Safety-Net Hospitals Lose $2.2M from 340B Drug Discount Limits

May 09, 2022 - Safety-net hospitals have faced around $2.2 million in annualized losses due to pharmaceutical companies limiting 340B drug discounts at community and specialty pharmacies, a report from 340B Health found.

The 340B drug pricing program allows eligible healthcare organizations to receive outpatient drugs at discounted prices from participating drug companies. In return, the drug companies receive coverage for the drugs under Medicare Part B and Medicaid.

Providers then invest the savings from the discounts into resources and services for low-income and rural populations.

Many organizations contract with community and specialty pharmacies from which patients can receive the prescription drugs. However, between July 2020 and March 2022, 14 drug companies have imposed restrictions on 340B discounts available through the pharmacies.

Most of the drug companies will provide 340B discounts at a single contract pharmacy for hospitals that do not have an in-house pharmacy. Some of the companies will allow a second contract pharmacy for specialty drugs.

340B Health surveyed members first between November and December 2021, and a second time in March 2022 to document the impact of these restrictions on hospitals and the patients they serve. Out of 550 respondents in the March survey, 482 reported contracting with at least one pharmacy to dispense 340B drugs.

Between December 2021 and March 2022, the number of drug companies imposing restrictions rose from 8 to 14, leading to a significant financial impact on 340B hospitals.

The median annualized impact on disproportionate share hospitals (DSHs), rural referral centers (RRCs), and sole community hospitals (SCHs) was $2.2 million in March, compared to $1 million in December 2021. Ten percent of the hospitals said they expect to see annual losses of $21 million or more.

Rural critical access hospitals (CAHs) also faced more losses in March, seeing an annualized impact of $448,000, compared to $220,000 in December. Ten percent of CAHs expect to see an annual loss of $1.3 million or more, according to the report.

Many hospitals depend on their contracts with community pharmacies to receive the discounted drugs. The majority of CAHs do not operate in-house retail pharmacies (85 percent) or specialty pharmacies (97 percent). Among DSHs, RRCs, and SCHs, 38 percent do not operate their own retail pharmacy and 74 percent do not operate a specialty pharmacy.

Discounts on drugs dispensed at community and specialty contract pharmacies account for 25 percent of overall 340B drug savings for participating hospitals, the report noted. For CAHs specifically, this figure increased to 52 percent. Due to the restrictions from the drug companies, two-thirds of CAHs and a third of DSHs, RRCs, and SCHs, report they expect to lose more than half of their contract pharmacy revenue.

The restrictions may also impact patients, as contract pharmacies are the primary source of discounted drugs for low-income and uninsured populations. The restrictions have caused patients to experience delayed access to drugs, financial and logistical challenges, and negative health outcomes, the report stated.

If the restrictions become permanent, more than three-quarters of respondents said they would need to make cuts or adjustments to programs, including patient care services (80 percent), services in underserved areas (74 percent), and targeted programs to serve low income or rural patients (74 percent).

In addition, one-third of CAHs reported that the loss of community pharmacy revenue puts their hospital at risk of closure.

Only allowing hospitals to contract with one pharmacy gives providers limited ability to purchase specialty drugs, the report noted. Additionally, 90 percent of hospitals said that choosing only one pharmacy would limit their access to 340B discounts for eligible patients obtaining drugs from other community pharmacies.

Since the survey was conducted in March, two more drug companies have imposed restrictions, bringing the total number to 16 manufacturers. The Health Resources and Services Administration (HRSA) has started notifying drug companies to restore 340B pricing. The agency has also referred some cases to the HHS Office of Inspector General (OIG) for potential civil monetary penalties for noncompliance.

However, the drug companies are fighting back, with seven manufacturers having filed federal lawsuits challenging HRSA’s enforcement actions.