Hospitals sue to block revived 340B rebate program

Hospitals have filed a lawsuit aimed at blocking the federal government’s latest effort to create a rebate model for the 340B drug discount program.

The American Hospital Association, the Maine Hospital Association, and four hospitals filed a suit in U.S. District Court in Maine late last week. The hospitals want a temporary restraining order that would prevent the federal government from shifting to rebates for the 340B program.

Under the 340B drug discount program, hospitals serving vulnerable communities can buy outpatient drugs at lower prices. The U.S. Department of Health & Human Services wants to shift to a model where health systems receive rebates after purchasing the drugs from pharmaceutical companies.

The government attempted to launch a rebate program last year, but hospitals successfully blocked it. A federal judge ruled that the Trump administration didn’t follow the requirements of the Administrative Procedure Act before moving forward with the new program. After the ruling, the Health Department dropped its plans but suggested that the rebate program could get another shot.

Now, the Health Department has revived its plans for a rebate program and also wants to implement it on a larger scale than the agency proposed last year. The American Hospital Association argues that the rebate program would add $1 billion in administrative costs to hospitals and health systems.

Steve Walsh, president and CEO of the American Hospital Association, says the government is making a similar mistake with its revival of the rebate program.

“When the government makes a change of this magnitude, it must fully consider what it will mean for the patients and communities that rely on 340B hospitals every day,” Walsh said in a statement accompanying the suit.

“For the sake of our shared goal of protecting patients and expanding access to care, those costs, consequences and alternatives cannot be treated as afterthoughts,” Walsh said. “It's unfortunate that we are back in court challenging the same flawed program.”

High compliance costs

Hospitals argue that if the rebate program is implemented as proposed, health systems would have to reduce services in vulnerable communities and provide fewer free and discounted drugs to patients with lower incomes, including those in rural communities.

Jeff Austin, president of the Maine Hospital Association, says hospitals in his state can’t wait to get discounts for drug purchases. Maine hospitals this year have an average of 9.3 days of cash on hand, according to the suit.

“Maine hospitals cannot afford this Rebate Program,” Austin said in a statement. “They already operate with an average of less than two weeks cash-on-hand, so these significant new costs will jeopardize their ability to care for the most vulnerable patients in their communities and affect the affordability and accessibility of care across Maine.”

The health department has estimated that hospitals participating in the 340B program will spend more than $537 million annually under the rebate program. “That number is astonishing, but the reality is even worse,” hospitals say in the suit.

Health systems said in the court papers that the federal government is significantly underestimating the amount of time and work that will be needed to do the work necessary under the rebate program. The Eastern Maine Medical Center in Maine, one of the hospitals in the suit, estimates it would have to hire two people at a total cost of $123,000 annually simply to do the required work.

The hospitals joining the suit are the Unity Medical Center in North Dakota, the Dallas County Medical Center in Arkansas, and the Nathan Littauer Hospital and Nursing Home in New York. All of the hospitals in the suit participate in the 340B rebate program.

“The Rebate Program’s costs also will prevent Plaintiffs and other covered entities from carrying out their caregiving missions,” the hospitals and associations said in the suit. “They directly threaten service line closures and financial assistance programs that reduce the cost of drugs for patients.”

Long-running battle

The Health Department has said it intends to launch the 340B rebate program on Jan. 1, 2027. The department said “there are many advantages a rebate model has for prospective program integrity measures and overall transparency, including ensuring that stakeholders have transparency into 340B transaction information.”

The Pharmaceutical Research and Manufacturers of America, the trade group for drug companies known as PhRMA, contends that a rebate model would bring more integrity to the program and reduce duplicate discounts to providers.

The 340B program has been the center of heated battles between hospitals and drug companies.

Critics argue that the 340B program has grown well beyond its goal of supporting safety net hospitals

Spending on the federal 340B drug program rose from $6.6 billion in 2010 to $43.9 billion in 2021, according to a recent report from the Congressional Budget Office. Some members of Congress have said the program needs reform.

Hospitals say changes limiting access through the 340B program would only compound financial pressures for hospitals, which are facing rising labor and supply expenses. Health systems are also bracing for substantial cuts in Medicaid programs over the next decade, with millions expected to lose coverage and hospitals projecting to care for more patients with no coverage.