Courts Put Guardrails on 340B Program, Aiding Reform Efforts to Ebb Abuse

By: Ranier Simons, ADAP Blog Guest Contributor

Since 1992, the 340B Drug Pricing Program has enabled eligible health care providers, referred to as covered entities, “to stretch scarce federal resources to reach more eligible patients or provide more comprehensive services.”[1] One of the most notable characteristics of the program is that it is not funded by the government. Since it requires drug manufacturers to sell medications to eligible entities at steep discounts, in essence, it is a legally mandated reallocation of financial resources from private industry to providers. As such, abuses of the program are especially egregious. The vast growth of the 340B Program over time has led to increased abuses in it as big hospital systems and mega service providers sought to enhance their profits over serving vulnerable patient populations. A tug-of-war among varied interests has generated many legal challenges in attempts at 340B reform. Recently, the pharmaceutical industry has achieved wins in its favor.

Photo Source: PharmaLive | Biospace

In May of this year, D.C. Circuit Court of Appeals ruled in favor of Novartis and United Therapeutics. Both companies separately sued the Health Resources and Services Administration (HRSA), which is the federal agency charged with overseeing the program. HRSA sent oversight enforcement letters stating the pharmaceutical manufacturers were in violation of the 340B statute because they imposed new restrictions on covered entities and limited their number of contract pharmacies.[2] The manufacturers had issued conditions on the usage of contract pharmacies 340B qualified entities utilized to purchase drugs they sold. Some of the conditions included requiring covered entities with in-house pharmacies to use those pharmacies to dispense 340B drugs and limiting entities without in-house pharmacies to only one contract pharmacy.[2]

HRSA claimed that the 340B statute allowed covered entities to utilize an unlimited number of contract pharmacies; thus, drug manufacturers were mandated to ship 340B drugs to wherever entities wanted. They issued enforcement letters threatening civil monetary penalties due to non-compliance.[2] The D.C. Circuit consolidated both companies' cases and ruled that the 340B statute did not explicitly forbid manufacturers from imposing conditions on the distribution of covered drugs to covered entities.[2] Additionally, the court quashed HRSA’s enforcement letters, stating that they were arbitrary and capricious under the Administrative Procedure Act (APA).[2] Thus, the manufacturers can continue to impose conditions.

Pharmaceutical companies have instituted conditions on contract pharmacies as one way to fight against abuses of the 340B program. Mounting evidence has demonstrated too many bad actors are taking advantage of the program, increasing profit instead of using the proceeds to benefit patients. Some hospitals have purchased 340B drugs and then sold them at full price or more to affluent, fully insured patients as well as uninsured patients.[3] This harms uninsured and vulnerable populations, cutting access when they cannot afford the pricing instead of helping those the program was meant to help. Another abuse is entities prescribing higher-cost medications when effective lower-cost drugs are available for the sole purpose of maximizing profit from the 340B discount spread.[4] Abuses like these are possible because the law in its present state does not specify drug discounts remain reserved only for those who are needy.[3] This is why manufacturers are trying to limit distribution to entities and pharmacies directly benefiting needy patients.

Photo Source: Fierce Healthcare

There is fierce opposition to the growing chorus calling for reforms to the 340B Program, that is actually anti-reform. Those fighting against 340B reform posit that those in support of 340B reform are attempting to gut the program and save themselves money by reducing the number of drugs they are discounting. The reality is the anti-reform movement is more concerned over what is seemingly an unlimited ATM with few strings attached, if any. For example, the American Hospital Association wrote a letter against H.R. 8574, the 340B Affording Care for Communities and Ensuring a Strong Safety-net (340B ACCESS) Act.[5] The act does several things, including creating updated eligibility requirements ensuring that authentic safety-net providers serving needy, underserved populations are the only entities benefiting from the program. It also establishes that federal grantees and their contract pharmacies must provide affordability assistance policies that ensure patients are not denied access to 340B medicines based on their ability to pay.[6]

The well-resourced forces who are against 340B reform are against it because reform prevents them from utilizing the 340B Program revenues as cash flows to expand services, acquire practices, and engage in other ventures that are not focused on safety-net population medical care. In June of this year, a study conducted as a combined effort of Appalachian Learning Initiative, ADAP Advocacy, and Community Access National Network highlights how large organizations use 340B funds.[7] The full text of the report can be found, here. 

