Safety-net hospitals hit hard by pandemic could lose access to low-cost drugs

Some hospitals serving large volumes of low-income patients are at risk of getting kicked out of a popular federal discount drug program as the fallout from the pandemic's unprecedented impact on healthcare providers continues.

The 340B program, which allows qualifying hospitals and providers to buy deeply discounted drugs from manufacturers, has strict eligibility requirements and an annual recertification process. Providers must show that a certain percentage of patients they served in the year prior were low-income or on Medicaid.

But some hospitals that saw fewer patients last year might miss that threshold and have to exit the program absent action from President Joe Biden's administration or Congress.

A Modern Healthcare analysis of available cost reports shows 26% of disproportionate-share hospitals (DSH) could be vulnerable if the percentage of DSH yet to be reported in their 2020 cost reports falls below the threshold to participate in the program. For hospitals designated as Rural Referral Centers or Sole Community Hospitals, about 10.6% could be in danger of being affected.

"Many hospitals are already facing financial concerns due to the pandemic, and then on top of that, these hospitals are also worried about losing their 340B eligibility due to the changes—temporary changes, we expect—brought on by the COVID pandemic," said Aimee Kuhlman, senior associate director of federal relations at the American Hospital Association.

More than 2,540 hospitals in the U.S. participate in 340B, allowing them discounts 20% to 50% off a drug's list price, according to the Government Accountability Office. Hospitals say those savings are then channeled into programs for uninsured patients and other vulnerable populations.

It's not yet clear how many hospitals could be impacted. 340B eligibility is in part determined by the information on a hospital's cost report, and many have not yet filed for 2020 as HHS extended deadlines due to COVID-19.

Hendrick Health, a three-hospital, not-for-profit chain in Texas, saw one of its facilities lose access to 340B pricing this year because its 2020 cost report showed the hospital didn't meet the DSH threshold. Hendrick Health CFO Jeremy Walker blamed the pandemic's impact on patient volume.

When the system became eligible for 340B in 2019, the savings it generated went toward launching a new medication management clinic that helps low-income patients control diabetes, keeping them out of the hospital and improving their overall health.

Hospital leaders hoped to expand that program to cardiac issues and other illnesses that can cause recurrent hospitalization if not managed properly. Those plans are now on hold.

"That's one of the disheartening and deflating things. We just got some momentum going and really putting this to good use, and that sort of knocked the wind out of us when we were no longer eligible," said Dr. Joshua Reed, physician advisor at Hendrick Health System.

The system plans to keep its current program, funding it through charity care and private donations.

"The ability to expand beyond what we already were doing, I think that's the challenge," Reed said. "Our ability to scale up is going to be significantly hampered."

The Health Resources and Services Administration (HRSA), which manages the 340B program, told providers it doesn't have the authority to waive the threshold requirements or adjust the percentages to account for the disruption the pandemic caused.

The American Hospital Association sent a letter to HHS in March, requesting that the agency temporarily allow 340B hospitals to participate in the program, even if they hadn't served enough low-income or Medicaid patients during the pandemic.

But that's probably not a viable option because HHS' power to waive Medicare, Medicaid and Children's Health Insurance Program requirements doesn't extend to the 340B program, said Emily Cook, a former HHS official and partner at McDermott Will & Emery.

Congress tied hospitals' eligibility for the 340B program to their DSH percentage, which is part of the Medicare program. So if HHS wanted to use its authority to address the issue, it would have to create a general waiver related to the DSH calculation, which would also affect Medicare payments.

"It's really just being used by the 340B program as a proxy for identifying safety-net hospitals," Cook said.

Another option AHA and providers are pushing is for Congress to pass a bipartisan bill introduced by Reps. Doris Masui (D-Calif.), Chris Stewart (R-Utah) and others that would temporarily waive 340B criteria through the public health emergency, allowing hospitals to remain in the program.

"We're hoping for some legislative relief," Walker said.

The prospects for the bill aren't clear. A Democratic aide told Modern Healthcare Congress is unlikely to pass the bill until it's more clear how widespread the issue is.

"In order to have a path forward here, we do need to have a more comprehensive understanding of the scope," the aide said.

Additional information is expected in the coming months as more hospitals file their cost reports. Only about one-third of hospitals had filed cost reports as of April 2021, the latest release available.

"I think there's many who are right on the cusp, and it's hard to say one way or the other if they'll remain in or fall out of the program," Kuhlman said.

Congress might be willing to give providers a pass as part of a broader 340B package, said Helen Pfister, a partner at Manatt Health.

"There's always been talk about giving HRSA more authority to regulate the 340B program. Given everything that's going on, Congress might be more willing to act than it has in the past," she said.

Providers and drugmakers have tussled over the 340B drug discount program since its inception. But the tension has risen in the past year, as manufacturers have fought the program's recent growth by refusing to ship 340B drugs to contract pharmacies, leading to a host of lawsuits. CVS, Walgreens, Walmart, Rite-Aid and Kroger make up 60% of all contract pharmacies under the 340B program.

In addition, the AHA sued the federal government after the Trump administration slashed hospitals' reimbursements for some 340B drugs. The Supreme Court will take up the case during its next session.