospitals netted from 340B and how that money was used. Multiple senators countered that real problem in 340B was the lack of transparency in drug prices and price increases, pointing to PhRMA as the culprit

2.  Pending Legislation. Various legislative fixes have been floated for 340B, including:

  • H.R. 4392 would stay the enforcement of the CMS Medicare Part B reimbursement cut for 340B drugs that went into effect January 1, 2018.
  • The Pause Act, H.R. 4710 would enact a moratorium on new registrations of 340B-eligible DSH hospitals and child sites. The House bill also requires certain covered entities to report summary data on 340B utilization and revenue.
  • S. 2312 is Senator Cassidy’s bill that would also enact a moratorium on new registrations of DSH hospitals and child sites but goes on to require enactment of regulations to clarify hospital eligibility for 340B, adds reporting requirements related to 340B revenues, and requires Medicare and Medicaid to report data related to 340B.
  • S. 2453 is Senator Grassley’s bill and would require hospitals eligible for 340B to include in their cost reports the aggregate acquisition cost for 340B drugs and the aggregate revenue received from all payors for those drugs.

There is a substantive difference in the two Senate bills. Alexander’s bill requires reporting to the DHHS “Secretary” and was referred to the Senate HELP Committee. Grassley’s bill requires reporting of additional information in hospital cost reports filed with CMS (not HRSA) and was referred to the Senate Finance Committee. A potential turf war could pose another obstacle to consensus on 340B changes.

3.  The President’s Budget. The White House released the President’s 2019 budget request on February 12th with embedded language on 340B. The President touts the potential $320 million in seniors’ savings from the Medicare Part B reimbursement cut. Newly added language would further modify hospital reimbursement for 340B drugs through adoption of Medicare payment adjustments tied to a minimum requirement for charity/uncompensated care. The White House did not provide any further details on the proposal.

What’s Next?

Clearly, there is a call for transparency in 340B, but no agreement on transparency for whom. The legislative proposals presently filed would impose reporting requirements for hospitals, with no corresponding requirements for manufacturers. Hospitals and health systems will argue that it is fundamentally unfair to require them to report costs and revenue from 340B without requiring corresponding disclosures from manufacturers. Moreover, the mechanism for implementation of any future reporting requirements matters. As the House hearing last fall laid bare, there is no consistency in how hospitals and health system currently track 340B expenditures and revenue. Regulatory standards will need to be developed for any reporting and HRSA presently lacks such regulatory authority. Senator Cassidy’s bill gives HRSA broad regulatory authority to “enhance transparency” but the process will be arduous. Senator Grassley’s bill imposes limited reporting requirements tied to Medicare cost reports that are filed with CMS.   One reason, I believe, that the 340B Medicare Part B reimbursement cut has thus far withstood legal challenge is because it relies on CMS’ regulatory authority to administer Medicare Part B, not HRSA’s shaky legal authority to enact changes in 340B. HRSA agrees with the covered entity position:  the 340B Program was created to enable covered entities to stretch scarce federal resources to reach more eligible patients and provide more comprehensive services.  But as Senator Alexander pointed out, and as I have been writing about for more than five years, there may be more to it than that. One view is that the 340B Program was a reaction to unintended consequences of the Medicaid Drug Rebate Program.  Thus, it could be argued that Congress intended that through 340B Program covered entities be able to purchase 340B drugs at the 340B discount. But aside from the statutory prohibition on “duplicate discounts” in the 340B statute, Congress failed to address the mechanism for distribution of those drugs to 340B patients.

For example, the OIG and GAO have both been critical of the fact that there is no requirement that hospital outpatients who are dispensed 340B drugs receive those drugs for free or at a cost at or below the 340B purchase price.   None of the presently pending proposals would do anything to change that fact.  Admittedly resolving that issue is hard, because of the involvement of contract pharmacies and 340B inventory replenishment models in the distribution chain.  Nevertheless, it will take affirmative Congressional action to change the existing paradigm.

So where are we now?  Unfortunately, there is still no clarity on the future of 340B.  But we will be closely following developments and sharing our insights.  Stay tuned.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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