Drugmakers Cut Back Participation In Federal Drug Discount Program

Hospitals and community and rural health clinics that serve low-income patients say drug manufacturers have threatened their financial stability by dramatically cutting back their participation in a federal drug discount program that saves those health providers millions of dollars a year.

Without the drug discounts, the hospitals and clinics say, they are getting close to laying off health care workers, reducing hours or scaling back or scrapping mobile health vans, free cancer screenings, behavioral health treatment and a host of other services that help patients with low incomes who lack insurance.

“They are killing health centers,” said Jangus Whitner, who runs the pharmacy program for PrimaryOne Health, a community health center with more than 40,000 patients that operates 11 medical sites as well as five clinics in the Columbus, Ohio area. “It is infuriating; it is egregious.”

Since 2020, more than a dozen drug companies have scaled back or halted their participation in a federal discount program known as 340B. Under the program, drugmakers sell their products more cheaply to safety-net health providers, hospitals and clinics that provide care regardless of patients’ ability to pay. In exchange, the government promises that Medicare and Medicaid will cover their products.

But in the past two years, 17 drug companies, including Bristol Myers Squibb, Gilead, Johnson & Johnson, Merck and Pfizer, have scaled back their participation in 340B. The drugmakers’ lobbying association, PhRMA, argues that the discounts have been used too broadly and for patients who could afford the drugs’ higher retail prices.

The drugmakers also don’t like providers allowing patients to get their prescriptions at “contract pharmacies,” drugstores that have arranged with 340B providers to fill prescriptions for their patients at the discounted prices.

The 340B discount for outpatient drugs is generally between 20% and 50%, according to a University of Southern California Schaeffer Center for Health Policy and Economics report, and in 2020 resulted in $38 billion in drug sales.

That year, about 12,700 safety-net providers were in the program, according to the U.S. Government Accountability Office.

“The 340B is critically important because it provides resources that allow us to achieve our mission to expand access specifically to a medically underserved population,” said Sue Veer, president of Carolina Health Centers, a community health center that operates a dozen medical clinics across western South Carolina.

But PhRMA, the lobbying arm of the drug manufacturing industry, expresses skepticism that the program benefits low-income patients, and asserts that many 340B hospitals and clinics are claiming discounts for patients who do not meet eligibility requirements.

“There is very little to no evidence that 340B is helping patients access medicines, and that’s a big concern to the industry, because the amount of discounts we provide amount to tens of billions of dollars every year,” said Nicole Longo, a PhRMA spokesperson. “If those dollars aren’t being used to help patients, where are they going? The 340B program is a black box. There’s not transparency, and that’s a big source of concern for the industry.”

A 2020 report by the U.S. Government Accountability Office noted that the Health Resources and Services Administration, which oversees the discount program, conducted 1,241 audits between fiscal years 2012 and 2019 and found a total of 1,536 violations of the rules, including 900 cases in which there was more than one violation.

The pharmaceutical industry cites that report and a 2018 New England Journal of Medicine study that concluded that 340B savings “for hospitals have not been associated with clear evidence of expanded care or lower mortality among low-income patients.”

Arguing the details

One of the drug companies that has scaled back its participation in the program, Gilead, which makes drugs to treat hepatitis C, said in an email to Stateline that safety-net providers are abusing the program. The company wants data showing more detail about the discount claims, it said.

“We are simply requesting that 340B covered entities provide claims level data for units of Gilead’s (hepatitis C) products dispensed from contract pharmacies in an effort to increase transparency in, and protect the integrity of, the 340B program,” Gilead wrote in its email message. “Covered entities that elect to provide claims level data may continue using the contract pharmacy networks of their choice.”

The drug manufacturers that began limiting or refusing 340B discounts in 2020 argued that the original statute didn’t envision use of contract pharmacies. But safety-net providers say eliminating those drugstores, many of which are geographically closer to their patients, essentially deprives them of savings and their patients of 340B discounts. Only small minority of safety-net providers operate in-house pharmacies.