One of the most notable findings involves CEO compensation. The study examined data on the entities studied, showing changes in activity before and after obtaining 340B eligibility. It was found that executive compensation increased by an average of 231.51%, and the provision of charity care as a percentage of annual hospital revenues decreased by 14.79%.[7] Additionally, they found that the overall yearly revenues of the entities studied increased by an average of 824.32%.[7] This would indicate that as revenues increased, the level of spending on charity care decreased. Charity care is not the only avenue available to covered entities to support their poor and underserved populations. However, if the purpose of the 340B program is to generate revenues to help those in need, one would expect to see an increase in charity care.

Photo Source: Drug Channels Institute | iStock Photos

The recent court ruling by the D.C. Court of Appeals, and other ones, is finally putting some guardrails on the 340B Program, which has ballooned to a record $66.3 billion in 2023.[8] In his recent analysis of the program’s growth, Dr. Adam J. Fein with the Drug Channels Institute summarized, “Lobbyists claim that manufacturers’ 340B contract pharmacy changes are 'stripping billions of dollars from the healthcare safety net.' But every year, the data tell a very different story. Only in the U.S. healthcare system can billions more in payments and spreads be considered a cut.”[8]

Whether it's using 340B eligibility to expand into financially prosperous communities for profit, structuring operations to maintain the bare minimum share of low-income patients required for 340B qualification, or other questionable actions, there is a demonstrated need for 340B reform.[9] The recent wins in the name of 340B reform achieved by pharmaceutical companies are steps in the right direction. Nevertheless, it is imperative that ongoing reform efforts reach a harmonious balance of weeding out bad actors, stabilizing the finances of covered entities acting in the best interests of their patient populations, and ensuring that pharmaceutical companies can continue to contribute without worrying about adverse effects to their operational finances.

[1] Health Resources & Services Administration. (2021). 340B drug pricing program. Retrieved from https://www.hrsa.gov/opa/index.html

[2] Grimm, D., Hethcoat, G., Trunk, S. (2024, June 27). The 340B ‘Saga’ Continued: HRSA, States, and Drug Manufacturers Contest 340B Contract Pharmacy Restrictions in Court. Retrieved from https://www.jdsupra.com/legalnews/the-340b-saga-continued-hrsa-states-and-9025687/

[3] Center for Medicine in the Public Interest. (2022, September 12). New Report Demonstrates How Hospitals, Pharmacies & PBMs Exploit the Federal 340B Drug Program to the Harm of Disadvantaged Patients

[4] Pitts, P., Popovian, R. (2022, September). 340B and the Warped Rhetoric of Healthcare Compassion. Retrieved from https://www.fdli.org/2022/09/340b-and-the-warped-rhetoric-of-healthcare-compassion/

[5] Hughes, S. (2024, July 26). AHA Comments Opposing the 340B ACCESS Act (H.R. 8574). Retrieved from https://www.aha.org/lettercomment/2024-07-26-aha-comments-opposing-340b-access-act-hr-8574

[6] ASAP340B. (2024, May 28). ASAP 340B Applauds Introduction of the 340B ACCESS Act. Retrieved from  https://www.asap340b.org/post/asap-340b-applauds-introduction-of-the-340b-access-act

[7] Hopkins, M. J., Macsata, B. M., & Laws, J. (2024, July). The 340B Drug Rebate Program and its potential impacts on annual revenues, executive compensation, and charity care provision in eligible covered entities. Nags Head, NC: ADAP Advocacy.

[8] Fein, Ph.D, Adam J. (2024, October 22) The 340B Program Reached $66 Billion in 2023—Up 23% vs. 2022: Analyzing the Numbers and HRSA’s Curious Actions. Drug Channels. Retrieved from https://www.drugchannels.net/2024/10/the-340b-program-reached-66-billion-in.html

[9] DiGiorgio, A. M., & Winegarden, W. (2024). Reforming 340B to Serve the Interests of Patients, Not Institutions. JAMA Health Forum, 5(7), e241356–e241356. https://doi.org/10.1001/jamahealthforum.2024.1356

Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates. 

