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Hospitals file lawsuit over drug companies' refusal to give 340B discounts

A growing number of drug companies have refused to provide discounts after an HHS decision to cut payments by 30% was upheld on appeal.

Susan Morse, Managing Editor

Five hospital groups and an organization of hospital pharmacists representing participants in the 340B drug pricing program, have filed a federal lawsuit against the U.S. Department of Health and Human Services over what they call the department's failure to enforce program requirements that require drug companies to provide prescription drug discounts under the 340B program.

The groups also submitted a memo in support of a permanent injunction against current drug company practices.   

They are joined by three 340B hospitals. The lawsuit was filed in the U.S. District Court for the Northern District of California by the Children's Hospital Association, 340B Health, the American Hospital Association, the American Society of Health-System Pharmacists, America's Essential Hospitals and the Association of American Medical Colleges. Avera St. Mary's Hospital in Pierre, South Dakota, Riverside Regional Medical Center in Newport News, Virginia and St. Mary's Medical Center in San Francisco are the individual hospital plaintiffs in the lawsuit.


Hospitals eligible for 340B rely on the discounts to provide free or low-cost drugs and to help fund operations

But since July, a growing number of drug companies have unilaterally refused to provide discounts to 340B hospitals on drugs that are dispensed at community-based pharmacies, the lawsuit said. Despite frequent communications with HHS urging it to enforce the law and block these actions, the department has yet to do so, the plaintiff organizations said. The 340B law does not permit drug companies to condition discounts on the locations where patients obtain these drugs.

The lawsuit asks the court to order that HHS require these drug companies to provide 340B discounts on the drugs dispensed at community-based pharmacies and issue refunds to hospitals that were refused discounts. It also asks for an order requiring HHS to refer the drug companies responsible for these violations to the HHS Office of Inspector General to assess penalties the law requires.


Hospitals that serve large numbers of Medicaid, Medicare and uninsured patients were formerly getting drugs for a discounted price, but getting reimbursed at the higher price HHS pays all hospitals for Medicare Part B drugs. The hospitals, many of which are in the red or operating on thin margins, were using the pay gap in the price difference to cover operational expenses.

In a ruling, HHS decided to cut Medicare drug payments by 30%. The hospitals filed a lawsuit in district court, and lost. HHS appealed. On August 3, the federal appeals court ruled 2-1 in favor of HHS, a decision that made 340B hospitals subject to Medicare cuts in outpatient drug payments.

HHS Secretary Alex Azar said that the action meant patients – particularly those who live in vulnerable areas – would pay less out-of-pocket for drugs in the Medicare Part B program. But providers, including the American Hospital Association, the Association of American Medical Colleges and America's Essential Hospitals, said the 340B decision would hurt hospitals and patients in vulnerable areas.

Drug companies followed suit. On October 30, drug manufacturer Novartis announced it would cut off discounts for hospitals under the 340B drug pricing program on drugs dispensed at community-based pharmacies that are more than 40 miles from the hospitals' parent facilities. 

340B Health President and CEO Maureen Testoni said at that time that to date, four drug companies had taken similar action, illegally.

"The 340B statute is crystal clear," Testoni said at the time. "Pharmaceutical companies that participate in Medicaid and Medicare Part B must sell certain outpatient drugs to eligible hospitals at no more than the ceiling price. They are not permitted to put limits on those discounts based on where hospitals are distributing the drugs to their patients."

However, HHS questioned the growth in the increasing number of 340B participating hospitals and others said some hospitals were ordering more of the drugs that would give them larger profits off the discounts


"The federal government has the responsibility to enforce the law by requiring that drug manufacturers offer discounts on covered drugs to eligible 340B hospitals," said Maureen Testoni, 340B Health's president and CEO. "These hospitals provide 60% of all uncompensated care in the U.S. and 75% of all hospital care to Medicaid patients. Our joint lawsuit demonstrates the immense harm this issue has caused the nation's 340B hospitals and the low-income and rural patients who rely on them for care, and it makes a strong case for the court to intervene now before the damage to the health care system becomes permanent."

"The 340B program plays a critical role in helping eligible hospitals provide a wide range of comprehensive services and low-cost drugs to vulnerable patients and communities, many of which have been the hardest hit by the COVID-19 pandemic," said Rick Pollack, AHA's president and CEO. "This lawsuit will require the department to take actions that we've long called for against drug companies that are disregarding the law by limiting the distribution of certain 340B drugs to eligible hospitals. It's time to stop these illegal actions from drug companies and protect vulnerable patients and communities."

Twitter: @SusanJMorse
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