Government Shutdown Stalls Drug Discount Program 340B

Mark Masselli (00:04)
The federal government has a program that provides discounted drugs to patients at certain healthcare facility.
It's called 340B, and it's facing big challenges and questions.

David Lim (00:15)
If I had to look forward, I think it is clear that there probably will be a bipartisan bill that emerges, that adds,
some transparency provisions into, the program so that lawmakers actually understand what carbon entities are
using, the savings for, which I think is kind of at the crux of, what drug makers are accusing and hospitals are,
combating. so, you know, I think, I think any sort of lit, legislation that gets at what that money and what those
savings are actually used for, may be a logical, next step based on conversations that are happening on the Hill.

Margaret Flinter (00:55)
Our guests are the reporters who write about the 340B program and the consequences of any changes that may
occur. We're talking today with David Lim, who covers the pharmaceutical industry for Politico and William
Newton, the associate editor and senior writer for the 340B report.

William Newton (01:13)
340B report is an independent news publication that's focused just on covering the 340B drug pricing program.
So we publish an online issue twice a week, have about 8,000 or so readers there from hospitals, health centers,
drug manufacturers, and then a lot of attorneys and consultants and policy makers that sort of interact with that.
And it's super interesting because the 340B program on its surface seems so niche, but then as you start kind of
digging into it, you realize that it's actually the second largest government prescription drug program that is
touching all corners of the US healthcare system, active litigation, so many different state cases, Congress, et
cetera. So it has been a very interesting policy topic for me personally to, to dig into.

Margaret (02:07)
This is Conversations on Healthcare.

Mark (02:20)
Well welcome David and William to conversations on Healthcare.

David (02:24)
Thanks for having us.

William (02:25)
Yeah, thanks so much for having us.

Mark (02:27)
Absolutely. You know, this is a very complex topic as you both well know. William, let's start at the beginning.
The 340B program is named for the section authorizing it in the Public Health Service Act, but what does it do
in practical terms?

William (02:43)
Yeah, so very, basically the 340B statute was enacted all the way back in 1992 by Congress, and it allows
eligible safety net healthcare providers to purchase outpatient drugs at a discount with the idea that they would
then reinvest savings from the program back into expanding healthcare services and access in their
communities. So these eligible healthcare providers are known as covered entities. The main category is
hospitals. So these are nonprofit hospitals that qualify by serving certain percentage of low income and
underinsured patients. It's also community health centers, HIV AIDS clinics, et cetera. And then to sort of
answer your question, what this actually looks like in practice, as an example, say there were a outpatient drug
that cost a thousand dollars. A 340B covered entity could purchase that drug at the 340B discount of say, $600
and get reimbursed by the insurer at close to the full price. So in this particular example, the 340B covered
entity would have generated for around $400 in 340B savings to then reinvest back into its community. And so
that's sort of 340B in a nutshell.

Margaret (04:10)
I, I wonder if I could, just follow up on that for a moment. Full disclosure, our health system includes a
community health center, federally qualified health center, which has, participated in as a covered entity. we
don't hear as much talk about the outpatient space. We're hearing more about the hospital space, less about, the
outpatient space where people get their prescription, for care and generally, I think, realize a very significant

discount as individuals. Is that your understanding of the program across the country, that this is also really a
direct benefit to low-income uninsured persons as well as to providers?

William (04:47)
Yes. So the program works. The savings actually go to the providers themselves with the idea that the providers
would then use those savings to help patients. So that can include providing patients direct discounts. It can also
include expanding services that otherwise might not be available, expanding other resources, et cetera. But the,
the 340B savings themselves go to providers directly rather than patients.

Mark (05:17)
William, let's set the bigger stage 'cause the cost of the program is now 11 times larger than it was in 2010, I
believe. Yeah. the 340B program totals about $40 billion in drug purchases. That's, much larger, than Medicaid
spends on pharmaceuticals. Is this the reason the drug industry is trying to curtail the program?

