Various 340B issues mean potential headaches for providers in 2025

The 340B Drug Pricing Program, a key source of cost savings for participating hospitals, faces intensifying pressure in the early part of the new year.

Drug companies are pursuing efforts to limit the ability of hospitals to realize their full allotment of savings, while Congress eyes the program as a possible way to trim federal expenditures.

“In light of the Republican control of both chambers of Congress and the White House, there are more opportunities for those who have concerns about the 340B program to try and implement changes,” said Jeff Davis, JD, a 340B expert and partner at the law firm of Bass Berry & Sims.

Providers nonetheless have an opportunity to assess the prospective financial impact of any such changes and make their voices heard in Congress and the administration.

“If you’re going to make changes to the program that would ultimately take millions of dollars out of the safety net, what will that mean for patient care? How will hospitals and health systems continue to be able to provide services? That is information that needs to be conveyed,” Davis said.

Contract pharmacy dispute

The first big dispute between providers and manufacturers regarding 340B involved actions by drug companies starting in 2020 to restrict available discounts for drugs dispensed through contract pharmacies. HHS and the Health Resources and Services Administration (HRSA) backed providers during the Biden administration, saying manufacturers were not authorized to unilaterally implement such restrictions.

Manufacturers responded by taking the government to court. After what essentially was a split verdict across multiple cases in district court, manufacturers won the first two cases settled at the appellate level, most recently in a decision issued last May by the Washington, D.C., circuit court. A third case is pending, and a ruling in favor of the government could send the matter to the Supreme Court.

A similarly cloudy picture involves the question of whether states can pass laws protecting contract-pharmacy discounts regardless of how the federal statute is interpreted. Providers received a favorable 2024 ruling from a federal appeals court regarding an Arkansas law, but manufacturers in December won an injunction of a West Virginia law.

Congress examined the issue last year during discussions about a wide-ranging 340B bill. Davis noted there was talk of a tradeoff, with contract-pharmacy restrictions prohibited in return for language limiting the scenarios in which patients are considered 340B-eligible (e.g., only when the provider initiates the service associated with the prescription and only if the encounter takes place within a specified time frame).

For some hospitals, thousands of prescriptions could be rendered ineligible if any such language becomes law. Another possible change would modify the definition of a hospital child site, restricting the application of 340B in hospital-owned clinics.

Said Davis, “Providers wanted relief on contract pharmacy restrictions, but at what price?”

Rebate model dispute

At least four drug companies have gone to court to secure the right to offer 340B discounts through rebates instead of up front. Providers would have to submit encounter claims data before receiving a rebate.

An obvious concern would be the administrative burden from having to submit a slew of claims data. There also would be financial and cash-flow constraints from having to buy a drug at the wholesale acquisition cost. Relative to paying the 340B discounted price, a hospital could face an increase of perhaps millions of dollars in the amount it spends while waiting for a rebate, Davis said.

Manufacturers say that argument should not hold sway, given that modern technology and streamlined processes allow for rebates to be made within a week or 10 days. Providers, however, are not convinced.

Davis also said the balance of power within the industry would tilt substantially toward manufacturers as they “decide for themselves whether to give the 340B price.”

HHS under the Biden administration said such an arrangement is not permissible unless authorized by HRSA. Manufacturers disputed that interpretation, saying their only obligation is to offer the discounts and they do not need explicit permission to change the rebate structure.

“I do think the government has a strong position there in terms of language that’s in the statute,” Davis said.

However, if HHS’s posture shifts under the Trump administration, manufacturers may have free rein to implement a rebate structure without going to court. Robert F. Kennedy Jr., the nominee to lead HHS in the new administration, has not given a substantive opinion on 340B, saying merely that he looks forward to working with Congress to understand its priorities regarding the program. President Donald Trump has not yet nominated a HRSA administrator.

As a hedge against a possible change in the government’s approach, the advocacy group 340B Health and two member hospitals filed a motion to intervene in one of the lawsuits. If granted, the motion would allow the intervenors to defend the government’s authority to block the rebate models.

Payment rate issues

Another area in which the Trump administration’s stance bears watching is the Medicare Part B payment rate for 340B drugs. In 2018, Trump’s first administration lowered the rate from average sales price (ASP) plus 6% down to ASP minus 22.5%. Hospitals sued on the basis that HHS had not made the change based on collected drug pricing data, as is statutorily required.

The Supreme Court agreed with that argument in a unanimous 2022 decision that netted hospitals a $9 billion remedy payment. But the court also indicated future rate reductions would be permissible if based on a survey of providers’ drug acquisition costs.

“If CMS were to proceed with that type of survey, there could potentially be a path for them to try reducing reimbursement for 340B drugs again,” Davis said, adding that Congress also could enact a lower payment rate.

Congressional action on 340B payment might even extend beyond Medicare. On a large menu of possible spending measures to be considered during the ongoing FY25 budget reconciliation process, congressional Republicans included an item that would prohibit ERISA health plans from exceeding the discounted price for 340B drugs.

“Such a policy would require full transparency of 340B discounts,” states the summary, which does not include an estimated savings amount for the provision.

Transparency mandates

Several states are increasing transparency requirements for 340B-participating providers, foreshadowing what conceivably awaits at the federal level.

For example, a mandatory report issued in Minnesota offered a new degree of transparency into 340B savings. Insights not generated in the 2024 report but set to be gathered in upcoming years include how providers use 340B revenue. Maine and Washington have relatively new laws that will compel the issuance of similar reports.

A bill that received consideration at the committee level in the previous Congress would require most participating hospitals to report on net 340B savings and other relevant metrics including patient mix, charity care, and payer shortfall at the hospital and its outpatient clinics. The House Energy and Commerce Committee voted to send the bill to the full chamber on essentially a party-line vote, with Republicans voting for the measure, but the full House did not get around to taking up the bill.

Democrats generally opposed the legislation. The required reporting template would offer inadequate opportunities for providers to describe the various ways in which they use 340B savings to expand care for underserved populations, Rep. Frank Pallone (D-N.J.), ranking member of the committee, said in a written statement after the bill was introduced.