Hospitals say losses are mounting as drug companies curb 340B discounts

Pharmaceutical companies are limiting discounts under a federal drug pricing program, and some hospitals say they are losing millions of dollars annually.

More than 500 hospitals say projected losses due to the new policies from major drug companies have more than doubled since the end of 2021, according to a recent report by 340B Health.

The 340B federal Drug Pricing Program allows hospitals and health systems to obtain some medications for lower costs. The program is designed to help hospitals serving a large number of patients with low incomes and those in underserved communities.

The program has engendered criticism, with some detractors saying the program has grown too large and that patients aren’t seeing the price reductions they should.

Last year, several drug companies said they were rolling back some of the discounts, but more have followed suit. Now, 16 major pharmaceutical companies, including Johnson & Johnson, AstraZeneca, Merck, and Pfizer, have said they are restricting some discounts.

Hospitals say it’s costing them at a time when they are already facing serious financial challenges, including higher costs for labor and supplies.

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Larger hospitals say they are expected to lose a median of $2.2 million annually, according to the 340B Health survey released on May 5. However, 10% of those bigger providers say they expect to lose $21 million or more annually.

With more companies limiting 340B drug discounts, leaders at those hospitals say the losses are growing. In a December 2021 survey, those larger hospitals estimated the median annual losses at $1 million.

Smaller, critical access hospitals, which are designated as the sole provider in their area, say their estimated losses are $448,000 annually, up from $220,000 in the December survey. In addition, 10% of those providers are now saying annual losses are likely to be $1.3 million or more.

Maureen Testoni, president of 340B Health, said in a statement the drug companies' actions “are draining vital resources from the health care safety net by blocking hospitals’ access to 340B discounts.”

More than half of 340B hospitals don’t operate their own in-house retail pharmacies, according to 340B Health.

Hospital officials who participated in the survey said the restrictions, if permanent, would hurt their ability to care for patients.

Four out of five hospital officials (80%) said patient services would be reduced, while roughly three-quarters (74%) said their care in underserved areas would be affected. And 72% said there would be cuts in programs targeting residents with low incomes and those in rural areas.

The federal government has tried battling drug companies in court over their policies, with mixed results. Earlier this year, AstraZeneca won a court ruling when a federal judge tossed an enforcement letter from the Health Resources and Services Administration. The government is appealing that decision.

Drug companies say the 340B program has ballooned far beyond its original mission.

The 340B program has grown substantially in recent years, rising from $9 billion in 2014 to $38 billion in 2020. Drug companies say they are also trying to curb instances where hospitals are receiving discounts for 340B drugs under the Medicaid program.

Some critics, such as The Alliance for Integrity and Reform of 340B, contend hospitals participating in the 340B program are not contributing enough charity care.

The U.S. Supreme Court heard arguments last fall in a case with enormous financial implications for hospitals.

The American Hospital Association, with the backing of other health providers and advocates, argued the federal government’s cuts to the program threaten hospitals and their ability to provide care in vulnerable communities.

The government argued the changes to the program reflect a wiser use of resources and help Medicare support hospitals, including some that don’t participate in the 340B program.