AHA Asks DOJ, FTC to Probe Drugmakers for "Cartel-Like" 340B Tactics

The American Hospital Association says that the timing of drug companies’ proposed 340B rebate model suggests a collective effort to undermine the program.

The American Hospital Association (AHA) is asking the Department of Justice (DOJ) and Federal Trade Commission (FTC) to investigate what it calls "anticompetitive, collusive, and cartel-like behavior" by drug companies aimed at undermining the 340B Drug Pricing Program.

The hospital advocacy group had called for additional oversight  of drug companies earlier this year, arguing that they were far more likely to violate 340B rules than hospitals. Now, AHA is shifting the focus to potential antitrust violations.

In a recent letter, AHA General Counsel and Secretary Chad Golder alleges that a group of drug companies, after failing to unilaterally restrict the use of contract pharmacies, are now acting in concert to impose burdensome rebate models on 340B providers. This shift, the AHA argues, is not a series of independent business decisions, but a collective effort to "chip away at the 340B program" and retain profits that should be going to safety-net hospitals.

A Coordinated Attack

Drugmakers are systematically replacing the program's traditional upfront discounts with a far more burdensome rebate model, according to AHA. Under this model, hospitals must purchase 340B drugs at full, non-discounted prices and then submit detailed claims data to a third-party vendor to eventually receive a rebate.

This tactic, "appears to be the next front in the drug companies’ collusive and illegal campaign to pocket for themselves savings that Congress intended for 340B hospitals,” Golder writes.

The drug manufacturing industry has pushed for reforms to the 340B program for years, with some drug companies making attempts to unilaterally impose rebate. HRSA denied a request from several drug companies last year to replace upfront discounts with back-end models. When healthcare giant Johnson & Johnson filed a lawsuit challenging the decision, a judge affirmed the government’s ability to reject the rebate model.

“HRSA has the authority to ‘provide’ for discounts, rebates, or both,” Judge Rudolph Contreras wrote in the decision. “This conclusion defeats J&J’s claim that HRSA lacked the authority to require prior approval of J&J’s rebate model.”

While Johnson & Johnson was the only plaintiff listed in that decision, AHA accuses multiple drug makers of acting together in a “potential antitrust conspiracy” after earlier efforts to impose contract pharmacy restrictions failed. The group claims that the nearly identical nature and timing of these new rebate policies are evidence of collusion.

The Revenue Cycle Impact

For hospitals and health systems, a switch from upfront discounts to a back-end rebate system would have a significant impact on cashflow and operational efficiency, forcing providers to carry the full cost of 340B drugs for extended periods. This creates a significant administrative burden on revenue cycle teams, who would need to track, submit, and fight for rebates on a claim-by-claim basis.

However, while AHA tries to preserve the financial stability the 340B program offers to hospitals, Congress and the White House have signaled a growing appetite for reforms.

Allegations against drug companies occur as the 340B program faces increasing scrutiny on numerous fronts. Earlier this year, the White House issued an Executive Order targeting prescription drug prices that would have significant implications for the 340B program. The Senate Health, Education, Labor, and Pensions Committee also issued a report earlier this year calling on Congress to implement stricter oversight of the ways that hospitals use 340B funds.

Industry pressure plus political and regulatory scrutiny create uncertainty around the future of the 340B program. Developing strategies to compensate for different reform scenarios and ensuring compliance will be critical to navigating potential changes to a program that many health systems rely on for financial stability.