Hospitals, pharmaceutical companies spar over cuts to 340B drug discount program

Pills in dollar sign
Pharmaceutical companies and providers are in a heated debate over the scope of the 340B drug discount program.

The fight between hospitals and pharmaceutical companies about the scope of the 340B drug discount program is heating up. 

The Centers for Medicare & Medicaid Services has issued a final rule that slashed payments for 340B by more than $1.6 billion. It changed the payment rates from up to 6% more than the average sales price for a drug to 22.5% less than the average sales price. The prior rate has been the Medicare policy for more than two decades. 

Hospitals reacted with outrage, and three major industry groups—the American Hospital Association, Association of American Medical Colleges and America's Essential Hospitals—are suing CMS over the changes. 

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RELATED: 340B program doesn't cause drug price increases, study finds 

A Dec. 21 hearing has been set in the case, the AHA announced. The Department of Health and Human Services has until the end of this week to file arguments that the case should be dismissed. 

Hospital leaders were also on Capitol Hill Wednesday in support of a House bill that would block the cuts, according to a statement that 340B Health, a group that represents hospitals in the program, emailed to FierceHealthcare.

The bipartisan bill would prevent CMS from enforcing the payment cuts.

"We decided to conduct this emergency lobby day just two weeks ago and were blown away by the interest," 340B Health CEO Ted Slafsky said in the email. "There is tremendous concern among hospitals about the cut and how it is going to impact patient care. Some hospitals will have to reduce the amount of cancer care they provide and others are already planning for significant layoffs of staff.”

The 340B program wasn't always controversial, according to an article from Kaiser Health News. When it was first put in place in 1992, the drug discount program enjoyed bipartisan support, and it has been expanded three times by Congress. 

Pharmaceutical companies, however, say that it's grown too large and that hospitals take advantage of the discounts, according to the article. Stephen Ubl, president of the industry group PhRMA, told the publication that CMS' change is just the first step, as 340B needs "fundamental reform." 

PhRMA has offered the Trump administration and Congress a list of changes to the program that they could tackle, including limiting which hospitals are eligible for the discounts. William von Oehsen, who lobbied for the law in the 90s and founded 340B Health, told KHN that pharma's lobbying has swayed the opinion of the program. 

"There never was any concern about its size until, basically, pharma decided it had gotten too big and started investing in a public relations and lobbying campaign to reform it," he said. 

RELATED: Hospitals, drug companies and oncology patients are in an uneasy financial dance 

The 340B program accounts for a fraction of drug discounts, studies have shown, equaling just 3.6% of discounts. It also only encompasses about 1% of the drug market, and beneficiaries are often the patients with greatest financial need. CMS says that its changes to 340B will reduce copays and put more money in Medicare beneficiaries' pockets. 

The cuts to 340B could have a significant impact on hospitals' margins, Moody's Investors Service estimates. Moody's projects, however, that increased pressure on pharmaceutical companies could reduce drug prices overall.