August 24, 2020

At least five major drugmakers in the past several weeks have notified hospitals that they may no longer provide discounts to the providers under Medicare's 340B Drug Discount Program, sparking the latest in a series of clashes over the long-controversial program.

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Inside the controversy over 340B

The 340B Drug Discount Program is one of the most contentious issues in health care. Its critics say it "hurts patients" and is being "abused" by hospitals, and a report issued earlier this year by the Government Accountability Office found that HHS was not adequately monitoring the 340B and Medicaid Drug Rebate Programs, which could increase the risk of pharmaceutical companies paying duplicate discounts for eligible drugs.

The program's defenders, however, say 340B is vital to the health of low-income patients and essential to helping safety-net hospitals care for their communities.

The program requires drug manufacturers to provide outpatient drugs to eligible health care providers at discounts ranging from 20% to 50%. The program, created by Congress in 1992 and expanded under the Affordable Care Act, focuses its discounts on hospitals with disproportionately low-income patient populations. According to STAT News' "Pharmalot," an estimated 12,400 covered entities participate in the program, including about 2,500 hospitals.

On Jan. 1, 2018, a final rule took effect that changed the way CMS reimburses hospitals for drugs purchased under the program. Previously, hospitals purchased drugs at a discounted rate and were reimbursed at 6% on top of a drug's average sales price. But as of Jan. 1, 2018, hospitals were reimbursed at average sales price minus 22.5%, a change CMS estimated would cut payments by $1.6 billion.

The American Hospital Association (AHA), the Association of American Medical Colleges (AAMC), America's Essential Hospitals (AEH), and three health systems sued CMS over the cuts in September 2018, arguing the agency lacked the authority to lower the payments. U.S. District Judge Rudolph Contreras in January 2019 ruled CMS did unlawfully cut Medicare Part B reimbursements for drugs purchased under the 340B program, in part because the agency hadn't collected the data it needed on hospitals' acquisition costs to set the new payment rates. Contreras later blocked the final rule, but instead of granting hospitals a permanent injunction against the payment cuts, he ordered HHS to come up with a remedial measure to address the cuts.

Drugmakers look to limit discounts under 340B

Now, at least five drugmakers in recent weeks have notified hospitals that they may stop providing discounts under the programs if hospitals do not meet certain requirements.

For instance, "Pharmalot" reports that some drugmakers told hospitals they will no longer provide 340B discounts if hospitals purchase and ship eligible drugs to specialty or retail pharmacies for patient pick-ups or deliveries instead of dispensing drugs on site. Other drugmakers told hospitals that they may halt the discounts if hospitals fail to provide them with claims data for patients enrolled in health plans other than Medicaid. In those instances, the companies claim that they need the data to ensure they're not paying for duplicate discounts, "Pharmalot" reports.

According to "Pharmalot," since late June, AstraZeneca, Eli Lilly, Merck, Novartis, and Sanofi have made such moves.

AstraZeneca and Eli Lilly have sought to limit their discounts for the drugs to participants' on-site pharmacies, while Merck, Novartis, and Sanofi are looking to halt discounts for participants who don't provide the drugmakers with certain claims data for patients enrolled in private and Medicare plans, Modern Healthcare reports.

In a statement sent to STAT News, a Novartis spokesperson said, "[W]e believe, as many other manufacturers do, that the [340B] program has grown beyond its original intent" and, "[a]s a result, we are transitioning to a new system that will allow Novartis to identify and mitigate the issue of duplicate discounts and ineligible rebates from 340B contract pharmacies." The spokesperson continued, "We believe this change is necessary to make the 340B program more sustainable, while ensuring transparency and ensuring minimal impact to program stakeholders. This change will not affect patient access to prescribed medicines."

According to "Pharmalot," a Sanofi spokesperson in a statement sent to STAT News said the company previously conducted audits of 340B claims and recovered millions of dollars that the drugmaker had paid in duplicate billings. The spokesperson added that, although the drugmaker is seeking data on claims for drugs provided to patients enrolled in Medicare and private health plans in addition to Medicaid plans, that would not conflict with federal privacy laws because "no protected health information is collected and the data cannot be combined with other data sets to reveal the identity of a patient."

