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.