A federal judge granted a temporary restraining order to block a pilot program aimed at keeping better tabs on the federal 340B hospitals use to receive drug discounts.
The pilot was scheduled to begin on January 1.
On December 18, U.S. District Judge Lance Walker of the District of Maine issued the order while a lawsuit to block the 340 B Rebate Model Pilot Program proceeds. On December 1, the American Hospital Association (AHA) and four “safety-net” hospitals filed the suit, arguing the U.S. Department of Health and Human Services (HHS) approved the 340 B Rebate Model Pilot Program through a “rushed, opaque process” and that it could cause the hospitals significant financial harm.
The administration immediately appealed the decision, and on January 8, the U.S. Court of Appeals for the First Circuit upheld the preliminary injunction.
HHS announced on December 31 that it was pausing implementation in accordance with the order.
Arbitrage?
In 1992, Congress created the 340B drug pricing program to help a small set of safety-net hospitals purchase discounted prescription drugs from manufacturers by subsidizing purchases for low-income patients. Since then, but especially after Obamacare’s Medicaid expansion in 2014, the program has expanded to become the nation’s second largest purchaser of drugs, behind Medicare Part D.
States have been considering dozens of bills to preserve the program in its original form, Cameron Sholty, the director of government relations for Heartland Impact, told Health Care News on October 31.
“Hospitals have more or less turned into arbitrage machines, buying up 340B-qualifying covered entities so they can purchase even more discounted drugs,” said Sholty.
On July 31, the U.S. Department of Health and Human Services launched the pilot program, which allows the federal government to issue rebates on drugs in the Inflation Reduction Price Negotiation Program instead of upfront discounts from the drug companies. Rebates could enable the federal government to keep better track of where the drugs are being distributed.
“The Pilot Program will help to inform the development of a process for approving future models that are consistent with the 340B statute and the Administration’s goals,” stated the administration’s announcement.
Pilot, ‘Unlawful’
In their suit, the hospitals claim the pilot program is unlawful because it violates the Administrative Procedure Act, which requires administrative agencies to follow a rule-making process and allow for a public comment period.
“When making such a major change, with such far-reaching consequences for patients and hospitals, it is important that the government follow the basic administrative rules of the road. Unfortunately, it did not do so here,” said AHA President and CEO Rick Pollack in a December 1 news release.
Additionally, the AHA said a rebate system would saddle hospitals with debt.
“We are asking the court to act quickly to protect access to vital care services,” stated Pollack.
Several pharmaceutical companies filed a motion to intervene in support of the pilot program. Walker denied the request, writing the companies failed to “demonstrate that the government will not adequately represent their interests in defending the lawsuit.”
Legal Wrangling
Expect more legal wrangling to come, says Sholty.
“The administration has the option to file emergency relief from the U.S. Supreme Court. As of this date, no petition has been filed,” Sholty told Health Care News. “I expect HHS to argue vigorously when testimony begins in the hospital lawsuit. The complaint by hospitals that they ‘rely on upfront price concessions to stretch few resources as far as possible to serve rural and poor communities’ rings thin.”
Many things can be done to help struggling hospitals besides giving them upfront drug discounts, says Sholty. “Rural hospitals can join a network with a big urban hospital to give them better ability to ‘cost shift,” said Sholty. “And, states can help safety-net providers by getting rid of their Certificate of Need laws, which drive expansion away from struggling communities.”
‘Zombie Movie’
A report by consulting firm Magnolia Associates, funded by PhRMA, found out-of-pocket drug costs for 340B patients are higher than those getting care from non-340B providers.
The 340B program is another example of government “cross-subsidization,” taking from one entity to give to another, writes John H. Cochrane, senior fellow at the Hoover Institution, in his blog, The Grumpy Economist.
“It’s a zombie movie,” wrote Cochrane. “Eliminate. Don’t try to rewrite.”
“Really, have we not learned from health and bank regulation that you can’t patch these boats? asked Cochrane. “Like cancer, you need to cut the whole thing out, or it will grow back. If they want to subsidize hospitals, pass some taxes, send some checks, on budget and visible to taxpayers.”
AnneMarie Schieber ([email protected]) is the managing editor of Health Care News.
