Hospitals say they’re taking big losses from reduced drug discounts

Hospitals say they are losing a substantial amount of money due to pharmaceutical companies reducing discounts for a federal drug pricing program.

A report by the 340B Health advocacy group indicates hospitals are taking a big hit from the actions by several big drug companies.

Under the 340B program, hospitals that serve a large number of residents with lower incomes can purchase certain drugs at discounted prices and receive higher reimbursements. Safety net hospitals say it’s critical to ensure their ability to treat underserved communities, including areas with higher minority populations and those in rural regions.

Beginning in 2020, drug companies began putting limits on the discounts on some outpatient drugs in the 340B Health program, hospital leaders say. And 340 Health says the survey results offer a new perspective on the financial toll.

The 340B Health report, released Jan. 27, outlines responses from 510 hospitals surveyed between November and December 2021.

Large, urban hospitals have lost 23% of the savings they typically have received through the 340B program, the survey found. The median loss for those hospitals was $1 million, but 10% of those hospitals reported losses of $9 million or more.

Critical access hospitals are being hit hard as well, the group says.

Smaller, rural hospitals are designated by the government as critical access hospitals if they have 25 or fewer acute-care beds and are at least 35 miles from the nearest hospital. Critical access hospitals have lost 39% of the savings they typically received, with the average loss reaching around $220,000, while 10% said they’ve lost $900,000 or more, the survey said.

Maureen Testoni, president and CEO of 340B Health, says drug companies are violating the law and are threatening the health of patients.

“These figures are only the tip of a very dangerous iceberg,” Testoni said in a statement accompanying the report. “Our greatest concern is the impact on patients. With losses such as these, hospital administrators could be forced to reduce or eliminate healthcare programs, services and support that are vital to the health of patients and communities.”

Most drug companies are following the law, 340B Health says. But the group contends a dozen major drug companies have improperly rolled back discounts in the 340B program.

In 2021, the Health Resources and Services Administration threatened fines against several large drug companies over the issue, but drugmakers have won court battles in recent months. After a federal court appeals ruling siding with drug companies, more than 800 hospitals urged the government to appeal.

The 340B drug pricing program has been the subject of heated debate for years. Critics have said hospitals are taking advantage of the program and aren’t doing enough to pass the savings onto customers.

Drug companies have also argued that hospitals are taking advantage of a program designed to help institutions serving the most vulnerable. PhRMA, a trade group representing drug companies, says 40% of all U.S. hospitals are participating in the 340B program. Many of the participating hospitals are also below the national average in charity care, the group contends.

In November, the U.S. Supreme Court heard arguments in a much-anticipated case on the government’s reductions to the drug discount program. Hospitals said the cuts threaten their ability to maintain programs in vulnerable communities. The American Hospital Asssociation filed the suit and was backed by other healthcare groups. A decision in that case is still pending.

The federal government’s cuts in the 340B program occurred under former President Trump’s administration. President Joe Biden’s administration has stuck with that approach, arguing hospitals in the 340B program will still be getting substantial discounts on outpatient drugs.

The Biden administration has argued the savings in the 340B program will be passed onto other Medicare programs serving hospitals. Some for-profit hospitals and rural hospitals have backed the government’s position, saying the policy change has led to greater reimbursements for institutions outside the 340B program.