Hospitals continue HHS 340B rebate pilot

Diving brief:

• Hospitals are suing to block a Trump administration pilot that will allow drugmakers to provide post-sale rebates instead of upfront rebates on drugs in the 340B drug rebate program, arguing it was passed without proper regulatory procedures.
• The American Hospital Association, the Maine Hospital Association and four nonprofit health systems filed the lawsuit Monday in Maine District Court. The complaint alleges that the government created and continued the pilot project without responding to public comments raising concerns about the program, including its high costs to providers.
• The hospitals also filed a motion seeking a temporary restraining order blocking the pilot project from going into effect while the court considers the case. Currently, the pilot project is scheduled to launch on January 1.

Dive overview:

HRSA announced the pilot program this summer, in the face of public outcry from hospital groups, who see it as an about-face from regulators’ previous defense of 340B’s rebate structure and a concession to drugmakers, who have long sought to reduce the size of the decades-old program.

Historically, in 340B, drug manufacturers sell drugs to eligible safety net providers at a discounted price at the point of sale. However, for some drugs in HRSA’s pilot project, hospitals will instead have to file documentation proving that the drug is 340B eligible before drug manufacturers will give them a rebate.

Hospitals say abandoning upfront discounts will cost them hundreds of millions of dollars in implementation and delayed revenue, threatening the financial viability of welfare facilities. Although only a handful of medications will receive discounts starting next year, they are among the most commonly prescribed drugs in the country. Additionally, all 340 billion entities must participate in the pilot, or some 14,600 providers, according to HRSA.

Given the ramifications of the pilot project, it should have been adopted with appropriate notice and comment. establishment of rules process, the hospitals argue in the lawsuit.

HRSA received hundreds of comments but failed to adequately respond to those comments, according to the complaint. Instead, regulators decided to continue the pilot in mid-October, giving hospitals two months to comply or risk losing $340 billion in savings entirely.

“When the government announced its new rebate program just a few months ago, it recognized that it would fundamentally change the way the 340B program has operated for more than three decades. When making such a significant change, with such far-reaching consequences for patients and hospitals, it is important that the government follows basic administrative rules. Unfortunately, it has not done so here,” said Rick Pollack, president and CEO of the AHA, in a statement on the trial.

Joining the AHA and MHA in the suit were St. Mary’s Regional Medical Center in Maine, Unity Medical Center in North Dakota, Dallas County Medical Center in Arkansas and Nathan Littauer Hospital and Nursing Home in New York.

HRSA did not respond to a request for comment, while an HHS spokesperson said the department cannot comment on pending litigation.

When the pilot program was announced, it surprised many in the industry who saw it as a radical departure from the agency’s previous position. Previous efforts by drugmakers to unilaterally discount their 340B drugs were met with fierce opposition from HRSA, which argued that moving away from initial discounts would run afoul of the 340B law.

The Trump administration has emphasized that the program is a pilot intended to inform future models, not a top-down overhaul of 340B, and that it is necessary to combat fraud and abuse in the drug discount program.

About 3,000 hospitals benefit from discounted drugs in the 340B area, representing a record $66.3 billion in purchases in 2023, according to government data. This represents an increase of more than 50% from $43.9 billion just two years ago.

Some critics view this growth as evidence that 340B has mutated beyond its original intent, with drugmakers accusing hospitals of manipulating the program for profit. It’s a concern shared by some lawmakers, including Sen. Bill Cassidy, R-La., chairman of the Senate Health, Education, Labor and Pensions Committee.

This spring, Cassidy released a survey revealing that $340 billion cuts don’t always translate into lower costs or better access for patients. The report draws on conflicting evidence about how providers are using the $340 billion funds.