HIV Advocates Worry About the Unintended Consequences of the Inflation Reduction Act

By: Marcus J. Hopkins, Executive Director, Appalachian Learning Initiative

Advocates across the HIV patient, provider, and pharmaceutical sectors are sounding the alarm about the potential for provisions within the Inflation Reduction Act of 2022 to have unintended consequences for people living with HIV/AIDS (PLWHA). Specifically, advocates, including ADAP Advocacy, are concerned that Sections 11001 and 11002—the sections that establish the Medicare Drug Price Negotiation Program that will give the Centers for Medicare and Medicaid Services (CMS) the ability to negotiate maximum fair prices (MFPs) for certain high expenditure, single source drugs and biologic products—will stifle innovation, limit the selection of antiretroviral (ARV) medications for PLWHA, and create new barriers for PLWHA attempting to access medications to treat other conditions as PLWHA continue to age while living with the disease.

Photo Rights Purchased via iStock

Aside from restricting access to medications, there are other concerns. One of the primary arguments being made is that the setting of MFPs for ARV medications may inadvertently have a negative impact on AIDS Drug Assistance Program (ADAP) revenues generated by the 340B Drug Pricing Program.

For the uninitiated, 340B is a federal pricing program that requires pharmaceutical companies to sell drugs to covered entities—including ADAPs—at the lowest possible price. Pharmacies then sell those drugs to outpatients and receive rebates for the difference between the drug’s list price and the lowest possible price. The rebates are considered “revenues,” and are used to sustain operations by many AIDS Service Organizations’ and HIV clinics. (Editor's Note: Learn more about the 340B Program)

When MFPs are set, these rebates may, depending upon the medications in questions, leave pharmacies purchasing drugs at significantly lower “best prices” or even “penny prices,” where the total 340B discounts are greater than the MFP set for the drug and pharmacies are required to purchase the drugs for $0.01. This means that the rebate amount for those drugs would actually end up costing the pharmacy money to sell the medications, thus disincentivizing them from carrying the drugs, at all (Newton, 2024).

Right now, the MFPs would only apply to drugs covered by the Medicare program, and it is unknown how or if MFPs would have any direct impacts on ADAPs. However, as PLWHA continue to live relatively healthy lives into their later years, they will become eligible for Medicare. Once ADAP recipients become eligible for Medicare, they must enroll in Medicare Part D, and ADAPs can help clients with Part D plan-related co-pays, deductibles, and premiums.

A secondary concern related to MFPs is that placing price controls (in this case, MFPs) will disincentivize drugmakers from continuing to innovate (i.e., develop new treatments, potential vaccines, and potential cures) by limiting the profits they can make from their products. There is evidence to suggest it is already happening.

Section 11001 also instituted Prescription Drug Inflation Rebates, a mechanism by which drug manufacturers are required to issue rebates to CMS for brand name drugs without generic equivalents that cost $100 or more per year per patient and for which those manufacturers increase the prices of those drugs faster than the rate of inflation. Section 11002 goes further, requiring manufacturers that fail to comply with civil penalties (i.e., financial fines).

The issue with attempting to convince consumers that these provisions of the IRA will have negative impacts on the pharmaceutical market—and thus for patients—is that these provisions are broadly popular across the political spectrum. A majority of consumers have consistently been in favor of multiple approaches to lowering drug prices, with the Kaiser Family Foundation finding that 88% of respondents supporting the institution of price increase caps and 88% being in favor of forcing drug manufacturers to negotiate drug prices with the government for Medicare (Figure 1). In fact, majorities of patients across the political spectrum have reported being in favor of expanding these provisions beyond Medicare (Figure 2).

