By Ted Slafsky
By the first week of June, we should have a better sense of how the Trump administration plans to address the drug industry’s desire to impose a rebate model rather than the longstanding upfront discount that the government has allowed since Congress established the 340B program in 1992.
On May 2, lawyers for the U.S. Department of Health and Human Services (HHS) told a U.S. district court in Washington, D.C. that it would release guidance within 30 days on 340B rebate models and how they may interact with the Inflation Reduction Act’s (IRA) Medicare drug price negotiations.
A federal judge subsequently ruled that drug manufacturers cannot unliterally implement rebates and acknowledged “potentially devastating consequences” for covered entities. The judge, however, did not agree with the argument made by 340B Health, an intervenor in the case, that the 340B statute does not permit any rebates. The judge also seemed sympathetic to drug manufacturers’ argument that they face challenges in trying to prevent duplicate discounts and diversion, particularly when it comes to implementing the upcoming Medicare drug negotiation program.
As I wrote in a previous column—and 340B Report has reported—both the Health Resources and Services Administration (HRSA) and the Centers for Medicare and Medicaid Services (CMS), which is responsible for the IRA’s implementation, have offered minimal guidance on potential 340B-IRA interactions, drawing past criticism from both providers and manufacturers.
“A Significantly Harmful Change”
HHS’ notice of upcoming guidance stated that “large-scale implementation of rebate models to effectuate the 340B ceiling price would be a significant change for the 340B program and its stakeholders.” The American Hospital Association (AHA) rightly pointed out that HHS’ notice “understates the impact” of the drugmaker rebate models in a recent letter to HHS Secretary Robert F. Kennedy, Jr.
“Any use of ‘rebate models,’ whether large-scale or small-scale, would not just be a ‘significant change.’ It would be a significantly harmful change,” AHA said.
Ninety-nine percent of AHA’s member hospitals said that a retrospective rebate model would limit their ability to fund critical patient programs and services. Nearly 200 hospitals reported that floating millions of dollars to drug companies would reduce their cash on hand enough to risk violating their bond covenants. 340B hospitals not only rely on bond financing to raise money for new projects that enhance patient care, but a downgrade in their credit ratings could force hospitals to close their doors altogether.
Dr. Bruce Siegel, longtime president and CEO of America’s Essential Hospitals, a group of over 300 metropolitan area safety-net hospitals, said any type of conversion to a rebate model would have a profound impact that would “force providers caring for underserved patients to float loans to manufacturers.”
Widespread Damage
It is not just hospitals that face an existential crisis from rebates. Smaller 340B entities—such health centers, HIV clinics and other clinics, many of which have very little cash on hand —could also be crushed by this radical departure from how the program has worked for over 30 years.
Colleen Meiman, a senior policy advisor to state associations of community health centers and a former HRSA staff member, told 340B Report that that changing 340B from an upfront discount to a rebate program would be a “death-knell” for many health centers’ pharmacy programs.
Meanwhile, Amanda Pears Kelly, CEO of Advocates for Community Health, which represents larger health centers, echoed those concerns.
“A rebate model puts unchecked power into the hands of manufacturers and creates insurmountable challenges for community health centers, which are already facing tight margins in addition to strained and shrinking revenue,” Pears said. “We continue to urge [HHS] to consider the impact on community health centers if they are not able to access 340B discounts upfront: delayed and forgone 340B savings at a time when they can least afford it.”
Ryan White Clinics for 340B Access, a national organization of HIV clinics in the 340B program, added: “The burden would shift to covered entities to fight for any contested rebates. It would also create a serious cash flow problem for many covered entities that cannot afford to pay retail prices for drugs and to wait for payment of their rebates from manufacturers.”
The Trump Administration has rightly followed the longstanding HHS position that rebates cannot be imposed without government approval. It is now time for them to forcefully reject the various rebate schemes that the drug industry is trying to impose and instead work with stakeholders to come up with workable solution.
In the case of the upcoming IRA drug pricing guidance, HHS should develop a process that ensures prospective access to both the Maximum Fair Price and the 340B price. They should look closely at the highly successful practice used in Oregon for over a decade, in which the state’s 340B providers access the 340B price and then submit claims data to the Medicaid agency to prevent a duplicate discount.
Close to 200 bipartisan U.S. House lawmakers have already weighed in against rebates warning it would “upend over 30 years of federal law” and “reduce resources for patient care and undermine the core purpose of 340B.”
Imposing a rebate program on top of the billions in Medicaid cuts that 340B providers could soon face under a GOP-backed federal spending bill is simply too much. There is still time to prevent unnecessary and irreparable harm to our nation’s safety net.
Ted Slafsky is the Publisher and CEO of 340B Report, the only news and intelligence service exclusively covering the 340B program. Slafsky, who has over 25 years of leadership experience with the 340B program, is also Founder and Principal of Wexford Solutions.
Ted can be reached at ted.slafsky@340Breport.com.
Disclaimer: The views and opinions expressed in this blog are those of the authors. They do not necessarily reflect the official policy or position of any other agency, organization, employer, or company.
