340B Entities Will Continue Fighting For Inpatient Drug Discounts

Issue is a top priority for Safety Net Hospitals for Pharmaceutical Access; provision to extend discounts to inpatient drugs was deleted from final health care reform bill.

Extending what are known as 340B drug discounts to include inpatient drugs as well as outpatient products is one of the top legislative priorities for the Safety Net Hospitals for Pharmaceutical Access.

The group and its allies came close to seeing the extension enacted as part of health care reform, but it was deleted from the final package that became law.

Under the 340B program, a variety of health care institutions that serve low-income populations are eligible to receive Medicaid-level prices on drugs and can negotiate even lower prices than Medicaid, since those prices are exempt from Medicaid's "best price" clause requiring manufacturers to give their lowest drug price to Medicaid. However, these discounts apply only to drugs provided to outpatients under the program, which is overseen by the HHS Health Resources and Services Administration.

The Senate's health care reform bill, "The Patient Protection and Affordable Care Act," extended 340B pricing to drugs used in connection with inpatient services, but although PPACA was signed into law, the provision related to inpatient discounts was stripped out through the subsequent budget reconciliation bill.

"We still have a good chance of getting [the 340B inpatient drug discount] enacted, and we're going to continue to work hard to try to achieve that goal, and we feel that eventually it's going to happen," Ted Slafsky, executive director of SNHPA, said in an interview.

The extension has backing from a number of legislators. For example, a March 15 letter from more than three dozen House members to Speaker Nancy Pelosi (D-Calif.) urges that it be kept as part of health reform. Key proponents of the inpatient discounts include Rep. Bobby Rush (D-Ill.) and Sens. Jeff Bingaman (D-N.M.) and John Thune (R-S.D.), who have sponsored freestanding bills on the issue.

"It's just going to happen, and a lot of drug companies have already sort of prepared for it and have accepted it," Slafsky added.

Nonetheless, the pharmaceutical industry successfully fought the inclusion of the inpatient discount in reform legislation. SNHPA estimates that inpatient discounts could save the more than 800 safety net hospitals across the country an average of $2 million a year on prescription drugs. The March 15 House letter placed the savings at $1.7 million a year with inpatient discounts plus possible savings on inventory management activities.

Bill Sarraille, a partner at Sidley Austin in Washington, D.C., said in an interview that requiring discounts for inpatient drugs goes against the original intent of the 340B legislation. He said the reason for providing the discounts in the 340B population was to protect the discounts manufacturers had historically provided to facilities serving uninsured and low-income populations from affecting best price.

"That whole rationale originally for the 340B program to create a return to the status quo ante and to give manufacturers a mechanism by which they can voluntarily give lower-priced products as they traditionally had on the outpatient side doesn't explain why the program would be expanded on the inpatient side," he said.

Since the reform bill would also substantially decrease the number of uninsured individuals, Sarraille said manufacturers believed "it really didn't make sense to give 340B hospitals a further economic advantage over other competitors in the marketplace ... when the uninsured population that they were saying that they were going to use these drugs for was going to be an ever-smaller percentage of the total number of patients that they were seeing."

Slafsky disagreed, saying, "The original intent of the law was to ... allow health care providers to stretch scarce resources to better serve their patients."

He cited practical reasons for 340B entities to want the discounts other than getting lower prices. He said the current system is "costly in the amount of time and resources needed to have to deal with two different inventories [inpatient and outpatient] and manage that process, because the hospitals can get in trouble if for some reason they ended up buying a drug for an inpatient at the 340B price. ...It would be better for the health care providers to be focused on taking care of their patients rather than dealing with managing two different inventories."

Fighting The Exemption For Orphan Drugs

Health reform made a number of changes to the 340B program, including an expansion of the types of entities eligible to receive the discounts, such as certain children's hospitals and freestanding cancer hospitals.

However, while the previously eligible providers receive discounts on all drugs, including orphan drugs with indications for conditions with relatively small patient populations, the newly eligible entities will not receive discounts on orphan drugs.

Slafsky said, "One might think, 'Oh, well, that's not a big deal. There aren't that many orphan drugs.' But the truth is that a lot of the drugs that are purchased particularly by children's hospitals and by cancer hospitals ... are given orphan drug status. Therefore, it really makes the 340B program not such a great option for these health care providers. ...We talked to a children's hospital that said that will be millions of dollars that they're going to lose because of this change in the law. And so it's something that we're going to be trying to address on Capitol Hill."

Other Benefits To 340B Entities

Slafsky expressed satisfaction at the new reporting requirements health reform puts on both manufacturers and 340B facilities, which he believes will improve the transparency and the integrity of the program.

He also mentioned a few new advantages 340B entities will receive related to non-340B provisions in the law. By raising the Medicaid rebate level from 15.1 percent to 23.1 percent of average manufacturer price, 340B entities will now automatically receive that much of a discount off of AMP on drugs they purchase, while still being able to negotiate lower prices. While state Medicaid programs receive rebates after the drugs are used, 340B entities receive their discount upfront.

And while the law extends Medicaid drug rebates to managed care organizations contracted to provide Medicaid services, 340B providers are exempted from that expansion, "which is a good thing," Slafsky said, "because when 340B providers have to bill Medicaid fee-for-service, they are sometimes required to bill at acquisition cost."

In addition, 340B entities will get a break from the phase-out of the Medicare Part D gap in drug coverage, or donut hole, in the law. Slafsky explained that patients who find themselves in the donut hole "turn to our hospitals to provide their care ... because they know that we'll give them the drugs. And that's really, really expensive for us. So, by helping patients in the donut hole, it will also benefit the 340B providers who serve the patients when they're in the donut hole."

-Scott Steinke ([email protected])