Figure 1 - Before the Inflation Reduction Act, There Was Broad Support to Many Approaches to Lowering Drug Costs

Photo Source: KFF

(Source: Sparks, Kirzinger, Montero, Valdes, & Hamel, 2024)

Figure 2 - Majorities of Voters Across Partisanship Support Proposals to Expand IRA Provisions Beyond Those With Medicare

Photo Source: KFF

(Source: Sparks, Kirzinger, Montero, Valdes, & Hamel, 2024)

Drug manufacturers and other experts across the healthcare industry, however, have consistently argued that the financial impacts of these types of measures are not conducive to continuing their investments in research and development for new drugs, and will force them to reevaluate their expenditures in continuing to innovate and bring new drugs to the market, as well as force them to make tough choices about which medications to continue making (Chen, 2024).

Part of what makes these arguments difficult to explain is the significant opacity as it relates to exactly how manufacturers determine the list prices of their medications in the United States and what percentage of that list price is actually paid by providers, insurers, and patients.

In general, American consumers are broadly unaware of how the United States healthcare system actually works. From the consumer perspective, the only concerns they tend to take into account are if and when they can see their doctors, whether or not the medications prescribed to them will work, and whether or not they can afford the costs of healthcare services and their prescription drugs. While this may seem like simple concerns, each of these steps along the way is fraught with multiple complex cost considerations behind the scenes.

From determining which physicians are “in-network” vs. “out-of-network,” to which services are covered, to whether or not a drug is included on a formulary, and what the out-of-pocket costs are to patients, every step includes complex price negotiations between public and private insurers, the providers, and drug manufacturers to which patients are both unaware and unallowed to evaluate due to trade secrets laws that protect how list prices and negotiated prices are determined.

Moreover, insurers, pharmacy benefit managers (PBMs), and manufacturers are not forthcoming with how these prices are established. This leaves both consumers and legislators to attempt to figure out these issues without being provided with a full picture of the greater healthcare ecosystem.

The MFPs and penalties for price increases above inflation, while popular with consumers and many legislators, may ultimately end up making the costs associated with developing, testing, branding, getting approval for, marketing to consumers, and selling prescription medications so cost prohibitive that manufacturers will simply decide to slow down the pace of innovation or to exit the market entirely.

An example of this can be directly seen in the decision by Novo Nordisk to discontinue Levemir (insulin detemir) in the United States. Levemir is basal insulin product that is widely used by some patients with Type 2 diabetes and Type 1 patients who are teens, athletes, or pregnant due to its short-lasting effects and the ability of patients to adjust their dosages to meet their insulin needs (Chen, 2024).

The IRA specifically set out-of-pocket price caps on insulin at $35 for patient on Medicare. While Novo Nordisk initially indicated that they would cut the prices of their insulin products by 75% for NovoLog and 65% for Novolin and Levemir (Silverman, 2023), the decision to discontinue this product for American consumers has left patients scrambling to find scrambling to find either new medications to treat their diabetes or new sources for Levemir, which may drive them to attempt to purchase the drug from other countries, and thus open them to the risk of counterfeit medications that could potentially kill them.

Additionally, this decision has exposed a key gap between the intention of these provisions and the reality of a relatively open market for drug manufacturers: even if officials can force manufacturers to lower their prices, those companies can simply pull the drugs off the markets without guaranteeing that other manufacturers will continue to make the compound (Chen, 2024).

This, again, goes back to why transparency in pricing and price negotiations is such a vital piece of information for both consumers and legislators. Without access to these details, pushes to make drugs more affordable to patients come up against the financial realities that drive the for-profit healthcare industry, as for-profit drug manufacturers are essentially the only entities developing, testing, and bringing medications to market.

Finally, one of the key arguments being made by advocates and drug manufacturers is that the voices of the patients who are impacted by healthcare laws and policies need to be more regularly and publicly included during the crafting of legislation and administrative rules.

Over the past forty years, patients and other consumers have become increasingly vocal about the healthcare services we receive, particularly in chronic disease spaces, like HIV. It is hard to argue the impacts that early HIV/AIDS groups, such as ACT UP New York, have had on several facets of the drug development and healthcare delivery arenas. Their very public, disruptive, and vocal protests and demonstrations during the 1980s and 90s forced the the U.S. Food & Drug Administration to shorten wait times during the development of key HIV medications during the early day of the epidemic (Neus, 2023).

