States build momentum to protect 340B drug discounts - for now

Drug manufacturers are rolling back their limitations on 340B drug discounts as more states pass laws aimed at making the program's benefits more accessible.

Missouri is the latest state to pass legislation requiring pharmaceutical manufacturers to distribute discounted drugs to pharmacies that contract with hospitals, federally qualified health centers and other 340B-covered providers. While the governor hasn't signed the bill, the Show-Me State would be the eighth one to enact a similar law. In addition, close to 30 states have implemented laws that prevent pharmacy benefit managers and insurers from reducing reimbursement rates for 340B drugs.

Related: 340B drug pricing ruling could spur state legislation

The wave of state laws has been in response, in part, to more than two dozen pharmaceutical manufacturers that restricted 340B discounts on prescriptions filled by contract pharmacies. Drugmakers started limiting 340B discounts after they won several lawsuits challenging the federal government’s authority to compel them to deliver the discounted drugs to an unlimited number of community and specialty pharmacies.

More states are expected to introduce and enact legislation aimed at protecting 340B drug discount savings amid a lack of direction from the federal government and an 8th U.S. Circuit Court of Appeals decision that affirmed states’ authority to step in and regulate pharmacy operations, healthcare lawyers said.

“Much of this is arising out of the fact that the 340B statute does not include sufficient details to regulate the program," said Emily Cook, a healthcare attorney at the law firm McDermott Will & Emery. “Congress didn’t give [the Health Resources and Services Administration] rulemaking authority in 340B, so we have lots of gaps in the statute.”

In March, an 8th Circuit judge upheld a 2021 Arkansas law that ensures providers get the same 340B drug discounts for prescriptions dispensed at community pharmacies that they would for drugs provided at in-house pharmacies. Drugmakers unsuccessfully argued federal law preempts state law.

In response to the ruling, pharmaceutical manufacturers that work with 340B-covered providers in the state lifted restrictive contract pharmacy policies, said Jodiane Tritt, executive vice president of the Arkansas Hospital Association.

“We are just now feeling some relief as the restrictions are being lifted,” she said. Arkansas has been advising other states seeking to pass similar laws, Tritt added.

Arkansas is not only the first state to pass this kind of law, but it’s also the first to threaten to penalize drugmakers if they don't distribute 340B drugs to contract pharmacies, she said.

While Arkansas is the only state actively enforcing its 340B contract pharmacy law, similar legislation in other states has led many drug manufacturers to lift restrictions on where they send 340B drugs, healthcare lawyers said.

Hospitals claim 340B drug discounts, which average between 25% and 50% for providers that treat a significant share of low-income and uninsured patients, are a vital tool to maintain services. For instance, Tritt said the 340B program has allowed Arkansas providers to keep important services like obstetrics and reduce patients’ drug costs. Drugmakers argue the program has grown too big, benefits non-safety-net providers and doesn’t save patients money at the pharmacy counter.

A spokesperson for Pharmaceutical Research and Manufacturers of America, the association that represents pharmaceutical manufacturers, said in a statement the increasing number of states adopting 340B contract pharmacy legislation represents state government overreach.

“These provisions only serve the financial interests of PBMs and their pharmacies – at the expense of reforms to help our nation’s vulnerable patients. Federal policymakers need to act and ensure changes to the 340B program are focused on helping patients more affordably access medicines,” the spokesperson said.

A bipartisan working group of six senators is weighing 340B reforms. However, it doesn’t seem likely that even bipartisan federal legislation will clear Congress in this political climate, said Mark Faccenda, a healthcare attorney at Norton Rose Fulbright.

“Factors like the upcoming election and congressional makeup in future years will dictate whether there will be a federal solution anytime soon,” he said.

In the meantime, states have seemingly carved out a path to pass straightforward legislation protecting 340B drugs and contract pharmacies, and more states will likely get on board, Faccenda said.

The contract pharmacy issue is just one of many heavily litigated areas of the 340B program. The federal government may try to step in and clarify the statute, but the states aren’t sitting around and waiting for Congress, said Douglas Grimm, a healthcare attorney at ArentFox Schiff.

“Missouri won’t be the last state to pass one of these laws,” he said. “But state laws will continue to be challenged in court and the issue on a federal level is going to be forced.”