Medicare Payment and Reimbursement

Health system CEO tells Congress proposed 340B changes would be harmful to organizations like his

As momentum builds for efforts to make the 340B program more transparent and narrower in scope, hospital industry leaders and advocates say some of the consequences would be damaging.

June 10, 2024 12:31 pm

A health system executive visited Capitol Hill recently to provide the hospital perspective on the 340B Drug Pricing Program — a viewpoint that increasingly is coming under fire among policymakers.

Matthew Perry, president and CEO of Genesis HealthCare System in Zanesville, Ohio, appeared at a House subcommittee hearing June 4 to give insight on why the program works well for participating hospitals and should not be overhauled.

The urgency of stating that case was made clear the week prior when three Republican members of the subcommittee introduced draft legislation that would modify access to the program for many current participants.

The 340B ACCESS Act strives to “make 340B a true safety-net program for patients,” according to a news release from the office of Rep. Larry Bucshon, MD (R-Ind.), lead sponsor of the bill.

In his statement and responses to questions, Perry sought to advocate for the status quo.

“I’m aware of proposals to redefine 340B and limit discounts to drugs to only treat low-income, uninsured patients or to base them on providers’ levels of charity care,” he said. “This would dramatically shrink 340B and devastate our hospital. It likely would put us out of business.”

Changes would abound

Provisions in the legislation would reshape the 340B program in various ways.

One example is that for participating private hospitals, at least 10% of their total cost of care would have to be for low-income, uninsured patients. That share would have to be codified in the hospital’s government contract to provide care for indigent populations. Available care for those patients would need to span the full range of the hospital’s services.

Hospital eligibility also would be contingent on not engaging in extraordinary collection actions, as defined in the Internal Revenue Code, with respect to low-income and uninsured patients. And participants’ charity care costs would need to exceed the margin those organizations realize under the 340B program, based on their most recently reported year of data.

Privately owned disproportionate share hospitals in urban areas would be eligible for 340B only if they fall within the top 40% of hospitals in their state both in Medicaid and CHIP outpatient revenue and in uncompensated-care costs for outpatient services. The idea is to put more emphasis on the outpatient setting as a determinant of 340B eligibility.

The legislation also includes eligibility criteria for off-campus outpatient facilities and child sites of 340B hospitals, including that they be listed on the Medicare cost report of the parent facility.

As for the contentious question of 340B discounts for drugs dispensed at contract pharmacies, the bill limits the number of such pharmacies to five per hospital and requires that they be in the hospital’s service area. Manufacturers no longer would have leeway to exclude contract pharmacies from price discounts. For most hospitals, discounts would not apply to drugs sent through mail-order pharmacies.

Perry said Genesis lost $5.7 million over the last three years due to manufacturer-imposed restrictions on contract-pharmacy discounts.

A high-stakes debate

During the hearing, Perry had tacit support from some subcommittee members, mostly Democrats. It’s notable that, unlike with 2023 price transparency and site-neutral payment legislation, the 340B bill does not have bipartisan sponsorship.

Perry said Genesis saves $56 million a year through 340B — a key source of investment in care for patients with Medicaid, who comprise a third of the health system’s patient population.

“If we did not have the 340B program, the service area that we operate in would be a medical desert,” Perry said. “Physicians do not just pick up and relocate to our area. So [340B] is foundational for us to have all of those services even available in the first place. It also gives us the ability to give discounts directly to patients so that every patient can get their medication who needs it.”

He also said Medicare, Medicaid and Tricare “do not even come close to covering the cost of care. Without 340B, we just don’t function.”

The organization would not have been able to recruit physicians or obtain technology for its new cancer-care center without 340B, he said. The health system also used 340B savings to open a trauma center, and the savings underpin a sophisticated electronic health record that supports the management of chronic conditions, among other benefits.

“Our tax exemption requires us to provide a certain amount of care to indigent people, which we do,” Perry said. “The 340B program enables us to do that at much greater scale.”

Differences of opinion

Whether the bill makes headway, especially in an election year, remains to be seen. Opponents have said the bill reflects the priorities of the pharmaceutical industry, which has sought to limit the scope of the program.

“The 340B ACCESS Act is the legislative version of a pharmaceutical industry wish list for major cuts to 340B,” Maureen Testoni, president and CEO of the provider advocacy group 340B Health, said in a written statement.

Advocates pushing for the new bill include an alliance between the Pharmaceutical Research and Manufacturers of America and the National Association of Community Health Centers. The latter group wants its constituents to get a greater share of available 340B funding.

Bill advocates also say the program is too opaque in its current form.

“I believe creating more transparency in the program so we can see where the dollars are flowing and ensuring the program is not being taken advantage of is the first step,” said Rep. Morgan Griffith (R-Va.), chair of the subcommittee that hosted the hearing.

Among other steps, the bill would authorize HHS to audit how 340B hospitals apply their savings and would require comprehensive financial reporting by participants.

In response to a question from Rep. Buddy Carter (R-Ga.), a co-sponsor of Bucshon’s legislation, Perry said he is not opposed, broadly speaking, to the new bill’s emphasis on greater reporting and transparency in the program.

“[But] I am opposed to transparency that cherry-picks the type of information that completely distorts [what] 340B is supposed to do,” he said. “If you only report on, let’s say, charity care, and especially in a state like Ohio that expanded Medicaid, there are very few people who have no insurance and have no resources, because they’re in Medicaid.”


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