Safety-net providers also assert that violations of the rules represent a tiny fraction of the thousands of prescriptions filled under the 340B program. They point out the program is overseen by the U.S. Department of Health and Human Services and insist that they plow all the savings back into the mission of caring for low-income patients. The New England journal’s study, they say is flawed.

Veer said that in her South Carolina health centers, 340B savings help pay for low- or no-cost drugs for uninsured patients, dental health, behavioral health and substance abuse treatment.

HHS has sided with the safety-net providers.

Not all the drug manufacturers fully withdrew from 340B, according to 340B Health, a membership organization representing 1,400 nonprofit hospitals and health systems that participate in the program. Some drugmakers cut off hospitals but not community health centers, while others did the reverse or both.

Sometimes, officials at affected hospitals or health centers said, a drug manufacturer has required them to submit detailed and private claims data to keep the discounts flowing.

Many of the safety-net providers said providing the claims data is not only administratively burdensome, but also risks violating patient confidentiality. They say they are mystified as to why the drugmakers want the data or how they will use it.

“We’re asking these Fortune 500 companies to follow that law and not target these safety-net hospitals and their patients,” said Nate Awrich, vice president of pharmacy operations for the University of Vermont Health Network, which encompasses six hospitals in Vermont and northern New York and contracts with150 outside pharmacies.

The manufacturers’ actions have cost the hospital network $100 million a year, which may necessitate cuts in services, he said. The 340B savings, Awrich said, enable the system to remain in the black, for now. “The future in which this is sustainable is short.”

Two states, Arkansas in 2021 and Michigan this year, have passed laws to stop the manufacturers from withholding 340B discounts for prescriptions filled at contract pharmacies.

Severe effects

The effects of the drugmakers’ actions have been severe, say providers. 340B Health surveyed more than 500 hospital member organizations between November and March, a period in which the number of drug companies with 340B restrictions grew from eight to 14.

Hospitals reported median annual losses of $2.2 million in discounts, with a tenth of those hospitals expecting losses of $21 million or more.

Rural hospitals surveyed expected annual losses of $448,000, with a tenth projecting losses of $1.3 million or higher. That comes amid a financial crisis that has seen at least 130 rural hospital closures in the past decade.

Since the survey, three more drug companies began similar program cuts.

In a series of federal lawsuits, manufacturers have claimed that the 340B statute does not require them to provide the discounts when the safety-net providers use contract pharmacies.

The National Association of Community Health Centers also surveyed its membership.

A third of the centers reported that without access to 340B discounts, more than half of their patients would go without needed medications, including insulin for diabetes patients and inhalers for children with asthma.

The most likely cuts, the centers said, would be for outreach programs for low-income and rural patients, such as mobile medical units, those that provide care coordination and help patients manage their medications, and those that provide low-cost or free medications. They also expected they’d have to cut community health and social workers.

Under both the Trump and Biden administrations, HHS has issued letters saying the drugmakers are in violation of their agreements with the federal government. The Department of Health and Human Services has referred some drugmakers to its inspector general to pursue financial penalties, though it has not threatened to remove those manufacturers from the Medicaid and Medicare formularies.

Meanwhile, some of the manufacturers have gone to federal court to forestall federal penalties. Attorneys general from half the states, both red and blue, have signed an amicus brief siding with the federal government. Lower courts have issued conflicting rulings, and the cases now are on appeal.

Safety-net providers are not conflicted about how they regard the actions of the manufacturers.

“These are billion-dollar companies,” said Dr. Kemi Alli, CEO of the Henry J. Austin Health Center in Trenton, New Jersey. “The percent they are taking from us is so small to their bottom line, but it is so significant to us.

“It just seems inconceivable why they even put the effort into this to take away from the most vulnerable in our society. It doesn’t make any moral sense.”


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