William (05:41)
Yeah, definitely. So their arguments are, as you said, the program has grown a lot in size, particularly over the
past decade. A lot of the drug industry has expressed concern about growth and use of offsite pharmacies known
as contract pharmacies, the growth and the total volume of sales. And they've also raised some concerns about
whether or not there is enough transparency in terms of how these three 40 D covered entities are using their
savings.

Margaret (06:14)
Well, I understand, David, that about half of the nation's hospitals now qualify for 340B based on the share of
their patient census that, cares for lower income households. but the drug makers are highlighting what they say
are big tax-exempt hospitals that are abusing the program. How effective do you think that pharmaceutical,
pharmaceutical industry campaign is with policy makers? Are they having any of it or are they pushing back?

David (06:42)
Right. That's a great question. I think we're starting to see more interest on behalf of lawmakers on Capitol Hill
and the 340B program. but, to, to point out the obvious, we're in a government shut right shut down right now,
and there is not much appetite for bipartisan action, at least at the moment. we'll see how that develops over the
coming months towards the end of the year. but unlike PBM reform, there isn't necessarily, the same amount of,
workup to a singular piece of legislation in the 340B space that, seems poised necessarily to right along, if there
is a bipartisan agreement that comes together, obviously that could change, there could be conversations
happening on the staff level that aren't public. but there certainly is more attention there has been in past years in
the 340B program in its use.

Mark (07:34)
You know, William, I found it fascinating that the Congressional Budget Office said that the program likely
boost overall consumption of prescription drugs by incentivizing more 340B covered prescriptions, and they say
people who don't need the drugs are getting them. How, how does that resonate with you?

William (07:55)
Yes, so as you said, the Congressional Budget Office recently put out a report that was requested by some senior
Republicans and the House and Senate looking at the causes behind the recent growth in the program that you
alluded to earlier. And what the CBO found is that a third of the growth in the program can be attributed to just
general factors in the healthcare system, including rising costs of prescription drugs and movement towards
delivering more care in the outpatient setting. So sort of factors outside of the program, which left two thirds of
the program to sort of figure out what specifically had driven that growth. And the three areas that CBO pointed
to. One was vertical integration consolidation among hospitals that would bring more independent practices that
were previously outside the 340B program into the program. Another was growth in the program as a result of
the Affordable Care Act, which expanded it to include more rural facilities. And then the third factor was an
increase in offsite pharmacies or contract pharmacies. And to your point, one of the things that the report did
mention and suggest is that the 340B program could be incentivizing providers to provide more prescription
drugs or higher cost drugs. This is something that there's been a decent amount of research on and some mixed
findings so far. But certainly there have been reports that have suggested that there are financial incentives that
would lead providers in the 340B program to prescribe more drugs and therefore receive more savings on those
drugs.

Margaret (09:45)
Well, we hope that, we hope that the research is sophisticated enough to look at it by sector, because you can
certainly imagine there are different incentives in different sectors of the healthcare system. but David, I
wonder, if you could talk about this, the US Health and Human Services Department has unveiled a, I guess you
would call it an experiment That calls on hospitals to file claims with manufacturers for rebates, in place of the
discounts. How would that work? What's driving that as an approach?

David (10:16)
Right, so you're referring to, the HRSA pilot, which has been, unveiled and it is limited at the moment to a
certain subset of drugs that are, subject to the Inflation Reduction Act, Medicare drug negotiations, the first
cycle of those. so we're talking about limited subset of drugs. but, in, in terms of your question, it, it kind of goes
back to some of the efforts that some of these drug makers have been, taking to implement rebate programs on
their own. those efforts were challenged in court, and the court cited, against the drug makers. However, HRSA,
like you mentioned, has gone forward and said, okay, we can put forward this experiment to, see if the idea of a
rebate system for 340B drugs, is practical. And there are, guardrails, in place in the pilot to make sure that, once
a claim is filed, it has to be, the rebate has to be sent. I believe it's within 10 days. and it is voluntary for
manufacturers to participate in the first place. But there has been, like I've said, significant manufacturer interest
in putting forward this type of, rebate system, which they set, say is necessary to, kind of, right size in their, in
their view, use of the program, the 340B program.

