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November 02, 2022

The 20 Key Moments in the 340B Program's 30-Year History

Ted Slafsky
Founder and Principal of Wexford Solutions, Publisher, 340B Report

As we approach the 340B drug discount program's 30th anniversary on November 4, it is a good time to reflect on the key moments that have had the greatest impact on this very important program. I have been immersed in the program since 1996, but these key moments and their impacts were curated with the help of my first boss in the 340B space, Bill von Oehsen. Bill helped draft the original law and has played a crucial role in shaping all the additional 340B legislation, regulations, and guidance that have been enacted since then.

20 key moments that have shaped the 340B program: 

1992: Section 340B of the Public Health Service Act is signed into law by President H.W. Bush on November 4. Interestingly, the 340B law was actually included in a veterans healthcare bill (the Veterans Health Care Act) that also established a separate drug pricing program for veterans hospitals.

1994: The Health Resources and Services Administration (HRSA) issued guidance that established that only clinics that are listed on a hospital's Medicare Cost Report would qualify for 340B discounts. This provided concrete criteria for determining eligibility, and the standard is still used today

1996: HRSA published guidance establishing that covered entities that do not have their own pharmacy can contract with one outside pharmacy to dispense medications, expanding access to 340B discounts. The guidance also defined which patients are eligible for 340B discounts and finalized manufacturer audits.

2000: Billing rules were clarified by HRSA to make it clear that if covered entities chose to utilize the 340B program for Medicaid patients, reimbursement was determined by the states, not the federal government. This was important for covered entities since some states were willing to reimburse 340B providers at higher acquisition cost to encourage the use of the 340B program.

2003: Congress passed the Medicare Modernization Act (MMA), which included the creation of the Medicare Part D program. It also raised the DSH payment cap for some rural and small urban hospitals to 12%. As a result, some hospitals in rural areas that received DSH payments became eligible for 340B pricing.

2005: HRSA publicly raised alarms against discriminatory reimbursement to 340B providers. In a manual for hemophilia treatment centers, the agency states it is concerned that providers would have no reason to participate in 340B if insurers take the benefit of 340B savings from them. HRSA explained that "if covered entities were not able to access resources freed up by the drug discounts when they…bill private health insurance, their programs would receive no assistance from the enactment of section 340B, and there would be no incentive for them to become covered entities." 

The House Energy and Commerce Committee Oversight & Investigations subcommittee held a hearing on the 340B program, largely focused on the HHS Inspector General findings of drug industry overcharges of 340B providers. There was bipartisan support for the program at the hearing and support for measures such as requiring pharmaceutical companies to publish their prices in a password protected site on HRSA's website.

2006: Congress passed, and President George W. Bush signed into law the Deficit Reduction Act (DRA), which included legislation adding free-standing children's hospitals to the 340B program. It would take a few years before children's hospitals would be able to benefit from the program. This was due to HRSA's reluctance to implement the new law since the DRA amended the Medicaid statute, not Section 340B of the Public Health Service Act. After a protracted effort, the hospitals did start to benefit and were eventually added as a covered entity when the 340B program was amended in 2010 as part of the Affordable Care Act (ACA).

2010: Congress passed, and President Barack Obama signed the ACA, which includes a host of 340B provisions. They include expanding the program to critical access hospitals as well as additional rural hospitals. While a significant number of rural hospitals became eligible for 340B discounts, the pharmaceutical industry convinced lawmakers and the administration to add a surprise measure that restricts access to 340B discounts for orphan drugs. The law also requires the government to publish 340B prices on HRSA's website, establishes the Administrative Dispute Resolution process, and several other enforcement and pricing provisions. 

HRSA finalized guidance expanding the contract pharmacy program so that covered entities could contract with multiple pharmacies, rather than be limited to one pharmacy. This milestone occurred after HRSA conducted a number of pilot programs allowing providers to contract with multiple pharmacies. Interestingly, the contract pharmacy expansion was originally included in the legislation that eventually was attached to the ACA. However, lawmakers decided that it was not needed anymore since HRSA was expanding the program on its own.

