J&J’s Change to 340B Discounts is “Inconsistent” with Statute, HRSA Says

In a letter last week, Johnson & Johnson informed certain hospitals of a major change it plans to make in the way it gives out discounts on two drugs. The company has found itself in opposition to hospital groups, and the federal government is planning to take action.

Starting October 15, Johnson & Johnson will stop providing upfront discounts to disproportionate share hospitals (DSH) participating in the 340B Drug Pricing Program for the plaque psoriasis drug Stelara and the blood thinner Xarelto. Instead, these hospitals will need to purchase the two medications at full price and then submit data to the pharmaceutical company to receive a rebate later for the discounted 340B price.

The federal 340B Drug Pricing Program, which is administered by the Health Resources and Services Administration (HRSA), enables eligible hospitals and clinics that serve low-income and uninsured patients to purchase outpatient prescription drugs at reduced prices. Many drug companies are concerned about the program because it has grown rapidly over the years: there were 8,100 participating provider sites in 2000, compared to 50,000 in 2020, according to the Commonwealth Fund. A fact sheet from the American Hospital Association shows that hospitals and other covered entities enrolled in HRSA’s 340B program can achieve average savings of 25% to 50% in pharmaceutical purchases.

A spokesperson for HRSA told MedCity News that it informed Johnson & Johnson that the company’s plans for the 340B rebate model are “inconsistent” with the 340B statute and need Secretarial approval. 

“The Secretary has not approved J&J’s rebate model,” the spokesperson stated. “HRSA has communicated this information to J&J and will take appropriate actions as warranted.”

The agency declined to say what specific actions it plans to take.

Johnson & Johnson, however, argued that its plan is consistent with the statute.

“The 340B program is not meeting its original goal of allowing safety net providers to obtain discounted medicines for vulnerable patients,” a spokesperson who declined to be named said. “Patients are not realizing the full benefit of the 340B program because of rampant abuse and misuse. To help the 340B Program better serve vulnerable patients, J&J is implementing reasonable, standard business practices used across other government programs and contracts. J&J’s use of reasonable, standard and time sensitive business practices will help the 340B program meet its original intent, and better ensure discounts are more directly benefiting vulnerable patients.

“J&J’s limited scope rebate model is fully consistent with the 340B statute, which specifically references rebates as a payment mechanism, and is expected to mitigate legally prohibited program abuses by improving transparency,” the spokesperson continued.

At least two hospital organizations have come out against Johnson & Johnson’s rebate model. 340B Health, an association of more than 1,500 hospitals, called on HRSA to announce that drugmakers have to continue providing upfront discounts. The organization said the rebate system would violate the 340B statute’s mandate that drugmakers offer eligible drugs “at or below the applicable ceiling price.”

In addition, Johnson & Johnson’s change would hurt safety-net hospitals, argued Maureen Testoni, president and CEO of 340B Health.

“This shift would impose massive financial and administrative burdens on 340B hospitals, which serve vulnerable patients and underserved communities,” Testoni said in a statement. “It would force these financially strapped hospitals to incur significant costs and float revenue to drug companies by paying full price for 340B-eligible drugs. These hospitals would go without vital resources they need to treat their patients in need while drugmakers and third parties determine when — and whether — to approve 340B rebates.” 

The American Hospital Association (AHA), a trade group for nearly 5,000 hospitals, also contacted HRSA after Johnson & Johnson told hospitals of its plan.

“The AHA is monitoring this situation closely and will continue to protect hospitals and the patients and communities they serve from unilateral efforts by drug companies like those announced today by J&J,” the organization said in a notice to AHA members last week.

Update: The story has been updated with information on average hospital savings.

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