Mark (11:40)
William, we could spend a whole show on all the legal battles that are happening, in the 340B space. But the
American Hospital Association is responding with some legal firepower to this rebate plan. Wondering if you
could tell us about their accusation directed at the major drug companies?

William (11:57)
Yeah, so providers across the board, including hospitals and the American Hospital Association, have been very
opposed to this idea of rebates because they argue it would be a very significant shift from how the program has
operated for basically its entire existence, which has been an upfront drug discount program. Right. There are a
lot of concerns about the idea that they would have to sort of float money to the drug industry while they're
waiting for their rebates to come back, and the financial and operational burdens that would cause also some
concern. I had one provider describe it to me is letting the fox guard the hen house and that the manufacturers
would be responsible and then could potentially deny claims that otherwise they would not have under this
program. So there's a lot of concern there. The American Hospital Association and 340B Health specifically,
which is a big trade group that represents 340B hospitals, has been arguing in court that the 340B statute does
not allow rebates period, and that any implementation of a rebate would be illegal. Drug makers, on the other
hand, have been arguing that they should be able to implement any rebate that they want. The government has
been in the middle and said that you can implement rebates, but only if we give you prior approval. And that so
far is, as David said, what the, what the courts have held. But the American Hospital Association and other
provider groups have been filing a lot of briefs in this ongoing litigation really arguing that a rebate would
significantly harm their ability to serve vulnerable patients.

Margaret (13:38)
Really understand that. And William, a follow up question, as, as you, both have noted as we speak, the federal
government is shut down. So how is the shutdown affecting the progress of the rebate program, but also other
parts of 340B who's home to monitor the 340B program, help programs get established? Tell us what's
happening on the ground during this particular moment.

William (14:04)
That's a great question, and it is coming at a very critical time in this pilot. So this, under this experiment,
manufacturers had by September 15th to apply to participate in this rebate. So only the manufacturers of the first
10 drugs under Medicare drug price negotiations and HRSA, the agency that oversees the 340B program, had
said that it was going to announce by October 15th, which of those rebates got approved. Obviously, the
government shut down during that time. So it's very unclear and probably unlikely that HRSA would actually be
able to get those decisions out in time. And this carries a lot of implications because the Medicare drug price
negotiation program starts January 1st, 2026. Right. Built into the pilot was this whole idea that covered entities
would have at least 60 days’ notice of any program. So delays beyond that could really throw the sort of the start
date and overall future of this into question. There's also, so as far as how it's affecting other parts of the 340B
program, I know that a significant percentage of HHS staff has been furloughed the site that basically the
database of covered entities and manufacturers in the 340B program is operational, but it has a message saying

that it's not being regularly updated due to the lapse in funding. So there are a lot of big question marks, but
certainly it seems pretty unclear whether or not HRSA is gonna stay in schedule for this rebate experiment.

Mark (15:41)
You know, something for both of you to analyze how the activity fits into the overall Trump administration's
goal of lowering prescription drugs. I think they were very clear Americans pay far more for prescription drugs
than people in any other country. and the big pharmaceutical companies of course have enormous profit margins
here, ranging between 15 and 25%. will these actions on the 340B program ultimately result in cost savings for
patients?

William (16:15)
Yeah, that, that's a big question mark. I think specifically the rebate pilot, it's pretty unclear how that would do
that. Essentially what it's doing is converting an upfront discount to a post-purchase rebate, and in theory,
adding some more transparency to the program because providers would have to submit claims to drug
manufacturers, but that would not fundamentally alter sort of the scope of the program. And so I don't think that
proposal would necessarily do anything directly in terms of lowering drug costs for patients. And providers have
even argued that because they are going to have to devote more full-time staff to this and potentially take out
loans to float money in order to deal with this rebate model that it could actually detract from their resources for
patients. But I don't see necessarily a very direct connection there with the rebate pilot.