Further, Sanofi in a letter sent to HHS on Aug. 13 wrote that although AHA has "mischaracterize[d] our initiative as intended to limit distribution of 340B-priced drugs, instead our program solely seeks the information needed to protect our company from duplicate discounts," Modern Healthcare reports.

According to Modern Healthcare, AstraZeneca in a statement said its changes to mostly limit discounts to on-site pharmacies align with federal guidelines and statutes.

Hospitals push back, ask Trump admin for enforcement action

Hospitals have pushed back on the pharmaceutical companies' latest moves, arguing that stopping the discounts ultimately could harm low-income patients' access to medications. In addition, hospitals claim that the moves clash with federal law, which they say requires drugmakers to pay the discounts, according to Maureen Testoni, who leads 340B Health, a group that represents safety-net hospitals.

Further, some legal experts and pharmacies have raised that federal law limits the types of claims data drugmakers can collect, "Pharmalot" reports.

Bruce Siegel, president and CEO of AEH, in a statement issued last week said, "These manufacturers have threatened punitive actions—including withholding 340B drugs to contract pharmacies—for failing to comply with arbitrary reporting requirements." He added, "These data requests have no clear link to program integrity. … The federal government already has sufficient safeguards in place to avoid duplicate discounts under Medicaid and the 340B program. Particularly concerning is that the manufacturers' data requests unduly exceed the scope of these federal protections by including commercial and Medicare activity."

According to Inside Health Policy, Siegel separately called on HHS "to intervene and put an end to these unwarranted manufacturer requests."

Further, "Pharmalot" reports that a collation of community centers, patient advocacy groups, and hospitals in a letter recently sent to HHS Secretary Alex Azar wrote, "We are concerned that the actions of these global manufacturers, if allowed to stand, will set a dangerous and negative precedent for the 340B program and the providers and patients it serves."

And Todd Nova, an attorney at Hall Render, said the drugmakers' moves, when paired with the recent federal payment cuts under the program, could significantly effect whether covered entities will continue participating in the program. "If this continues to expand, with the ramifications of the [federal] payment reductions it calls into question viability of some covered entities long term at worst, and their participation in 340B program in the first place."

Last month, HHS' Human Resources and Services Administration (HRSA) which oversees 340B, in a statement said it has only limited authority to enforce certain policies under the program unless there is a clear violation of law, in accordance with guidance the federal government issued in 2010, "Pharmalot" reports. However, an HRSA spokesperson last week said the agency is "considering the issues raised by the recent actions of these manufacturers, and [is] evaluating our next steps."

Inside Health Policy reports that HRSA said the agency "strongly encourages all manufacturers to sell 340B priced drugs to covered entities through contract pharmacy arrangements." The agency reportedly told Inside Health Policy, "Manufacturers that refuse to honor contract pharmacy orders may be significantly limiting access to 340B discounted drugs for many underserved and vulnerable populations. Many of these populations may reside in geographically isolated areas and rely on contract pharmacies as a critical point of access for obtaining their prescriptions."

Still, HRSA reportedly also told Inside Health Policy that, "[w]ithout comprehensive regulatory authority, HRSA is unable to develop enforceable policy to ensure clarity in program requirements across all the interdependent aspects of the 340B Program, although HRSA is still considering this matter as raised by the actions of these manufacturers."

According to Modern Healthcare, 340B Health has said, "If the [Trump] administration will not use its authority to enforce the law, we will pursue all legislative and legal avenues available to us to defend the safety net" (Silverman, "Pharmalot," STAT+, 8/20 [subscription required]; Cohrs, Modern Healthcare, 8/19; Stein, Inside Health Policy, 8/20 [subscription required]).

Key takeaways from the CY2021 HOPPS and MPFS Proposed Rules

On August 4, CMS released the proposed rules for hospital outpatient departments (HOPDs) and ambulatory surgical centers (ASCs), as well as the Medicare Physician Fee Schedule (MPFS), for calendar year (CY) 2021. While our team continues to analyze the 2000+ pages of both rules, there are several key items that health system and hospital leaders should know.

Join us for this webinar this Thursday, Aug. 27 at 3 p.m. ET where we’ll share our key takeaways from the new proposed rules.

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