The 340B Program’s New Rebate Pilot Won’t Fix Its Problems

The 340B Drug Pricing Program has become one of the most controversial programs in the U.S. healthcare system. The program was established in 1992 to help safety net providers stretch federal resources and better serve vulnerable populations by allowing eligible hospitals and clinics to purchase outpatient drugs at steeply discounted prices. However, disputes over the program’s money flow, oversight and misuse have fueled decades of conflict among providers, pharmaceutical manufacturers and lawmakers.

Some argue that 340B is a lifeline for struggling hospitals and clinics, and others portray it as a loophole that allows health systems to profit from discounts intended for people with little to no income. 

Over time, the 340B program has grown to include many large health systems — many of them well-capitalized nonprofits. For example, health systems including Ascension, CommonSpirit Health, Geisinger, Penn Medicine and Providence participate in 340B.

There is also tension around the program’s opacity — hospitals aren’t required to show how they use 340B savings, which further leads critics to question whether those discounts truly benefit patients. Under 340B, hospitals can buy discounted drugs and then bill insurers at the full rate. Pharmaceutical companies accuse hospitals of keeping the difference as profit, with no legal requirement to pass along savings to patients.

Data shows that large, tax-exempt providers purchase tens of billions of dollars’ worth of drugs through the 340B program — but there is no data showing that the average American is paying less at the pharmacy counter. 

The program also is a huge driver of the country’s drug spending. While the drugs are sold at a heavily discounted rate, the program can still contribute to higher overall drug spending because providers are often reimbursed at or near full price. The total value of drugs flowing through 340B now surpasses Medicare Part B and Medicaid, and almost surpasses Medicare Part D.

Now, reform has finally come — but it doesn’t seem like the new model will address this issue or deliver real change.

In January, HHS’ Health Resources and Services Administration (HRSA), will begin a pilot program allowing drugmakers to participate voluntarily in a rebate-based discount system. Instead of the provider receiving a discount upfront at purchase, the 340B discount would be applied after purchase via rebate — and subject to data submission requirements.

The pilot aims to boost transparency and prevent duplicate discounts, but it also introduces financial challenges and added administrative burdens that will likely disproportionately affect the smaller, safety net providers that the 340B program was initially designed to assist.

Rebate model means cash flow woes & more administrative work

The new rebate model will create new cash flow problems, particularly for smaller clinics, said Bill Keeton. He is chief advocacy officer at Vivent Health, a nationwide provider of HIV care for low-income patients, as well as a key figure within Ryan White Clinics for 340B Access, a group that advocates for 340B program access.

Keeton noted that money flow issues will be especially acute for organizations like his that have to buy HIV medications, which are incredibly expensive. For instance, Biktary, the most popular medication used to treat HIV, costs about $4,200 per month. 

Under 340B, clinics pay about half of that, but the rebate model could force clinics to front the full cost temporarily, Keeton said.

“For a number of smaller clinics that are operating on much tighter margins — and facing decreasing opportunities to generate any sort of revenue, whether it be through grants or reimbursement — that ability to purchase those medications is going to be horribly challenging,” he remarked.

He also pointed out that contract pharmacies may not be able to offer discounts upfront to cash-pay patients, which shifts financial risk onto patients and clinics.

The added administrative burden will be tough to deal with too, Keeton added.

HRSA’s new model requires providers to submit detailed patient- and prescription-level data for every eligible 340B drug, which he said adds another layer of administrative work that could put strain on care teams that are already burnt out.

Clinics would need to hire and train staff to navigate Beacon, the platform HRSA is using to process rebate transactions, which diverts funds away from direct care or addressing patients’ social determinants of health, Keeton explained.

The American Hospital Association (AHA) has also expressed concern about the administrative tasks associated with the new rebate program, contending that the burden will be far greater than what has been estimated by HRSA.

In a September 30 letter to the agency, the AHA noted that HRSA estimated 1.5 million hours of added labor per year for hospitals. HRSA based this on the assumption that each hospital would only need about 2 hours per week to submit the required data — but AHA’s member hospitals said this is a very low assumption. 

They project needing up to two full‑time equivalent staff per hospital, which equals roughly 4,160 hours per hospital per year — which the AHA noted is much higher than HRSA stated.

The AHA also argued that hospitals’ compliance costs could range from $150,000 to more than $500,000 per hospital.