David (17:10)
I think if you look at some of the other drug pricing actions that the administration is pursuing, it may have
some impact on the 340B price itself. if we see substantial reductions in what Medicaid pays for, medicines, if it
impacts the best price that Medicaid gets, but it's not really related to kind of the HRSA pilot. Like, William
mentioned.

Margaret (17:34)
Well, you know, Mark, perhaps more so than any place else in healthcare, the cost of healthcare are the most
obvious to the person who shows up at the pharmacy counter. We've probably all had the experience and the
pharmacist clerk hands you over your prescription, and there's a price attached to it that you need medication for
angina pain sometimes when you get the price of it. Right. this more than most things seems like an immediate
hit to I would say the 31 million people That use community health centers, other safety net settings. I'm
curious, I'd like to ask you both to predict how do you think the fight will turn out? And at some point, will this
become another, more politically known challenge in the country than it is today? Most people, including
patients say 340B, they hear 403B gets mixed up with other acronyms. But it'll be very clear if suddenly the
medicines that people who have high deductibles have high out-of-pocket expenses suddenly get confronted
with a very different bill hospital a little bit different. but, but tell us, how do you think this fight's going to turn
out?

David (18:40)
Yeah, I think it's interesting because patients themselves may not actually have that, all that different of an
experience at the pharmacy counter, based on immediate changes to the 340B program, that are under
consideration. but if I had to look forward, I think it is clear that there probably will be a bipartisan bill that
emerges, that adds, some transparency provisions into, the program so that lawmakers actually understand what
covered entities are using, the savings for, which I think is kind of at the crux of, what drug makers are accusing
and hospitals are, combating. so, you know, I think, I think any sort of lit, legislation that gets at what that
money and what those savings are actually used for, may be a logical, next step based on conversations that are
happening on the Hill. but I am curious what William thinks.

William (19:37)
Yeah. And Margaret, to your point, the 340B program is not that well known by a lot of people. You're not
really seeing people en masse, you know, protesting 340B the way they might change this to Medicaid or
Medicare. So what's been very interesting to cover is there's been sort of an information and messaging battle
emerging between hospitals and healthcare providers, community health centers that rely on the 340B program
and drug industry that is really looking to place some significant restrictions on the program in terms of trying to
define it, not just in the public eye, but also to lawmakers. And as David said, I think the most likely way this
would end is through some kind of bipartisan package. There's been a group of senators that has been working
on 340B legislation for a bit now. They're, yet, they've introduced some drafts and requests for information, but
they haven't fully introduced a bill yet. But it's three senate democrats, three senate Republicans, and that seems
like the approach with the most potential buy-in around the board from stakeholders and what a potential

compromise would look like. There is, as David mentioned, more transparency measures in the program, which
would appease some of what the drug industry has been looking for. And then some protections for covered
entities that use contract pharmacies because the drug industry has been arguing and trying to place restrictions
on provider's ability to use offsite pharmacies to dispense drugs. And providers argue that that's really important,
especially because a lot of their patients are getting drugs not just in the hospital or health center basement, but
also in local pharmacies, pharmacies closer to their home, et cetera. So I would imagine that a contract
pharmacy protection paired with more transparency is a potential compromise we can see.

Mark (21:43)
Well, Margaret, I'm, I'm interested in whether or not this insider story becomes, more of a national story, but
we'll, time will tell on that. You know, maybe, talk a little bit about from both of your perspectives about where
the legal challenges being fought out and what, what courts are they, are anything up at the Supreme Court
level? What, what's sort of the lay of the land of the, the legal battles that are going on across the country around
the 340B program?

