Court Ruling Could Limit Abuse of 340B Drug Pricing Program

October 20, 2015

by Amanda Conschafter, blog editor

The 340B drug pricing program may soon be one step closer to reclaiming its original intent: allowing hospitals to provide care and necessary medical therapies for underserved patients. A Washington, DC district judge ruled Wednesday that 340B facilities are not entitled to receive discounts of up to 50 percent for costly orphan drugs used for conditions beyond the rare diseases they were designed and FDA approved to treat. The decision followed mounting criticism that hospitals were maximizing 340B discounts to generate profits.

The court ruling marked the second time that the Obama administration has encountered resistance on the issue of 340B discounts for orphan drugs. HHS first issued a 2013 legislative rule that interpreted the Patient Protection and Affordable Care Act to require 340B discounts for orphan drugs outside of treating orphan diseases. When a federal judge ruled against HHS in May, the department issued the same position in a different form, known as an interpretive rule. HHS now has the option of appealing the most recent court decision.

By design, the 340B program provides deep discounts on outpatient drugs for hospitals and clinics that treat a “disproportionate share” of underserved patients. The providers then bill the patients’ health plans for the full cost of the drug, using the savings as revenue that offsets the cost of treating un- or underinsured patients.

Over the last decade, however, the number of hospitals participating in 340B has skyrocketed from 185 to nearly 1,000. Meanwhile, some hospitals have multiplied the value of their 340B discount by acquiring satellite clinics. Between 2009 and 2012, hospitals acquired at least 140 oncology clinics – and increased their 340B drug use by roughly 120 percent.

The scope of 340B growth and revenue has led critics to speculate that the program has gone off track, contributing more to the bottom lines of hospital systems than to the care of needy patients. In 2014, an Avalere Health study revealed that two-thirds of 340B hospitals actually provided less charity health care than did regular hospitals.

The use of orphan drugs to treat non-orphan conditions exacerbated these concerns. A costly orphan drug at a steep discount could generate substantial revenue for a 340B hospital—revenue multiplied if hospitals regularly prescribe these medications for common conditions rather than conservatively prescribe them for only the rare conditions they were intended to treat.

While hospital groups criticized last week’s court ruling, pharmaceutical developers reiterated their commitment to “working with the administration and Congress to reform the 340B program to ensure it reaches the vulnerable or uninsured patients it was intended to help.”

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