With the passing of the Consolidated Appropriations Act of 2022, hospitals that depend on 340B Drug Pricing Program discounts to help make up budget shortfalls got some breathing room through the end of 2022.
Section 340B of the Public Health Service Act provides discounts on eligible outpatient prescriptions to hospitals serving a disproportionate share of low-income individuals not covered by Medicare and Medicaid. The formula used to determine discounts resulted in extra money for those hospitals – many of which operate with tight margins and have come to depend on those extra funds.
When COVID hit, many of these hospitals transformed operations to emergency response, stopping services for all but those dealing with COVID and other life-threatening issues. As a result, fewer people went to the hospital. In turn, a number of the hospitals were dropped from the 340B program because they didn’t meet minimum thresholds for Medicaid inpatient days.
The impact was dramatic. A study by 340B Health showed critical access hospitals losing an average of 39% of contract pharmacy savings (or the equivalent of $220,000 per hospital). Of smaller rural hospitals, 10% said they lost at least $700,000. Larger hospitals reported losing 23% of their community pharmacy savings, with an average loss of $1 million and the top 10% losing $9 million or more.
Earlier this year, the $1.5 trillion Consolidated Appropriations Act of 2022 was passed. Among other things, it provides temporary relief on eligibility for the 340B Drug Pricing Program. The legislation ensures hospitals can stay in the program if they otherwise would lose eligibility based on patient data included in Medicare cost reports for 2020 through 2022.
Hospitals at risk of losing their 340B eligibility due to the pandemic will continue to be eligible through December 31, 2022. Those that lost eligibility could be reinstated by filing a self-attestation indicating the loss of eligibility stemmed from Covid-19 impacts with the Secretary of the Department of Health and Human Services (DHHS) within 30 days of enactment (April 14, 2022). However, reinstatement is not retroactive so any funds lost when eligibility ended will not be made up.
What happens after December 31, 2022 remains to be seen and may be determined in courtrooms. Since 2020, six major drug manufacturers stopped providing 340B discounts to entities that had an onsite pharmacy and contracted with outside pharmacies to distribute drugs purchased through the program. The companies assert the outside pharmacies receive discounts from both 340B and Medicare or Medicaid.
In 2021, Arkansas passed a law requiring drug manufacturers to sell to all contract pharmacies at 340B rates. This year, several states have tried passing similar legislation. A court ruling in the District of Columbia indicated DHHS doesn’t have authority to require the companies to resume drug discounts to 340B entities. In a separate case, the District of New Jersey court ruled pharmaceutical companies couldn’t limit the number of pharmacies used by a 340B entity. With opposing opinions in the courts, more litigation is required.
In another case, Becerra v Empire Health Foundation, Supreme Court justices are examining how Medicare calculates disproportionate share of hospital payments. The court’s opinion could limit DHHS’ ability to interpret the law and increase judicial policy’s role in interpreting health care statutes. The court’s opinion is expected next spring.
As if things can’t get any more complicated, Michigan is enacting laws to stop insurance companies and pharmacy benefit managers from discriminating against hospitals and other providers for participating in 340B.
With no interested constituent appearing to be happy with the way things stand now, it looks like the future of 340B will be at the mercy of the courts. Stay tuned. In the meantime, if all the legal updates to 340B have you questioning accounting and tax repercussions for your organization, give RBT CPAs a call. We’re a leading accounting firm in the mid-Hudson Valley, providing support for a number of the region’s leading healthcare institutions.