While this type of patient activism has largely fallen out of favor, these actions paved the way for legislators and government agencies to establish patient and community advisory bodies. As part of the creation of those bodies, the processes through which patients could have a direct say in the decisions that impact them were formalized, and heavy emphases have been placed on civility and “right time; right place” expectations that have left many advocates hesitant to participate in formalized settings with which they’re unfamiliar and for which the rules of engagement are both unspoken and unclear.

Essentially, the fire and ire tactics used in the 1980s and 90s no longer fly in the 2020s, as politicians and administrative officials simply refuse to tolerate them. That isn't to say protests don't happen, because they do but their effectiveness is hard to measure. This means that public comment periods and other opportunities for patients to speak to these officials have become increasingly inaccessible over time, often requiring significant financial and time investments from those patients to attend oddly scheduled and poorly advertised in-person sessions, as well as submit written public comments through labyrinthine pathways that are made purposely difficult to navigate.

What ended up replacing those early protests were patient advocacy groups run by people who are more familiar with these processes and rules, and who work very diligently to craft specific messaging that, in their experiences, are more likely to move officials to go in directions that they believe most beneficial to patients. This has resulted in fewer realistic opportunities for patients to engage with the people who are making decisions that directly impact their lives.

Beyond those advocacy groups, drug and device manufacturers make significant financial investments in patient-level advocacy efforts. These efforts are almost always not specific to any one medication, instead focusing on specific disease states (e.g., HIV/AIDS, breast cancer, and other chronic conditions) where patients are both dependent upon the medications used to treat those conditions and have the most to lose if they lose access to them.

Investments in patient advocacy groups, such as ADAP Advocacy, are often used to craft educational campaigns designed to make patients aware of disease statistics and policies that may impact patient access to life-saving medications. Industry groups representing hospitals, PBMs, and insurers often use these investments as “evidence” to discount patient perspectives, both implying and directly stating that any advocacy efforts funded, either in part or in whole, by drug manufacturers cannot be trusted because they are being influenced by those manufacturers. It amounts to nothing more than a cheap shot, designed to further dismiss the patient perspective. (Editor's Note: Read ADAP Advocacy's transparency statement)

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As with every aspect of healthcare in the United States, including patients can be tricky. As tensions between political parties in this country have become more fraught over the past two decades, legislators in particular are more likely to treat public testimonies during hearings not as opportunities to hear from patients, but to cross examine “witnesses.” Example of this can be seen at all levels of government, particularly when the legislation being discussed relates to the provision of healthcare services that certain segments of the population have turned into “moral” issues (e.g., the sale of contraception, the provision of abortion services, and the dispensing of Pre-Exposure Prophylaxis [PrEP] to prevent the transmission of HIV). During these hearings, some legislators will use their time to not just ask questions of the patients and medical experts giving testimony, but to call into question their experiences and expertise, accuse them of being “funded” by nefarious sources (e.g., “You’re being funded by George Soros!”), and make openly defamatory and bigoted statements about the patients who need access to medications and services, such as contraceptives, in-vitro fertilization, abortions, and PrEP, making statements that imply that the fact that they need those services and medications is a moral failing on their part.

This adversarial atmosphere has convinced many patients that their voices are neither welcomed nor actually considered when laws and rules are made that directly impact their lives. This makes including the patient voice all the more vital to ensure that laws like the IRA are crafted with all of the stakeholders in mind and that careful consideration is given to the potential downstream consequences.

The inclusion of patient voices is invaluable. It affords elected officials and policy-makers to consider perspectives they may not otherwise think to includes; to take into account the real-world impacts of their policies that they may not see because those officials often have the best healthcare coverage tax dollars can buy, while patients—particularly those living with chronic conditions—are often just scraping by to survive.

The long-term impacts of the IRA can, just two years after its passage, only be predicted. While some short-term impacts are being felt, we don’t actually have good data to definitively state that certain outcomes will come to pass. We can only make our best guesses given the information we have at hand and the environments in which we work. We will continue to monitor the impacts of the IRA as the years progress, as well as any other developments that will directly impact patients.

Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates.