Executive Order Puts 340B Drug Pricing Back in the Spotlight

A recent Executive Order takes aim at drug pricing, with significant implications for the 340B Drug Pricing Program.

The Trump administration recently issued an Executive Order directing federal agencies to take steps to reduce prescription drug prices. Among the wide-ranging directives are two provisions that would significantly impact the 340B Drug Pricing Program.

One provision would require provider organizations participating in the 340B program to make insulin and injectable epinephrine available at or below the discounted price that they paid for the drugs.

The other provision instructs the Department of Health and Human Services (HHS) to gather data on hospital acquisition costs for outpatient drugs and to propose reimbursement adjustments that align Medicare payment with acquisition costs.

Recent controversy surrounding the 340B program

The 340B program, established in 1992, requires drugmakers to provide outpatient drugs at discounted rates to eligible provider organizations. The program is intended to free up money for hospitals to use elsewhere in ways that support low-income and other underserved patients.

The 340B program has been mired in controversy for the past several years, but multiple revenue cycle leaders have said the discounted rates through the 340B program are essential to their organizations’ financial health.

“Henry Ford Health system and a lot of folks rely on 340B discounts and other mechanisms like disproportionate share payments,” Robin Damschroder, the health system’s CFO, told HealthLeaders in a 2022 interview. “We're a big teaching institution, so a lot of these special payments that we do in order to teach the healthcare leaders of the future or make sure that we can take care of vulnerable patients are extremely important.”

“340B going away would not only be devastating for us but incredibly devastating to our patients because it does fund some other things that we can do in our organization to serve that indigent population,” added Cheryl Sadro, former CFO for UC Davis Health and current CFO for John Hopkins Medicine, told HealthLeaders in a separate 2022 interview. 

On the other hand, critics say that the 340B program lacks transparency and that participating provider organizations frequently fail to use savings on the populations that the program is intended to help.

This criticism prompted the formation of a bipartisan group of legislators to explore changes to the 340B program. The Senate 340B working group released a legislative discussion draft last year.

“The 340B drug pricing program is not working as effectively as it should,” Senator Jerry Moran (R-Kansas) said at the time of the group’s formation. “The confusion around its contract pharmacy provisions and lack of transparency and congressional oversight is failing the patients the program exists to help.”

The Supreme Court offered some 340B relief – for now

In 2018, the Centers for Medicare & Medicaid Services (CMS) reduced payment rates for 340B drugs to average sales price minus 22.5%, stating that the formula would more accurately account for actual costs incurred by 340B hospitals.

However, the Supreme Court ruled against these rates in 2022, saying that HHS had not properly surveyed hospitals’ acquisition costs. The decision led to a $9 billion remedy payment for eligible hospitals in 2023.

Healthcare leaders were pleased at the time. However, scrutiny over the 340B is still strong, and both Congress and the White House seem eager to make adjustments to the program. Revenue cycle leaders would be wise to keep contingency plans in their pockets.