“And these costs don’t include the millions of dollars 340B hospitals would be providing to drug companies as interest-free loans through the rebate model. They also do not include the nonmonetary burdens that patients and communities will suffer, and hospitals will then need to treat, because 340B covered entities will have fewer resources for health care services,” the organization wrote in its letter.

The AHA said that when calculated accurately, “there is no way” the benefits of HRSA’s new pilot program could outweigh the burden it will inflict on providers.

Pharmaceutical support for the rebate model

The pharmaceutical industry views the new pilot as a way to increase transparency and accountability in the 340B program. Highly influential lobbying group Pharmaceutical Research and Manufacturers of America PhRMA has been a major proponent of the new model.

“We encourage HRSA to move swiftly to broaden use of the rebate across all 340B covered outpatient drugs, enabling wider use of rebates within the program. Expanding this pilot would help strengthen program integrity while preserving critical support for true safety net providers and the patients they serve,” PhRMA said in a statement sent to MedCity News.

So far, eight drugmakers have agreed to participate in HRSA’s 340B rebate pilot program: AbbVie, Amgen, AstraZeneca, Boehringer Ingelheim, Bristol Myers Squibb, Merck, Novo Nordisk and Johnson & Johnson.

In general, they seem to view the rebate model as a way to strengthen 340B oversight and compliance.

In an emailed statement, AstraZeneca said that the pilot will help pharmaceutical companies comply with the Inflation Reduction Act’s 340B de-duplication requirements, which are rules designed to prevent drugmakers from giving duplicate discounts on the same medication.

“We believe this pilot program strikes the appropriate balance between efficiency and oversight, ultimately ensuring that manufacturers can carry out the statutory de-duplication requirement in a reliable and transparent manner,” the company stated.

A Bristol Myers Squibb spokesperson said the pilot will help advance “a more accountable and sustainable 340B program” through integrity safeguards and better data sharing. 

Is this the right fix for 340B?

The nation’s leading expert on 340B — Sayeh Nikpay, a professor at the University of Minnesota — didn’t label the rebate model as strictly good or bad.

On one hand, she sees how it could increase program integrity, which would benefit drugmakers and payers. 

“The problem is that basically all the other price concessions that manufacturers give out — whether those are Medicaid drug rebates or manufacturer rebates that go through PBMs — those are all post-transaction rebates,” Nikpay said.

She explained that this can create “stacked discount” issues — where drug manufacturers may inadvertently give out multiple discounts on the same drug.

Nikpay pointed out another integrity problem with the 340B program: as it’s grown, large hospitals and non-safety net providers have dominated program participation. Originally, Congress intended 340B discounts to support only the providers that were serving primarily low-income populations, but now, participation often extends to any nonprofit hospital, regardless of the patient population they serve. 

Two-thirds of nonprofit hospitals take part in the program, Nikpay stated. 

How the new rebate system will affect 340B-covered entities depends on the provider type, she declared. Essentially, providers that are smaller, rural or care for a primarily uninsured population are likely to struggle with cash flow, but health systems with more financial resources will probably absorb the shift with minimal disruption.

The 340B program is vital to help some providers ensure they can deliver care to patients who otherwise wouldn’t receive it. But to others, it’s a bit of a cash cow. 

For example, data shows that in 2023, Minnesota providers participating in 340B garnered at least $630 million in profits, with the vast majority of that revenue going to larger health systems. And this is just for dispensed 340B drugs — not even counting those administered in an office, which account for about half of all 340B medications.

Overall, Nikpay thinks there are trade-offs and unintended consequences of the 340B program as it exists today. She illustrated this with a personal example.

She is not a safety net patient, but her hospital participates in 340B and gets the 340B discount on her drugs. However, because that discount was applied, her employer’s PBM cannot claim a rebate on that same drug — which reduces the savings that could have gone toward lowering her insurance premiums. 

“In that case, I’m kind of annoyed, right? My employer paid a PBM to bring my drug costs down, and now I’m not benefiting from it because a 340B discount got applied first — on me, who is not a safety net patient at all,” Nikpay explained.

So it’s understandable why lawmakers would want to foster better program integrity and ensure 340B discounts are reaching patients. But it’s unclear if the new rebate model is the best way to fix the program. 

Nikpay thinks the 340B has broader issues than just stacked discounts. 

“Manufacturers contribute to high drug costs. They’re behaving like a monopolist. But also — there is almost no market discipline on what providers charge patients and their insurers. And that’s also a problem,” she remarked.

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