Azar pitches drastically slashing 340B discounts for hospitals

HHS Secretary Alex Azar in a private meeting with GOP House lawmakers Thursday floated standardizing the 340B drug discounts offered to providers, cutting it to 20% of the list price, a lawmaker who attended the meeting told Modern Healthcare.

Several GOP members of the House Energy and Commerce health subcommittee who were present told Azar they would vigorously oppose holding critical-access and rural hospitals to this standard, which is significantly lower than the typical 40% to 60% discount that 340B hospitals currently receive.

Azar's conversation with the lawmakers covered the Trump administration's overall drug pricing strategy, but the secretary's 340B suggestion elicited pushback and raised the room temperature, according to sources in the meeting.

Rep. Chris Collins (R-N.Y.), one of the meeting attendees and a strong supporter of increased 340B regulation and oversight, said he made it clear to Azar that the Trump administration should not tie low-margin or struggling 340B providers to a lower discount, and that he believed Azar understood what's at stake.

"Most critical-access hospitals are barely surviving," Collins told Modern Healthcare. "Having 340B tied to a 20% discount to the list price would be devastating for them."

It isn't clear whether HHS has the authority to make this kind of change through rulemaking, and an HHS spokesperson had not clarified the context for the suggestion as of deadline. The department is currently embroiled in a lawsuit led by the American Hospital Association against a regulation that significantly cut Medicare Part B reimbursements for 340B hospitals.

Azar's proposal came at the end of a week that one hospital lobbyist described as putting the industry on high alert about 340B—a program valued at about $16 billion in drug discounts.

In a speech to 340B-advocating hospitals on Monday, Azar elaborated on the administration's planned changes to the program as part of its drug pricing strategy. A hospital lobbyist who attended the speech said the secretary raised industry alarm bells with a reference to the White House 2019 budget proposal to give HHS broader regulatory authority over 340B. Currently, the Health Resources and Services Administration oversees the program.

The budget "proposes broad regulatory authority to help HHS ensure the 340B benefits reach the intended recipients and proposes new funding to support more oversight activities," Azar said. "Covered entities that are responsibly investing their 340B savings have nothing to fear from such measures."

For hospitals in the audience, this signaled a cut.

"We all know what 'intended recipients' is code for—shrinking the program so pharmaceutical companies pay less in discounts," the lobbyist said.

Two days after Azar's address, the House Energy and Commerce Committee held the first of two hearings planned for this year on bills that would drastically pull back on the program's expansion and limit how many people can qualify for the discounts given to the hospitals. The proposed legislation included Collins' patient-definition measure, which would disqualify insured patients from the discount for most providers except critical-access and rural hospitals, Ryan White AIDS clinics and disproportionate share hospitals with a significant percentage of uninsured patients.

The Trump administration's drug pricing blueprint also suggested altering the patient definition, and Collins said Thursday's meeting touched on this.

The 340B statute, shaped thus far by precedent, interpretation and rulemaking, gives HHS "a lot" of leeway to clarify how hospitals qualify for the discount, Collins said. But he said the department isn't likely to go as far as his proposal does.

"The current interpretation is, whether you're insured or not, if you're a patient of a 340B hospital the hospital gets the drug discount," Collins said. "The larger DSH hospitals are now acquiring some of these independent practices for this purpose, and that's abuse."

A bill introduced by Rep. Doris Matsui (D-Calif.) also addresses patient definition by codifying what is in current guidance: that a person who qualifies for the 340B drug discount must be the patient of the hospital in question, which holds the person's medical record and is responsible for the care. Hospitals say that without this standard, the program will shrink dramatically.

A second Energy and Commerce 340B hearing is slated for this coming September. The Senate health committee has also been holding 340B hearings, but the panel's chair Sen. Lamar Alexander (R-Tenn.) told Modern Healthcare this week that he isn't sure whether they will produce legislation.

"We haven't finished our work on 340B — we are still digesting all of what we've heard — and we will make a decision later," Alexander said.

The issue has become increasingly partisan, with Republicans carrying water on oversight and overhaul and Democrats defending the status quo of the program. This fierce division also complicates the pathway for any legislative package, although a GOP aide close to discussions says it's likely the Energy & Commerce bills will go to the House floor later in the fall.

Collins said that he has noticed a change in the way some in the hospital industry are treating talks about legislation.

"I think they realize something's coming, and you'll either be at the table or not," he said. "I'm not saying they will give in for anything, but I believe they see a certain inertia here and that they better be at the table."