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Hospitals suffer setback in court ruling on federal drug pricing program


A federal appeals court ruled in favor of two drug companies in a dispute over a federal program offering lower prices on outpatient drugs. Hospitals say drug companies are improperly curbing discounts.

Hospitals have suffered a setback in a legal battle over the federal program designed to give providers lower prices to certain drugs.

Image credit: ©Valerii Evlakhov - stock.adobe.com

A federal court sided with drug companies in a battle with hospitals over the 340B Drug Pricing Program. Hospitals say drug companies are improperly placing restrictions on drugs in the program.

The U.S. Court of Appeals in Washington, D.C. ruled in favor of two drug companies in a dispute over the 340B Drug Pricing Program, which allows hospitals to buy some outpatient medications at lower prices. Hospitals have argued that drug companies are improperly putting restrictions on drugs in the program.

The U.S. Department of Health and Human Services has fought the efforts of drug companies to curb restrictions. But in a ruling issued this week, the U.S. Court of Appeals for the District of Columbia Circuit upheld the rights of Novartis Pharmaceuticals and United Therapeutics to impose some restrictions.

“In sum, we hold that section 340B does not categorically prohibit manufacturers from imposing conditions on the distribution of covered drugs to covered entities,” the ruling states.

However, the court also noted, “We do not foreclose the possibility that other, more onerous conditions might violate the statute.”

Hospitals have argued that drug companies are circumventing federal law, and they say that as drug companies roll back some discounts, providers and patients will pay the price.

Beth Feldpush, senior vice president of policy and advocacy for America’s Essential Hospitals, assailed the court’s ruling. She said that the ruling “allows drug companies to continue their egregious restrictions on 340B discounts for drugs dispensed by contract pharmacies and puts care for disadvantaged patients at risk.”

The hospital group represents safety-net hospitals that serve a large percentage of patients with lower incomes and those in underserved communities. Feldpush said the organization maintains that the drug companies are skirting the rules of the 340B program, and noted that the health department shares that view as well.

“Essential hospitals depend on 340B savings to meet their safety net mission, and they extend their reach into communities by partnering with pharmacies to make 340B drugs more accessible,” Feldpush said.

Maureen Testoni, president and CEO of 340B Health, a group representing hospitals participating in the federal drug pricing program, also denounced the ruling.

“We are disappointed the court found that the 340B statute does not categorically prohibit manufacturers from imposing conditions,” Testoni said in a statement.

“However, we are encouraged that the court made clear that conditions violate the 340B statute if, for example, they effectively raise the 340B price or essentially bar access to 340B for a particular provider.”

Drug companies have been reducing the amount of discounts in the 340B program, providers say. Hospitals have criticized drug companies for the practice over the past two years, and they say major pharmaceutical firms have become more stingy with discounts.

“Unilateral drug company restrictions have siphoned billions of dollars away from providers and into drugmakers’ pockets at the expense of at-risk patients and underserved communities who rely on 340B the most,” Testoni said in a statement.

The 340B program has engendered intense debate and scrutiny in recent years.

Critics say that the 340B program needs more oversight, and they contend that the program has grown far bigger than initially intended.

In January 2023, about 2,600 hospitals participated in the 340B program, according to the U.S. Government Accountability Office.

Some critics, including The Alliance for Integrity and Reform of 340B, have argued that hospitals participating in the 340B program are not contributing enough charity care. Others have argued that patients aren’t getting enough benefits from the discounted prices.

Hospital scored a significant victory when the U.S. Supreme Court unanimously struck down the 340B program cuts to hospitals and health systems in a June 2022 decision. Former President Trump had imposed the cuts, and President Biden’s administration also sought to continue his predecessor’s policy.

The Centers for Medicare & Medicaid Services said in November 2023 that it would pay out $9 billion to 1,700 affected hospitals. Hospitals had criticized the government for not moving more swiftly in delivering relief.

Hospitals are pushing Congress to act on legislation that would require drug companies to continue to provide discounted prices for participants in the 340B program.

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