Proposed 340B rebate model generates an array of concerns among providers

Hospital advocates are pushing back on a fast-approaching rebate model for the 340B Drug Pricing Program, while a new Congressional Budget Office (CBO) report illustrates the accelerating spending in the program.

The Health Resources and Services Administration (HRSA), which administers 340B, previously announced that a pilot program to test the application of a rebate model would begin Jan. 1. Comments on the model, which initially is set to include the 10 drugs subject to negotiated Medicare prices in 2026, were due in early September.

Issued in an Aug. 1 regulatory notice, the proposed model represents a big change for the 340B program. Participating providers no longer will receive mandatory discounts upon dispensing any of the 10 drugs but rather will need to submit claims data to receive a rebate.

Some of the feedback from hospital associations criticizes the model’s guardrails pertaining to drug manufacturers, while other points of contention speak to whether the Trump administration should even consider the model in the first place.

Needs improvement

In the provider community, the proposed model has fed concerns about administrative burden and the potential for significant upfront costs while waiting for a rebate payment.

HRSA tried to address some worries about the model by establishing that providers have 45 days from date of dispense to submit and report the data required to receive a rebate and that rebates are paid within 10 days of data submission. The agency also says manufacturers must not pass on IT-related or other costs incurred from implementing the model.

The American Hospital Association (AHA) wrote in comments that the model’s regulations should include stronger language ensuring providers are not stuck with implementation costs.

Also, manufacturers should be subject to stiffer penalties for violating the model’s terms and conditions, especially with respect to the 10-day window for paying rebates, the AHA wrote. HRSA has proposed that a manufacturer’s authorization to participate in the model can be revoked, but the AHA said civil monetary penalties should be an option.

Another recommendation is to have a central platform for providers to submit the claims data required to receive a rebate. As proposed, each manufacturer can implement its own platform and specify the data requirements.

“We cannot overstate the complexity and administrative burden this will introduce,” the AHA wrote.

A bad deal

Even if the model is applied as favorably as possible for providers, their advocates think it would still bring more harm than good.

“There is no sound reason to adopt a rebate model, and [HRSA] does not provide one,” the AHA wrote.

The model is likely to cause systemic harm by requiring providers to pay upfront prices, according to the comment letter.

“With mere weeks to prepare for this pilot program, hospitals have not been able to budget for such an extraordinary increase in their upfront costs,” the letter states. “But even with time to budget, most hospitals lack the necessary cash reserves to float such significant sums of money while waiting for drug companies to pay them back — even for 10 days.”

Services could be constrained as hospitals grapple with administrative compliance costs, according to comments submitted by the Association of American Medical Colleges (AAMC).

“Reduced 340B savings would impede the ability of academic health systems and teaching hospitals to maintain the unique services they disproportionately provide, such as burn care, trauma care and pediatric specialty care,” AAMC wrote.

HRSA should exempt sole community hospitals, critical access hospitals and federally qualified health centers from obligatory participation in the rebate model, given the constraints already facing those facilities, the National Rural Health Association wrote.

The extent to which HRSA is considering stakeholder comments is unclear. Comments were due Sept. 8, followed by manufacturer applications Sept. 15. From there, HRSA had only until Oct. 15 to review applications from the nine manufacturers of the 10 drugs and finalize the model.

The policy debate

Providers have support from a bipartisan group of 163 House lawmakers who wrote to HHS, the parent agency of HRSA, to state that the rebate model should be canceled due to the potential for widespread adverse impacts. Barring such a step, they requested additional information by Sept. 15, including about the timeline, the IT platforms, the process for adjudicating submitted claims, and more. No publicly available record shows HHS has responded.

Other legislators are pushing for increased transparency in 340B spending as a potential precursor to placing additional limits on the program. Manufacturers have said greater transparency generated from the submitted claims data is a key feature of the rebate model.

Those members of Congress might find fodder for their positions in the CBO report issued this month. According to the report, among providers participating in HRSA’s Prime Vendor Program (representing 90% of 340B participants), 340B drug spending rose from $6.6 billion in 2010 to $43.9 billion in 2021. Of the 2021 spending, 87% was for drugs administered through hospital outpatient departments and off-site clinics.

Rep. Brett Guthrie (R-Ken.), chair of the House Energy and Commerce Committee, stated that the report “has further validated my long-standing concerns that the 340B program — while an important lifeline to many of our safety-net providers — has the ability to be abused and to drive up overall healthcare costs for Americans. I’m committed to conducting the necessary work to making sure that the program works for both our safety-net providers and patients.”

The current Congress has not drafted 340B legislation as substantial as the 340B Access Act, a Republican-sponsored 2024 bill that would have instituted broad reforms, among them enhanced reporting requirements for providers and a stricter definition of 340B patient eligibility.

Cost drivers

The CBO attributes a third of the 11-year spending increase to overall growth in drug spending, with the agency also saying it could not quantify other factors such as the vertical integration of hospitals with off-site clinics and the corresponding increase in the number of 340B-eligible facilities. Other policies that the report deems to have affected 340B spending are the Medicaid expansion during the time period and relaxed restrictions on the utilization of contract pharmacies.

The CBO said 340B policy encourages the following stakeholder behaviors that affect healthcare spending:

• Clinicians prescribe a greater volume of expensive drugs.
• Pharmaceutical manufacturers reduce rebates for 340B drugs.
• Participating providers expand the services they offer.
• More hospitals and off-site clinics integrate.