William (22:13)
Yeah, so most of the legal battles can be traced back in one way or another to the fact that the 340B statute in
1992 when it was enacted is pretty vague. And so there are a couple key areas being litigated. The first is related
to contract pharmacy use. So the statute itself doesn't really mention pharmacies. And so a bunch of drug
manufacturers starting in 2020 started saying, we're only going to ship, give you the discount if you're a covered
entity at one pharmacy location. We're gonna stop shipping to all of your other locations. The government
challenged them on this, the drug makers challenge them in court, and the courts ultimately ruled federal district
courts, and it went up to federal appeals courts ruled that the 340B statute is silent on drug delivery, and so
manufacturers can place certain reasonable restrictions on contract pharmacy use. Then kind of after that,
around that same time, several states stepped in and started passing their own laws and basically saying, okay, if
the 340B federal statute is silent on delivery, that means we can use our state regulatory authority to pass our
own laws that do regulate drug delivery under the program and prohibit these restrictions. And we're at around
20 states that have enacted these laws. There's more than 60 different drug industry lawsuits challenging all of
these laws. Right now, most of them are ongoing, but two federal appeals courts so far have sided with states.
And, is that Louisiana case or, Yeah, so, so Louisiana is one of the states that enacted one of these laws.
Louisiana's law was upheld by a federal district court, and that's under appeal at an appeals court, but the law in
Mississippi and Arkansas were upheld by federal appeals courts. But long story short, there's a lot of litigation
happening towards these state laws that also have to do with contract pharmacies in the 340B program. And then
the third main area comes down to rebates. As David said earlier, you know, two federal district courts have said
that the federal government can decide whether or not there are rebates, but those are currently under appeal.
Drug industry is arguing that they don't need the, government's approval to implement these. So those are some
of the many cases.

Mark (24:43)
I thought HRSA was also a, a focus of attention of what powers they have in terms of interpretation.

William (24:49)
Yeah, definitely. So that goes back to the contract pharmacy issue. So HRSA had said that based on their
interpretation of the statute, drug manufacturers had to provide discounts at any pharmacy that it covered entity
contracts with drug makers challenged that in court, and the courts ultimately held that HRSA's interpretation
was incorrect because the statute doesn't specifically reference drug delivery.

Margaret (25:16)
Given that this is an obscure subject to many people, we really appreciate the tension, the attention that both of
you, are putting on. And I wonder if the 340B report, tell us about that report. Who's, who's reading it, who does
it go to, and how did you become connected to this issue as a news story?

William (25:35)
Yes. So 340B Report is an independent news publication that's focused just on covering the 340B drug pricing
program. So we publish an online issue twice a week, have about 8,000 or so readers there from hospitals, health
centers, drug manufacturers, then a lot of attorneys and consultants and policy makers that sort of interact with
that. And it's super interesting because the 340B program on its surface seems so niche, but then as you start
kind of digging into it, you realize that it's actually the second largest government prescription drug program
that is touching all corners of the US healthcare system, active litigation, so many different state cases,
Congress, et cetera. So it has been a very interesting policy topic for me personally to, to dig into.

Mark (26:31)
Have either of you seen, anything creative on the horizon that people have tried to put forward as a, as, as a
solution, that might appease, both sides here, or we pretty much just entrenched in fighting over the, the current
legislation?

David (26:50)
Well, I think that as William did a great job explaining, there's so many different court cases, challenging
aspects of the underlying statute that I think that will kind of dictate where we see action in the future. If you
have lawmakers unsatisfied with kind of the results of those court cases, I think we could see that be the impetus
to, another piece of legislation, even if it goes beyond what we're talking about in terms of, the existing
bipartisan efforts.

Margaret (27:18)
Well, we really want to thank you, William and David for joining us on conversations on Healthcare, to talk
about this important issue. And thank you to our audience for being here. Just a reminder, be sure to subscribe to
our videos on YouTube, find us on Facebook and x, and please, we welcome you sharing your thoughts and
comments about this program. Take care, and be well.

(27:43)
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