States force drug companies to continue selling cheaper drugs under federal program • Alaska Beacon

In an effort to lower prescription drug prices, some states are forcing pharmaceutical companies to continue selling cheaper drugs to thousands of pharmacies as part of a nationwide drug rebate program.

The 32-year-old 340B program requires drug companies that participate in Medicaid to sell outpatient drugs at discounted prices to clinics, community health centers and hospitals that primarily treat low-income patients. The idea is that providers will use the money they save — between 20 and 50 percent off the regular price — to expand their offerings.

However, many of these facilities do not have their own pharmacies. So in 2010, the federal government expanded the 340B program to allow many more third-party pharmacies – called contract pharmacies – to dispense the drugs to eligible patients on behalf of health centers and hospitals. According to a recent study by the University of Minnesota School of Public Health, 71% of the four largest pharmacy chains (Walmart, CVS, Rite Aid and Walgreens) participate in the 340B program.

Pharmaceutical companies claim that the 340B program has grown far beyond its original purpose and that some hospitals are pocketing the savings rather than investing the money in additional services. Some research supports this claim.

In 2020, seven major pharmaceutical manufacturers announced they would limit or stop selling 340B drugs to contract pharmacies because such sales are not required under federal law. As of last September, 25 drugmakers had imposed such restrictions, according to 340B Health, an advocacy group representing more than 1,500 public and private nonprofit hospitals and health systems.

“We as an industry continue to offer these discounts, but we are concerned that there is no evidence that patient access is improving or costs are coming down,” says Nicole Longo, assistant vice president of public affairs at Pharmaceutical Research and Manufacturers of America, a trade group that represents drugmakers.

States are fighting back. This year, Kansas, Maryland, Minnesota, Mississippi, Missouri and West Virginia have passed laws requiring drug companies participating in Medicaid to sell drugs to contracted pharmacies at discounted prices. In 2021, Arkansas became the first state with such a law, and Louisiana followed in 2023. Other states, including New York, have considered similar bills this year.

“It's very difficult to maintain care and keep a hospital open, so when 340B came into play, it was very helpful,” West Virginia Republican Senator Tom Takubo, who introduced the bill in his state, told Stateline.

“They just unilaterally stopped supplying medicine to these pharmacies in the outlying areas,” said Takubo. “And that's why we passed a law saying you can't do that anymore. You have to supply the pharmacies there. And if you don't, we'll impose a fine.”

340B extension

One thing is certain: The expansion of the 340B program to many more contract pharmacies in 2010 dramatically expanded access to the discounted drugs. The number of retail pharmacies participating in the program increased from 789 in 2009 to 25,775 in 2022, according to a study published last year in JAMA Health Forum.

According to the Congressional Budget Office, patient spending on discounted 340B drugs has also increased significantly, from $6.6 billion in 2010 to $43.9 billion in 2021.

Karen Mulligan, a research assistant professor at the University of Southern California's Sol Price School of Public Policy, said there are valid arguments on both sides of the debate. The point of the 340B program is not to subsidize drugs for low-income patients, she said. Rather, it is to direct financial assistance to struggling health centers and rural hospitals.

The federal government allowed these facilities to use contract pharmacies because many of them did not have their own pharmacies, Mulligan said. But she noted that the expansion of the 340B program also brought into the program some hospitals that “make a lot of money without 340B.” And because 340B reporting requirements for hospitals are lax, it's not clear whether they're using the money they save to improve patient care, she said.

The challenge is that efforts to restrict the program would likely hurt all providers – both those who need the savings to care for low-income patients and those who don't, Mulligan said.

“The intent of the program is not what it represents today, and that's why there are so many different people on different sides,” Mulligan told Stateline.

A wide range of patients

Some critics of the 340B program claim that the discounts ultimately benefit hospitals in wealthier neighborhoods.

But Joey Mattingly, an associate professor of pharmacy at the University of Utah who has worked in pharmacy for more than two decades, said the health care providers who use contract pharmacies treat a wide range of patients. And the revenue they generate helps those hospitals stay open.

“If you lose the hospital and it's no longer available in your community, you now have to drive further to get to a hospital,” Mattingly told Stateline. “That's not to say you would lose a lot of hospitals if 340B went away tomorrow. But I think you would see a lot of changes that would be dramatic.”

Mattingly said many hospitals and clinics are using the savings to make changes that are both economical and helpful to patients. For example, they might start offering free or subsidized medications that patients could get immediately, increasing the likelihood that they will actually take the medication and avoid a costly hospital readmission.

Aimee Kuhlman, vice president of advocacy at the American Hospital Association, said the 340B program would generate tens of billions of dollars in savings that hospitals would use to benefit patients.

“The reality is that the pharmaceutical industry does not want to give rebates to hospitals or the patients they treat; they want to keep the money for themselves,” Kuhlman told Stateline. “The fact is that 340B is a critical resource for eligible hospitals and the patients and communities they treat.”

Participation in Medicaid is voluntary, and pharmaceutical companies that do not want to provide the 340B rebates can refuse to participate, says Greg Havard, CEO of the 49-bed George Regional Health System in Lucedale, Mississippi, a city of several thousand residents near the Gulf Coast.

“The drug manufacturers have agreed to sell us certain drugs at a lower price, and the 340B program is designed to help us recoup the costs of services or facilities that we operate to treat these people and try to keep the doors open,” Havard told Stateline. “The reason we as a group wanted to pursue legislation is because at the height of the worst pandemic in 100 years … the drug manufacturers stopped honoring our contract pharmacies, which has been the practice for 15 years.”

Vacheria Keys, assistant vice president for policy and regulation at the National Association of Community Health Centers, also argued that the facilities she represents invest $340 billion in patient care. Keys said the program is essential because the federal funding the health centers receive “doesn't go as far as it used to.”

Meanwhile, pharmaceutical companies are challenging the state's new laws in court. Last month, for example, a federal judge denied drug giant Novartis's request to stop the law in Mississippi. The company told Stateline it plans to appeal the decision.

Robert Dozier, executive director of the Mississippi Independent Pharmacies Association, welcomed the new state law and the court's decision.

“We're bringing more brand-name manufacturers back on board,” Dozier told Stateline. “That gives us access to more medicines that we can use to help more people in society.”

Stateline originally published this article. Like the Alaska Beacon, Stateline is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) nonprofit organization. Stateline maintains its editorial independence. If you have any questions, contact Editor Scott S. Greenberger: [email protected]. Follow Stateline on Facebook and X.