On August 23rd, Johnson & Johnson announced that disproportionate share hospitals serving low-income patients will receive 340B discounts on Xarelto and Stelara through rebates, rather than upfront discounts. Under this new arrangement, hospitals will receive 340B prices only after submitting certain medical, purchase and dispensing data.
In other words, “trust, but verify.”
HRSA (the Health Resources and Services Administration), the US Health & Human Services agency that oversees the 340B program, claims that the J&J plan is “inconsistent with the 340B statute,” which requires prior approval of such proposals … The Secretary has not approved J&J’s rebate model … and will take appropriate actions as warranted.”
In other words, trust but don’t verify.
Not surprisingly, a J&J spokesperson said the model is “fully consistent with the 340B statute, which specifically references rebates as a payment mechanism, and is expected to mitigate legally prohibited program abuses by improving transparency.”
The 340B program requires that drug manufacturers provide substantial discounts to eligible health care organizations that treat high numbers of uninsured and low-income patients. The problem is that the 340B program has become a slush fund for large nonprofit hospitals and health systems. They buy drugs at steep 340B discounts, then charge a huge markup. One of the results is shockingly little charity care.
Just how big is the 340B program? The numbers speak for themselves. Growing at a cumulative 129.4 percent over the past five years and reaching a year-end total of $124 billion in wholesale acquisition cost sales for 2023, the 340B program continues to expand at tsunami speed – and destructive force. To make matters worse, unlike programs such as Medicare Part D and Medicaid, 340B lacks a regulatory infrastructure, well-developed administrative controls, and clear legislation to guide the program.
In short, before we can trust, there’s plenty to verify.
Some hospitals treat 340B less as an assistance program and more as a profit-center. Their behavior is made possible by the fact that under current law, providers are under no obligation to pass through the discounts for needy patients or even report what they do with the savings. Just the opposite is happening. Eligible hospitals will obtain all their 340B medications from a drugmaker at the discounted 340B price and then bill privately insured patients -- and even uninsured patients -- for the drug's full list price, helping themselves to the difference as pure profit.
J&J’s plan (slotted to begin October 15) is designed to curb “rampant abuse and misuse,” while the federal government and large hospitals say “don’t worry, be happy – and don’t look behind the curtain.”
If you think this debate is topsy-turvy – that’s because it is. On the one side you have a large pharmaceutical company insisting on transparency based on an expedited trust but verify pathway. On the other you have hospitals and HRSA suggesting there’s no need to look under the carpet. After all, with all that money at stake via a sparsely staffed federal program that offers little oversight and a powerful lobbying organization – the American Hospital Association, arguing that everything is fine the way it is -- how could there possibly be anything untoward going on?
Why do hospitals hate transparency? Because they’re hiding some very dirty laundry. A February 2024 PatientRightsAdvocate.org report found that just 689 (34.5%) of 2,000 hospitals it examined were fully compliant with federal price transparency rules. That’s down from 721 (36%) that were found to be fully compliant from the organization's last report, from July 2023. Per the new report, the most common reason for noncompliance was missing or significantly incomplete pricing data. And it’s getting worse -- the analysis found that 135 hospitals that were previously compliant are now noncompliant.
Hospital administrators should rightly be afraid of transparency. For too many years, too few policymakers paid any attention to the 340B drug discount program, blindly accepting the myth that non-profit hospitals and other covered entities were selflessly using 340B savings to “stretch scarce federal healthcare resources” in service of our most vulnerable patients.
Trust, but verify is sounding better all the time. Big Hospital – you can run but you can’t hide.
Peter J. Pitts, a former FDA Associate Commissioner, is President of the Center for Medicine in the Public Interest and a Visiting Professor at the University of Paris School of Medicine.
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