340 B Drugs: Rebates Versus Discounts

There have been important developments in recent weeks on the 340B drug pricing program. Those who are familiar with 340B will know that it works by requiring drugmakers to offer discounts on certain outpatient drugs to safety-net hospitals and clinics.

These providers reinvest these savings into providing more care and treating more patients, especially those living with low incomes or in rural areas where care can be scarce. My association represents more than 1,500 hospitals that participate in 340B.

Recently, one of the world’s largest drug companies threatened to upend 340B by fundamentally changing how it has worked for more than 30 years. Johnson & Johnson (J&J) announced it would replace upfront discounts with back-end rebates for two of its top-selling drugs. If allowed to take effect, this would have required certain hospitals to buy those drugs at full cost, send reams of claims data to the drug company, and wait to see when — and if — J&J would pay them the rebates.

It is hard to understate how harmful this would be for 340B hospitals. J&J is not the first drugmaker to propose a rebate system for 340B, but it is the first to threaten to put one in place over a period of a few short weeks and without government approval.  Rebate programs force cash-strapped 340B providers to pay significantly higher inventory costs, because they would pay full price for drugs, then wait who knows how longs to receive a 340B rebate, effectively floating massive revenues to profitable drugmakers and going without resources hospitals sorely need to care for vulnerable patients. And it would put the drugmaker — not the federal government — in charge of determining whether the drugs were eligible for 340B under terms that the drugmaker could effectively set itself.

I am glad to report these unlawful 340B rebates will not be taking effect as J&J initially planned. 340B Health and others mobilized advocacy efforts to block these rebates. Nearly 200 members of the U.S House of Representatives signed a bipartisan letter calling on the US Department of Health and Human Services (HHS) secretary to take swift enforcement actions.

HHS directed J&J to cease implementation of its rebate plans or face millions of dollars in fines and even loss of Medicaid and Medicare coverage of all the drugmaker’s products. And in the face of this unified, unwavering, and unequivocal opposition, J&J acknowledged it would back down.

This was a big victory for 340B hospitals, but we must remain vigilant. The debate about replacing 340B discounts with rebates is not new. The pharmaceutical industry has been pushing for rebates for years and shows few signs of relenting on this goal. Even the very strong HHS enforcement response in this instance does not mean drugmakers cannot try proposing a rebate scheme they think might gain federal approval.

The Inflation Reduction Act (IRA) and its upcoming Medicare price caps on top drugs will rely on accurately identifying 340B drugs after they already have been dispensed. J&J argued that turning 340B into a rebate program would help with implementing the IRA.  CMS recently clarified that the IRA was not intended to turn 340B into a rebate program. 

Manufacturers have other avenues that allow them to comply with both the IRA and 340B.  340B Health will continue to explore all advocacy and legal options to ensure that rebates do not take over 340B. 

The support 340B provides to the safety-net and the patients they serve is too important to compromise.