Fewer drug companies are participating in federal drug-discount program, posing another threat to rural hospitals

"Hospitals and community and rural health clinics that serve low-income patients say drug manufacturers have threatened their financial stability by dramatically cutting back their participation in a federal drug-discount program that saves those health providers millions of dollars a year," Michael Ollove reports for Stateline. "Without the drug discounts, the hospitals and clinics say, they are getting close to laying off health-care workers, reducing hours or scaling back or scrapping mobile health vans, free cancer screenings, behavioral-health treatment and a host of other services that help patients with low incomes who lack insurance."

The program is known as 340B, for a section of law. Drug companies give a discount (generally 20%-50%) to providers that serve patients regardless of ability to pay. "In exchange, the government promises that Medicare and Medicaid will cover their products," Ollove reports. But in the past two years, 17 drug companies, including Bristol Myers Squibb, Johnson & Johnson, Gilead, Merck and Pfizer, have reduced their participation. Their lobby, "PhRMA, argues that the discounts have been used too broadly and for patients who could afford the drugs’ higher retail prices."

Drug makers also don't like providers letting patients fill prescriptions at their "contract pharmacies," which charge the discounted rates. PhRMA argues that there isn't enough transparency from the contract pharmacies to ensure that providers aren't abusing the program. "But safety-net providers say eliminating those drugstores, many of which are geographically closer to their patients, essentially deprives them of savings and their patients of 340B discounts," Ollove reports. "Only small minority of safety-net providers operate in-house pharmacies."

PhRMA bases its objections on two studies: A 2020 report from the Government Accountability Office that found 1,536 rule violations in 2012-19, and a 2018 study in the New England Journal of Medicine that said there's no clear evidence the program has expanded care or lowered mortality rates of low-income patients. But safety-net providers "assert that violations of the rules represent a tiny fraction of the thousands of prescriptions filled under the 340B program," Ollove reports. "They point out the program is overseen by the U.S. Department of Health and Human Services and insist that they plow all the savings back into the mission of caring for low-income patients. The New England journal’s study, they say is flawed."

The drugmakers' withdrawal from the program has hurt many rural hospitals. Recently surveyed hospitals "reported median annual losses of $2.2 million in discounts, with a tenth of those hospitals expecting losses of $21 million or more," Ollove reports. "Rural hospitals surveyed expected annual losses of $448,000, with a tenth projecting losses of $1.3 million or higher. That comes amid a financial crisis that has seen at least 130 rural hospital closures in the past decade." In another survey, one-third of community health centers said that, without 340B discounts, more than half of their patients would go without vital medications such as insulin or inhalers for children with asthma.

“These are billion-dollar companies. . . . The percent they are taking from us is so small to their bottom line, but it is so significant to us," Dr. Kemi Alli, CEO of the Henry J. Austin Health Center in Trenton, N.J., told Ollove. "It just seems inconceivable why they even put the effort into this to take away from the most vulnerable in our society. It doesn’t make any moral sense."