Losing Discount Drug Program Would Cost Hospitals, Health Centers Millions

Dr. Lanita S. White, chief executive officer of Community Health Centers of Arkansas.
Dr. Lanita S. White, chief executive officer of Community Health Centers of Arkansas. (Steve Lewis)

Arkansas hospitals and community health centers say they will miss out on millions of dollars for improving patient care if pharmaceutical manufacturers succeed in a case before the 8th U.S. Circuit Court of Appeals.

The appeal involves Pharmaceutical Research & Manufacturers of America’s challenge of Arkansas’ 2021 legislation regulating the federal 340B Drug Pricing Program. The program allows community health centers and about 50 qualified hospitals in Arkansas to buy discounted prescription drugs from manufacturers. Hospitals and community health centers use the money they derive from the discounted drugs to improve patient care.

Since most Arkansas hospitals are prevented by state law from having an in-house pharmacy, they contract with a pharmacy to dispense the discounted drugs. 

That became a concern for drug manufacturers in recent years. PhRMA said that the number of contracted pharmacies has skyrocketed nationwide since 2010. 

The 31-member association, based in Washington, D.C., also alleged that the 340B program has drifted away from its intended safety-net purpose. “Instead, it has become less about patients and more about boosting the bottom lines of hospitals and for-profit pharmacies,” according to PhRMA. “In fact, we’ve seen little to no evidence patients are actually benefiting from the program.”

Jodiane Tritt

Jodiane Tritt, executive vice president of the Arkansas Hospital Association, disagreed. “People keep throwing shade at the program by saying hospitals are abusing the program by taking the savings and using them for other things, other than passing the savings on to patients,” she said. “The program’s intent is for hospitals to be able to use those savings for whatever that community needs.”

Starting in July 2020, a PhRMA member declined to provide a drug discount for one of its medications if the drug was distributed to patients at a contract pharmacy, according to a friend of the court brief from the American Hospital Association, Arkansas Hospital Association and 340B Health, a nonprofit that represents hospitals and health systems that participate in the discount program

The drug manufacturer later expanded its policy to cover nearly all its medications, according to the brief. “Recognizing an opportunity to pad their profits, 20 other major drug companies soon followed suit,” the filing said. 

To curb the manufacturers’ attempt to limit the number of contract pharmacies a hospital could use, the Arkansas General Assembly in 2021 passed the 340B Drug Pricing Nondiscrimination Act, Act 1103, which prevents drug manufacturers from limiting where providers can ship their discounted drugs.  

Shortly after the act passed, PhRMA sued the Arkansas Insurance Department in U.S. District Court in Little Rock, saying the legislation violates the U.S. Constitution. 

In December, U.S. District Judge Billy Roy Wilson of the Eastern District of Arkansas denied PhRMA’s challenge and upheld the constitutionality of the state law. PhRMA has appealed Wilson’s decision. 

Dr. Lanita White, chief executive officer of Community Health Centers of Arkansas, applauded Wilson’s ruling. 

“The 340B program has a significant effect on the budgets of community health centers,” she said. She said the money from the drug program allows CHCs to supplement their budgets and provide medical services, such as dental and prenatal care, to help at-risk and rural Arkansans.  

Jefferson Comprehensive Care System Inc., a nonprofit community health center that serves about 8,000 patients in Jefferson and Pulaski counties, receives about 5% of its $12 million annual budget from the 340B drug pricing program to provide access to health care regardless of a person’s ability to pay, said its CEO, Sandra Brown.

JCCS contracts with about 15 pharmacies, making it convenient for patients to get access to the medications wherever they are, Brown said. 

Ben Barylske, CFO of St. Bernards Healthcare of Jonesboro, said 340B money generates millions of dollars annually for the nonprofit system to provide more health services, such as cancer treatment and dialysis, to patients in rural areas. 

“All those are very expensive and require very expensive drugs,” he said. “So to be able to help do that, that 340B program is a blessing for us.”

PhRMA’s Concerns

In 1992, Congress passed the 340B Drug Pricing Program with bipartisan support. 

The program requires pharmaceutical companies to give discounts on drugs to qualifying hospitals that have a disproportionate share of indigent patients compared with the national average and rural health providers in exchange for having their drugs covered by Medicare and Medicaid.

In the early years of the 340B program, the discounted drugs were available to eligible patients through an in-house pharmacy, or if that wasn’t available, “through a single outside ‘contracted pharmacy,’” according to PhRMA’s filing at the 8th Circuit. 

But starting in 2010, after guidance from the Health Resources & Service Administration, a U.S. Department of Health & Human Services’ agency, pharmacy chains “started bargaining their way into 340B to profit from the discounts intended to benefit covered entities and the vulnerable populations they serve,” PhRMA said. 

It said the number of contract pharmacy arrangements with providers soon soared, with some health care organizations entering into contracts with tens or hundreds of pharmacies across the country, PhRMA said.

When working with a contracted provider, a pharmacy receives a prescription fill fee. 

To combat that increase, drug manufacturers then created policies on how they would deliver the discounted drugs to the pharmacies. In some cases, they would allow a hospital to have only one contracted pharmacy. 

PhRMA said that judges in other jurisdictions have ruled that the 340B program doesn’t require manufacturers to extend discounts to as many contract pharmacies as a provider wants.

PhRMA said that Arkansas’ Act 1103 “requires manufacturers to deliver 340B-discounted drugs to any and all contract pharmacies in Arkansas, without limitations.”

It argues that Arkansas doesn’t have the authority to set the conditions for participating in the federal program. 

“The Supremacy Clause of the U.S. Constitution does not allow States to alter exclusive and comprehensive federal programs at all, much less in ways that threaten program vitality, as Act 1103 does here,” PhRMA said in its filing. 

PhRMA named Alan McClain, the commissioner of the Arkansas Insurance Department, as the defendant in the case because the AID is supposed to enforce Act 1103. The AID has stayed enforcement while the case is pending.

Continued Restrictions

Meanwhile, manufacturers have continued with restrictions to the 340B program, said Jennifer Crask, general counsel at Contract Pharmacy Insight, a 340B consulting company based in Thayer, Missouri.

“More manufacturers have issued their own restrictions or have revised earlier restrictions,” she said. “So that continues.”

Larry Burns, president of CPI, said that the manufacturers are “making their own rules.

“Very few of them are consistent one with another,” he said. “As an operational matter, it’s extremely complicated to manage.”

Brent Beaulieu

Brent Beaulieu, chief financial officer for Baptist Health of Little Rock, the largest hospital network in the state, said the manufacturers’ restrictions on the 340B program are resulting in missed revenue of between $1 million and $1.5 million annually “right now.” 

He said hospitals on eight of nine Baptist Health campuses qualify for the 340B program. 

The program resulted in $3.7 million in revenue in 2022 from contracted pharmacies, and $15.8 million from discounted drugs for patients who were treated in the Baptist Health hospitals.

Baptist Health uses the money from the program for a variety of projects that include providing free health screenings and expanding care at its rural health clinics. 

“We do so much community benefit and charity care and provide things in our communities, largely because we’re not for profit,” Beaulieu said. “But in addition, these [340B] funds help us achieve a lot of those things.”