2011: The Government Accountability Office (GAO) published a study entitled: "Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement." The detailed report found that while the program is helping providers stretch scarce resources and expand care to vulnerable patients, there needs to be better oversight of both providers and manufacturers to ensure accountability.

Also, in 2011, the U.S. Supreme Court ruled that 340B covered entities may not sue drug manufacturers for alleged overcharging in their capacity as third-party beneficiaries of the 340B pricing agreements between manufacturers and HHS. Instead, they must rely on the government to enforce the pricing provisions of the program.

2012: Following the recommendation of the GAO, HRSA began conducting audits of 340B covered entities and later expands audits to drug manufacturers. Senator Chuck Grassley, along with three other senior GOP lawmakers, begins a two-year investigation of the 340B program. The investigation, which included inquiries requesting large amounts of documents and communications from various stakeholders, is largely perceived as a drug industry-friendly fact-finding exercise.  Four of the five staffers originally involved in the investigation now work for or lobby for the pharmaceutical industry.

2014: HRSA considered publishing a regulation that would have narrowed the definition of patient and placed other restrictions on the program. 340B providers expressed significant concern. HRSA sent a proposed regulation to the White House for approval but ultimately withdrew it in November 2014. HRSA published the proposed 340B "mega-guidance" the following year but ultimately withdrew it in 2017.

2015: PhRMA won a lawsuit against HRSA regarding orphan drugs. The agency had published a regulation narrowing the scope of the orphan drug restriction. Under HRSA's interpretive rule, rural hospitals would only be prohibited from using 340B pricing on orphan drugs when the drug was being used for its orphan indication. The court ruled that the restriction applies to all orphan drugs regardless of use. Importantly, federal Judge Rudolph Contreras ruled that HRSA has rulemaking authority in only three areas: (1) the establishment of an administrative dispute resolution process; (2) the methodology for calculating the 340B ceiling price; and (3) the imposition of civil monetary penalties.

2018: The Centers for Medicare & Medicaid Services (CMS) imposed significant Medicare Part B reimbursement cuts to 340B hospitals. Hospitals sued the agency. The U.S District Court in Washington, D.C., ruled in favor of the hospitals, and the government successfully appealed the decision to the federal appeals court. However, the U.S Supreme Court takes up the case in 2022 and ruled in favor of the 340B hospitals.

2019: After being sued by 340B providers, HRSA finalized regulations requiring the government to establish a 340B ceiling price database that allows covered entities to check on 340B prices on a password protected section of HRSA's website. The regulations also gave the agency the authority to impose civil monetary penalties on drug companies that "knowingly and intentionally" overcharge 340B providers.

2020: After being sued once again by 340B providers, HRSA established the Administrative Dispute Resolution program. The ADR, which is overseen by several government experts in drug pricing and compliance, is intended to resolve disputes between covered entities and drug manufacturers. Questions persist about its effectiveness.

2020: Eli Lilly became the first drug manufacturer to announce restrictions on access to 340B pricing in the contract pharmacy setting. By October 2022, 17 additional drug manufacturers had followed suit. HRSA has warned the drug companies they are breaking the law and have told them to restore the discounts. Drug companies have sued HRSA, and there are currently important cases before three federal appeals courts to determine whether the manufacturers' actions are illegal.

2022: As referenced above, the U.S. Supreme Court rules unanimously in favor of 340B hospitals in their suit against CMS over a 28.5 payment cut in Medicare Part B reimbursement. As a result of a subsequent decision from a lower court judge, CMS must immediately begin to restore the higher payments.

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The views and opinions expressed in this blog are those of the authors. They do not necessarily reflect the official policy or position of any other agency, organization, employer, or company. Assumptions made in the analysis do not reflect the position of any entity other than the author(s). These views are always subject to change, revision, and rethinking at any time and may not be held in perpetuity.