J&J Plans Unilateral Reform To 340B Drug Discount Program

Dive Brief:

• A major pharmaceutical company is reigniting controversy in the 340B drug discount program with an upcoming change to how it divvies out discounts for eligible drugs.
• Johnson & Johnson informed hospitals last week that it would stop giving them upfront discounts on two of its medications eligible for a discount under 340B — plaque psoriasis treatment Stelara and blood thinner Xarelto. Instead, starting Oct. 15, the drugmaker will require hospitals to pay full price for the drugs and issue them a rebate later, according to the J&J letter to hospitals reviewed by Healthcare Dive.
• The major hospital lobby on the issue, 340B Health, says the policy shift violates statute and will raise costs for cash-strapped hospitals by forcing them to fight for rebates with the drugmaker. The Health Resources and Services Administration, the HHS agency that oversees 340B, also said it is inconsistent with federal law.

Dive Insight:

Drugmakers and providers are perennially at odds over 340B, which was enacted three decades ago to ensure hospitals serving a large number of low-income or otherwise needy patients could afford lifesaving medications. The program requires drugmakers to give discounts on eligible outpatient drugs at qualifying hospitals and clinics. Discounts in the program can be steep — generally 20% to 50% off the list price of a drug.

As a result, pharmaceutical companies strongly oppose the program for cutting into their bottom lines, while safety-net hospitals say 340B is a financial lifeline for their cash-strapped facilities. Feuds between hospitals and drugmakers over 340B are nothing new but have picked up in recent years as the discounts have expanded, resulting in more drugmakers refusing to pay discounts hospitals say they are owed.

J&J’s novel payment policy opens up a new pharmaceutical industry line of attack.

On Aug. 23, the New Jersey-based pharmaceutical giant informed hospitals it planned to make 340B prices available only after they’d submitted claims data, and that data is reviewed for program compliance. Currently, drugmakers are required to provide the 340B price at the time of purchase.

Hospital officials are concerned the rebate approach gives J&J an opportunity to deny rebates after the point of sale. In addition, instead of saving money when purchasing drugs, hospitals will be floating revenue to drugmakers until they approve rebates. The financial strain could force some safety-net facilities, many of which operate on thin margins, to close, according to 340B Health.

“This move undermines the very foundation of the 340B program,” Maureen Testoni, the president and CEO of 340B Health, said in a statement. “Moving to a rebate system would be a violation of the 340B statute’s requirement that drugmakers provide eligible drugs ‘for purchase at or below the applicable ceiling price’ and would conflict with HRSA’s longstanding interpretation of that language as requiring upfront discounts.”

340B Health has filed a formal request to HRSA to stay J&J’s policy change.

According to a HRSA spokesperson, the agency has told J&J that their proposal is inconsistent with 340B law, which requires the HHS secretary to approve new payment models.

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

If J&J’s policy goes into effect, disproportionate share hospitals purchasing Stelara and Xarelto will purchase the drugs from wholesalers at commercial prices, before submitting claims data to an online platform. The platform, called Beacon, will verify that the drug was dispensed at a 340B-eligible location and the claim was submitted on time before J&J issues rebates amounting to the difference between the wholesaler price and the 340B price.

Disproportionate share hospitals, facilities that serve a high proportion of low-income patients, make up about half of 340B facilities but purchase the majority of drugs in the program.

In its letter to hospitals, J&J said the change is meant to cut down on waste and abuse in 340B.

“We believe this update will significantly improve program integrity,” J&J wrote in its letter to hospitals.

J&J is the first drugmaker to actually try to implement rebates in 340B. However, another drugmaker, Kalderos, filed a lawsuit in 2021 challenging HRSA’s assertion that drugmakers couldn’t impose rebates in the drug discount program. That lawsuit has been stayed pending final appeals in a D.C. district court.

Kalderos’ suit is one in a flurry of legal challenges from drug companies against various facets of 340B that they argue allow hospitals to bring in larger payouts than they’re due.

Starting in 2020, multiple drug companies —  including J&J — began to refuse providing 340B discounts if the drugs were dispensed at contract pharmacies, instead of hospitals’ own in-house pharmacies.

Multiple drugmakers sued after HRSA tried to stop the practice, and have notched recent wins in court. In response, some states have passed laws blocking drugmakers from restricting hospitals’ use of contract pharmacies.

The 340B program has grown to include more than one-third of U.S. hospitals. Meanwhile, the volume of 340B drugs is rising: Drugs purchased in the program grew by almost a fourth to about $54 billion between 2021 and 2022, according to HRSA.

Research is mixed on hospitals’ use of 340B funds, with some studies finding hospitals use revenue from the program to expand healthcare services and subsidize uncompensated care. Others have used it for purposes unrelated to patient care, like acquiring physician practices. Similarly, audits of covered entities have found many providers aren’t complying with 340B requirements like not reselling discounted drugs.

Congress is currently mulling over potential reforms to 340B, including forcing hospitals to account for what they do with revenue from the program.