Why hospitals are worried about a new 340B ruling

HHS may appeal the decision

Hospitals and other stakeholders say that a district court's ruling Thursday effectively excluding "orphan" drugs from the 340B Drug Pricing Program for rural and cancer hospitals could reduce funds needed to provide uncompensated care.

Background on 340B program

The federal 340B program requires drug manufacturers to provide outpatient drugs to eligible health care providers at discounts generally ranging from 20% to 50%. The program, created by Congress in 1992, focuses on hospitals with disproportionately low-income patient populations.

The Affordable Care Act (ACA) expanded the program, but excluded "orphan" drugs—which are developed to treat a rare conditions—from 340B pricing.

However, HHS's Health Resources and Services Administration (HRSA) in 2014 issued an interpretive rule requiring drugmakers to provide rural, cancer, critical-access, and sole community hospitals with discounts for orphan drugs when they are used to treat ailments other than those they were developed to treat. For instance, Prozac—often used to treat depression—is an orphan drug that was designed to treat body dysmorphic disorder and autism in adolescents, Lisa Schencker writes for Modern Healthcare.

Overall, about 40% of U.S. hospitals are eligible to participate in the 340B program, which saved providers about $3.8 billion in medication costs in 2013.

Details of court ruling

Pharmaceutical Research and Manufacturers of America (PhRMA) had sued HHS over the interpretive rule, arguing in part that it undermined drugmakers' incentives to research and develop new orphan medications.

On Thursday, U.S. District Judge Rudolph Contreras sided with PhRMA and vacated the rule, finding it was "contrary to the plain language" of federal law.

C-Suite cheat sheet: The 340B Drug Pricing Program


Mit Spears, PhRMA EVP and general counsel, said in a statement that the group "supports the original intent of the 340B program and remains committed to working with the administration and Congress to reform the 340B program to ensure it reaches the vulnerable or uninsured patients it was intended to help."

An HHS spokesperson said the department is reviewing the decision. Modern Healthcare reports that the department might appeal the ruling.

Meanwhile, American Hospital Association EVP Tom Nickels said in a statement that the decision "comes at a steep cost for the vulnerable patients cared for by rural and cancer hospitals." He added that it would "reduce access to critical services and treatments for some of the most vulnerable patients in society."

Diane Calmus, government affairs and policy manager with the National Rural Health Association, told Modern Healthcare that the ruling would cause rural hospitals to pass some orphan drug costs onto patients and could lead to some hospitals not stocking certain medications.

The ruling could also reduce the amount of uncompensated care affected hospitals are able to provide, Schencker writes. Hospitals are able to sell drugs they buy through the program to insured patients for more than their purchase price and use the margin to help pay for uncompensated care.

Randy Barrett, a spokesperson for 340B Health—a group representing 1,000 hospitals participating in the program—told Modern Healthcare that hospitals garner $3.8 billion in funding for uncompensated care through the 340B program per year. "If they can no longer get 340B pricing and can no longer get that discount, they're going to have less money available to pay for all these services," he said.

Calmus added that issue would particularly affect rural hospitals, which already have tight margins. "If you look across [the country] at the crisis of rural hospital closures, rural hospitals are not hospitals that are wasting the resources that they have," she said. "These are hospitals using every last resource they have to help a very vulnerable population" (Schencker, Modern Healthcare, 10/15; AHA News, 10/15).

How 340B pricing affects cancer program strategy

See our survey findings on the 340B program's impact on hospital-based cancer programs' physician alignment and regionalization strategies.


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