Hospitals relieved 340B rebate program is delayed

Hospitals are welcoming a reprieve from the launch of a new rebate model for the federal government’s 340B drug discount program.

The U.S. Department of Health & Human Services had hoped to kick off a pilot rebate program this month for the 340B program, which allows hospitals to buy some outpatient drugs at lower prices. Instead of hospitals simply buying the medications at reduced prices, they would have to purchase the drugs at full price and then get rebates from several drug companies in the trial program.

Hospitals have warned that this model would add financial pressures to hospitals, forcing them to fork over 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.

So hospitals welcomed a court ruling last week that blocks the rebate program from moving forward, at least temporarily.

Chief U.S. District Court Judge Lance Walker, of the U.S. District Court in Maine, issued an order blocking the health department from moving ahead. Walker said hospitals offered a compelling argument that the Trump administration didn’t follow the requirements of the Administrative Procedure Act in advance of moving forward with the new program.

“As complicated as certain aspects of this case might seem, it boils down to a simple principle. Defendants cannot fly the plane before they build it,” Walker wrote.

The order doesn’t permanently scuttle the rebate program. Indeed, the judge noted that the Congress clearly gave the government the option of utilizing a rebate model, but the Health Department “failed to follow the APA’s basic blueprint in assembling the Rebate Program,” Walker wrote.

Jennifer DeCubellis, president and CEO of America’s Essential Hospitals, said in a statement that she is grateful that the judge granted an injunction blocking the “ill-considered and poorly planned 340B rebate pilot program.”

“The ruling affirms that the rebate pilot would directly harm patients and the essential hospitals they depend upon for affordable, high-quality care,” she said in a statement.

Rick Pollack, president and CEO of the American Hospital Association, also cheered the district court’s order.“The court’s decision halts a rule that would have caused a devastating sea change in a 30-year-old program relied upon by hospitals that serve America’s most vulnerable patients and communities,” Pollack said in a statement.

More than 2,700 hospitals are participating in the 340B program, and the hospital association said the compliance demands of the rebate model would require hospitals to assign the equivalent of two full-time employees, on average, to handle the work. Health systems say the operating costs of the rebate model could be $150,000 to $500,000 per hospital, the association says.

The Health Resources and Services Administration, a division of the Health Department, said it aims to test a new program with eight companies that would offer rebates to hospitals after they have purchased the drugs.

HRSA has said it hopes that the pilot program will help give the government information on developing other models that meet the requirements of the 340B program and the goals of the Trump administration.

DeCubellis told Chief Healthcare Executive® in a recent interview that the 340B program was designed to help safety net hospitals, who care for higher percentages of patients with lower incomes. She and other hospital leaders balk at the concept of aiding drug companies with much bigger profit margins than hospitals.

“It puts the control back with the pharmaceuticals, and it puts the administrative burden on essential hospitals,” she says.

With a rebate model, DeCubellis says, “We've got to pay for them up front when we don't have the cash in the margins to do so. 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. That's a pressure point.”

Hospitals argue that the 340B program provides important support in their efforts of serving vulnerable patients in urban and rural areas and are pushing the government to drop the rebate model.

Critics say the 340B program has expanded beyond its goal 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.