Hospitals relieved by Johnson & Johnson reversal on rebate plan, but 340B battle goes on

After heavy protests from hospitals and warnings from the federal government, Johnson & Johnson has dropped its plan to require health systems to apply for rebates in the 340B drug discount program.

The drug company informed the Health Resources & Services Administration that it is dropping the plan to ask hospitals to request rebates for two popular drugs: Xarelto, a blood thinner, and Stelara, a drug for Crohn’s disease and colitis.

Under the federal 340B drug discount program, hospitals and health systems can buy certain outpatient drugs at lower prices. The program is designed to help hospitals caring for underserved communities.

Typically, hospitals simply buy the 340B drugs at lower prices. Johnson & Johnson proposed having hospitals pay the full price for the medications, and qualifying providers would receive a rebate on their purchase. Outraged hospitals protested the plan and said it would force them to spend significantly more up front in hopes of getting a discount in the future.

The Health Resources & Services Administration took exception to the drug company’s plans. HRSA sent a letter warning Johnson & Johnson that if it moved ahead with the rebate plan, the government could consider removing the company’s drugs from Medicare & Medicaid programs. The agency warned that potential consequences include termination of J&J’s Pharmaceutical Pricing Agreement.

This week, Johnson & Johnson said that it is abandoning the rebate plan, even though the company also defended the rebate model and said it would ensure rebates went for the intended purposes of the 340B program.

“Due to HRSA’s unwarranted threats of excessive and unlawful penalties, J&J has no choice but to forgo implementation of the Rebate Model pending resolution of these issues,” the company said in a letter to HRSA.

‘Would have harmed patients’

Bruce Siegel, MD, president and CEO of America’s Essential Hospitals, welcomed the news and thanked HRSA for its pressure on Johnson & Johnson.

“The decision by Johnson & Johnson to back down from its illegal plan for rebates in the 340B Drug Pricing Program shows how swift and firm federal action and vigorous advocacy by essential hospitals can stop harmful drug industry behaviors that would put our health care safety net at risk,” Siegel said in a statement.

Rick Pollack, president and CEO of the American Hospital Association, also hailed the news that Johnson & Johnson has scrapped the rebate proposal.“The AHA is pleased that Johnson & Johnson has decided to cease implementation of its 340B rebate proposal, which would have harmed patients and 340B providers,” Pollack said in a statement.

Members of Congress also criticized Johnson & Johnson’s rebate proposal. A bipartisan group of 189 House members sent a joint letter this week to the U.S. Department of Health & Human Services to prevent the drug company from moving forward with rebates, saying the plan would delay “access to 340B discounts on pharmaceuticals for certain safety-net hospitals.”

“Under the rebate model, these safety-net hospitals would be required to purchase drugs at the high sticker price of wholesale acquisition cost (WAC), instead of at the substantially lower 340B discount, and wait for an undetermined period to receive the 340B discount as a rebate,” the lawmakers wrote. “This model reduces resources available for patient care, undermining the core purpose of 340B.”

While Johnson & Johnson says it’s putting its brakes on the rebate plan, the company insists the model was allowed under the 340B program. The company also chided HRSA for an “unfortunate and unjustified decision” to threaten punishment, including the removal of Johnson & Johnson drugs from Medicare and Medicaid programs.

“If HRSA took this unprecedented step, it would mean that millions of Medicare and Medicaid patients throughout the nation would lose access to life-saving and life-enhancing medicines,” the drug company said.

Ongoing clashes

Johnson & Johnson also said in its letter to HRSA that the 340B program should have more transparency to ensure it is benefiting vulnerable patients and communities. The company insisted all eligible providers, including disproportionate share hospitals, would have access to 340B discount pricing.

The drug company also said the 340B program needs reform. And Johnson & Johnson said the rebate program was aimed to eliminate “duplicate discounts,” rather than eligible 340B claims.

“It is indisputable that the integrity of the 340B program has suffered immense harm in recent years, all without clear benefit to the patients it is intended to serve. Instead, duplicate discounts and diversion benefit for-profit entities like pharmacy benefit managers and their affiliates exploiting the 340B program for financial gain,” Johnson & Johnson said in its letter to HRSA.

Hospitals and drug companies have sparred over the 340B drug discount program. Health systems have criticized pharmaceutical companies for reducing the discounts they are offering in the program.

Conversely, drug companies and some critics have said the 340B program has grown beyond its intended purpose of providing assistance to hospitals with a large percentage of patients with low-incomes. The Alliance for Integrity and Reform of 340B has also said that hospitals participating in the 340B program are providing less charity care than other health systems.

The Pharmaceutical Research and Manufacturers of America (PhRMA) has said that the government isn’t doing enough to crack down on “double discounts.” The trade group for drug companies has called for reform of the 340B program.

Stephen J. Ubl, president and CEO of PhRMA, said in May that “the 340B program has lost its way and become a piggy bank for many, with large hospitals, PBMs and pharmacy chains siphoning money from the program without using it to improve access to lower cost medicines in their communities.”

In January 2023, about 2,600 hospitals participated in the 340B program, according to the U.S. Government Accountability Office. Republican lawmakers have pushed legislation that would impose tougher rules for hospitals to participate in the 340B program.

Hospitals say the 340B program helps provide essential services to vulnerable communities and reductions in discounts hurt their ability to help those most in need.

Hospitals won a highly anticipated Supreme Court case in 2022 over the federal government’s policy changes that reduced 340B payments for years. In its unanimous ruling, the high court pointed to the benefits of the 340B program in urban and rural communities.