Health Department drops 340B drug rebate plan, at least for now

The Department of Health & Human Services is shelving plans to launch a rebate program for the federal 340B Drug Discount Program.

The health department had planned to initiate a pilot rebate program for the 340B program, which allows hospitals to buy outpatient drugs at lower prices. Under the health department’s plans, they would have had to purchase the drugs at full price and then get rebates from several drug companies in the trial program. Hospitals participating in the 340B program have simply been able to buy the drugs at lower prices.

Hospitals won a federal court ruling in Maine to block the program, which was salted to begin in January. Now, the health department says it’s not going to continue the legal battle.

In a court filing last week, the Health Department said it does not believe “the full administrative record would change the outcome of this litigation at summary judgment. As a result, the Parties agree that further motions practice would not be fruitful.”

The Health Department indicates it is putting the rebate program on hold for the time being. But the department also suggests it’s possible the agency could move forward with a similar program again.

The department said if it tries to begin a new 340B rebate program, the agency will issue a new notice and request public comments.

The agency also pledged in the court ruling to “set any effective date for any new 340B rebate program to no earlier than 90 days following the public announcement of any approval of drug manufacturer applications—to avoid the prospect of any extremely expedited future litigation.”

‘Back to the drawing board’

Even with the prospect of the rebate model eventually emerging again, hospitals and health systems are clearly relieved that it’s not moving forward right away.

Rick Pollack, president and CEO of the American Hospital Association, said in a statement that the group “appreciates HHS’ decision to go back to the drawing board and rethink its Rebate Program. We remain grateful to the district court and First Circuit for quickly recognizing the many legal flaws in the original Program.”

Hospitals argued that the rebate model would add financial pressures to hospitals, forcing them to spend more money while they wait for the rebates. Health systems sued to block the program and argued the health department didn’t provide enough time to launch the rebate program or properly consider the potential costs to hospitals.

Pollack said the hospital association is “eager to work with the Administration on policies that make drugs more affordable and ensure access to care for American families.”

“A rebate program that undermines safety-net hospitals’ ability to offer more comprehensive care would only harm the nation’s most vulnerable communities,” he said.

The American Medical Group Association also hailed the health department’s decision to pull the plug.

“This is a win for patients and the providers who serve them … Our members depend on immediate access to discounted drugs to stretch scarce resources,” Jerry Penso, MD, president and CEO of the AMGA, said in a statement last week.

History of clashes

Jennifer DeCubellis, president and CEO of America’s Essential Hospitals, told Chief Healthcare Executive® in November that the rebate model would pose serious problems for safety-net programs.

“It puts the control back with the pharmaceuticals, and it puts the administrative burden on essential hospitals,” DeCubellis said in November.

“We've got to pay for them up front when we don't have the cash in the margins to do so,” she added. “We’ve got to go through an administrative process to hope we get some money back. We don't have the days’ cash on hand to follow through that process.”

More than 2,700 hospitals are participating in the 340B programs, and the hospital association said the operating costs of the rebate model would have been $150,000 to $500,000 per hospital.

Hospitals and drug companies have battled intensely over the 340B drug program, which is designed to help hospitals with vulnerable communities buy some outpatient drugs at lower prices. Health systems have said the 340B program provides important support in their efforts of serving patients with limited incomes in urban and rural areas.

Critics say the program has grown far beyond its original mission of supporting safety net hospitals. Spending on the federal 340B drug program rose to $43.9 billion in 2021, more than six times higher than in 2010, according to a recent report from the Congressional Budget Office.

Some lawmakers have called for tightening eligibility for the 340B program.