Three 340B Observations for 2023

By: Ted Slafsky

I am very excited to be writing my inaugural column for Verity Solutions’ blog.  I have a long-time friendship with Verity’s CEO George Puckett that spans close to three decades and have always admired and counted on the Verity team for their expertise on 340B matters.  I will be writing a monthly column for Verity and will also be speaking at events that the company hosts at 340B meetings.  For my first column, I thought it would be helpful to provide some insights on what to expect in Washington, D.C., and the states in 2023 when it comes to the 340B program.  Here are three key observations:

• Don’t Expect Major Healthcare Legislation to Pass in New Congress

Earlier this month, we witnessed a historic battle to elect the new Speaker of the House Kevin McCarthy (R-CA).  It took McCarthy 15 tries and several days to finally get elected by his GOP caucus.  This is first time since 1923 that the House has had to hold multiple ballots to elect its next speaker and McCarthy had to make major concessions to his right flank to finally get the support of 218 of his Republican colleagues. The GOP margin in the House is just four votes and if Rep. George Santos (R-NY) ends up having to resign over a variety of controversies, there is a good chance Democrats take back this suburban New York district that favored President Biden by 9 points in the 2020 election.

With such a narrow and fractious majority, it will be incredibly challenging for Speaker McCarthy to govern.  Moreover, Democrats gained an additional seat in the Senate, increasing its majority and the likelihood that many House bills will die in the upper chamber.  Major health care legislation and drug pricing bills have little or no chance of getting enacted in the next two years.  Nonetheless, as discussed further below, the 340B program will be under the microscope.

• Expect Attention to 340B Program to Heat Up in Both Chambers

With both the House and Senate under Democratic control over the last two years, there were no hearings held on the 340B program and there were very few bills introduced to make changes to the program.  This is largely due to the significant influence that 340B provider groups have with the Democratic caucus as well as Democratic lawmakers’ distrust of the pharmaceutical industry. Hospital groups and many other key 340B provider stakeholders did not want to take the risk of the opening up the 340B law given the power of the drug industry.

Nonetheless, covered entities are increasingly upset over the continued stalemate over the pharmaceutical industry’s restrictions on the use of 340B discounts in the contract pharmacy setting. The National Association of Community Health Centers and another national health center group have publicly called on Congress to act but hospital organizations have been resistant.

Regardless of whether health centers push for their own legislative fix or whether the entire 340B provider community coalesce around legislation, we can expect Congressional attention to the 340B program to heat up quickly now that the GOP has retaken the House.  While not universal, Republicans have a much better relationship with the pharmaceutical industry than Democrats.  This is particularly the case for lawmakers who serve on the House Energy and Commerce (E&C) Committee and the Senate HELP Committee, the two committees with jurisdiction over the 340B program.  Pharmaceutical manufacturers want to shrink the 340B program, add new reporting and billing requirements for 340B hospitals, and increase the number of government audits of covered entities.

Recent high-profile investigations by the New York Times and the Wall Street Journal have described alleged 340B misuse by a number of hospitals.  These practices are not illegal but raise questions about whether certain health systems are being good stewards of the program. The investigations found that some prominent systems are: (1) expanding the program in largely affluent neighborhoods at the expense of poorer communities, (2) not passing on discounts to low-income patients and (3) utilizing the less rigorous criteria of a rural referral center to qualify for discounts.

Rep. Brett Guthrie (R-Ky.), the new chair of the E&C health subcommittee has already stated his interest in holding 340B hearings.  Democratic lawmakers have expressed concern over the findings and have also demanded answers.  Meanwhile, in the Senate, the HELP Committee is under new leadership with Sen. Bernie Sanders (I-Vt.) the new chair and Sen. Bill Cassidy (R-La.) ranking Republican member.

Sanders, a progressive independent who caucuses with the Democrats and does not accept any corporate PAC money, has vowed to make oversight over the drug industry a key priority in the new Congress.  He will not be afraid to call in drug industry executives to grill them on their decision to restrict or cut off 340B pricing to contract pharmacies.  We can expect other lawmakers from both parties to also ask probing questions and possibly seek a legislative solution.

On the other hand, Cassidy is considered the most vocal Senate skeptic of the 340B program.   He is a long-time critic of 340B hospitals and has introduced legislation that would shrink hospital participation in the program and add additional restrictions. In 2021, he opposed the nomination of current U.S. Department of Health and Human Services Secretary Xavier Becerra due to what he described as Becerra’s lack of familiarity with 340B program.

Cassidy, who has a strong relationship with the drug industry, will push Chairman Sanders to address the issues brought up in the recent news investigations and will use his power as ranking member to increase 340B oversight. Don’t be surprised to see a bipartisan effort to impose new reporting requirements on 340B hospitals as well as potentially require 340B providers to pass on their discounts to certain patients that are considered low-income or uninsured.

While Sanders and Cassidy are not likely to agree on much in the health care area, they could become strange bedfellows over certain aspects of 340B reform.  This could include requiring hospitals to be more transparent in how they are using their 340B savings as well as potentially imposing new limits on program growth and the amount that 340B providers can charge certain patients for their medications.

• Arkansas State Law Could Serve as Role Model for the Country

The 340B provider community is excited about the progress in a unique 2021 Arkansas law that is intended to prohibit pharmaceutical manufacturers from restricting the distribution of 340B drugs to contract pharmacies. PhRMA sued the state in an effort to kill the law.  However, the U.S. District Court for the Eastern District of Arkansas last month struck down one of PhRMA’s key arguments in its lawsuit challenging it as illegal and unconstitutional.

As we first reported in 340B Report, U.S. Senior District Judge Billy Roy Wilson rejected PhRMA’s contention that under the U.S. Constitution’s Supremacy Clause, Arkansas’s law was preempted by both the federal 340B statute and the federal Food, Drug, and Cosmetics Act.  The judge gave significant weight to the fact that the 340B statute is silent on the role of contract pharmacies in 340B and thus found no conflict with the Arkansas law.  In denying PhRMA’s motion for summary judgement, the judge said he was not convinced that the 340B program is “a solely federal scheme immune from any type of state regulation.” PhRMA has appealed the decision to the federal appeals court in St. Louis. Judge Wilson and parties to the case have agreed to stay the other key argument in PhRMA’s suit, that that the state law is invalid under the federal constitution’s Commerce Clause, pending a forthcoming U.S. Supreme Court decision about the clause.

While there will be additional twists and turns, 340B attorneys involved in the Arkansas case believe the law could turn out to be a model for the entire country.  “This decision by Judge Wilson offers a path forward for states across the country struggling with how to protect [community health centers], hospitals, and their patients from the unilateral and unlawful restrictions adopted by a growing number of drug manufacturers,” says Bill von Oehsen, a principal in the law firm who represents the 340B providers in the case. “This is a victory for hospitals and CHCs, not just in Arkansas, but everywhere.”

As the battle between the federal government and pharmaceutical manufacturers over the permissibility of restrictions on the use of the 340B discounts in the contract pharmacy setting reaches its third year, don’t be surprised to see more states trying to take matters in their own hands.

Ted Slafsky is the Publisher and CEO of 340B Report, the only news and intelligence service exclusively covering the 340B program.  Slafsky, who has over 25 years of leadership experience with the 340B program, is also Founder and Principal of Wexford Solutions.  Ted can be reached at ted.slafsky@340Breport.com.

Disclaimer: The views and opinions expressed in this blog are those of the authors. They do not necessarily reflect the official policy or position of any other agency, organization, employer, or company.