The 340B Drug Pricing Program, created by the U.S. federal government in 1992, is a critical healthcare initiative designed to help low-income and underserved communities gain access to affordable medications. It mandates that drug manufacturers provide outpatient drugs to certain healthcare providers (often referred to as “covered entities”) at significantly reduced prices. The program is named after Section 340B of the Public Health Service Act (42 U.S.C. § 256b), and it plays an essential role in improving healthcare access for vulnerable populations.
The Legal Framework of 340B
The 340B program was initially enacted to enable specific hospitals and clinics that serve a high percentage of low-income patients to purchase outpatient drugs at discounted prices. The intent was to help these institutions stretch scarce federal resources further and provide more comprehensive care. Covered entities include certain types of hospitals, community health centers, and specialized clinics such as those providing HIV or tuberculosis care.
The legal framework of 340B is established under the Public Health Service Act, specifically in Section 340B (42 U.S.C. § 256b), which requires drug manufacturers participating in Medicaid to sell outpatient drugs to covered entities at discounted prices. Hospitals participating in 340B, for example, can purchase drugs at significantly lower rates and pass these savings on to their patients, often in the form of reduced prescription costs.
340B Program Eligibility and Benefits
Hospitals qualify for 340B discounts based on their disproportionate share hospital (DSH) status. These hospitals treat a large number of uninsured or low-income patients, and the 340B discount provides them with the ability to offer more affordable medications. For example, a hospital may purchase a cancer drug that normally costs $1,000 for $500 through the 340B program, allowing it to use the remaining funds for other essential patient care services.
The program has expanded over the years, and now over 2,500 healthcare organizations are considered eligible 340B entities, including over 50% of all U.S. hospitals. The program not only helps hospitals but also extends to community-based providers such as health centers, HIV/AIDS treatment clinics, and rural healthcare organizations.
Why the 340B Program is Vital
The 340B program is a lifeline for many hospitals and healthcare providers that serve low-income and rural populations. By reducing the cost of outpatient medications, 340B enables these organizations to reinvest the savings into other essential services, including:
- Patient care programs: Increased access to clinical support services, preventative care, and specialty care.
- Affordable medications: Providing patients with affordable medications even when insurance coverage is insufficient.
- Financial sustainability for safety-net providers: Ensuring the continued viability of hospitals and clinics that might otherwise struggle to remain open.
Without 340B, many of these providers would face overwhelming financial burdens and could potentially be forced to reduce services or close their doors.
Legal Challenges and Hospitals’ Fight for 340B Benefits
While the 340B program is vital, it has faced growing challenges in recent years, especially from policymakers and pharmaceutical companies seeking to limit its scope. Several hospitals have found themselves in legal battles to protect or expand their participation in the program, often claiming that reductions or restrictions on 340B pricing would significantly harm their ability to serve vulnerable populations.
1. The 340B Program and the Department of Health and Human Services (HHS)
A significant legal battle occurred when the HHS made cuts to 340B payment rates for outpatient drugs under Medicare Part B. In 2017, the HHS proposed a reduction of 28.5% in Medicare reimbursement rates for certain 340B drugs, which caused uproar among hospitals that relied on the program to fund essential care. In 2018, the American Hospital Association (AHA) filed a lawsuit against the HHS in an attempt to prevent the cuts from being implemented.
The American Hospital Association v. Azar, 911 F.3d 542 (D.C. Cir. 2018) case became one of the key legal challenges regarding 340B reimbursement cuts. The court ruled in favor of hospitals, stating that the cuts were unlawful because they were not authorized by Congress and violated the intent of the 340B statute. The court specifically noted that the HHS did not have the legal authority to make such cuts. This ruling was significant because it reaffirmed that the 340B program must be administered according to the law passed by Congress, and any reductions in reimbursement rates could not be done unilaterally by the executive branch.
2. The 340B Program and Pharmaceutical Manufacturer Lawsuits
Pharmaceutical companies have also sought to restrict 340B benefits, particularly regarding the ability of covered entities to access 340B discounts. One such case involved the drug manufacturer AstraZeneca, which in 2016 began limiting the use of 340B discounts for drugs purchased by contract pharmacies. These contract pharmacies are third-party locations where patients receive medications on behalf of the covered entities, and the dispute arose over whether these pharmacies should still qualify for the discounted pricing.
In AstraZeneca Pharmaceuticals v. United States, 11 F.4th 984 (D.C. Cir. 2021), the court upheld that the HHS had the authority to enforce the 340B discounts for drugs dispensed through contract pharmacies. This ruling was crucial for hospitals and other covered entities, as it ensured their ability to access 340B pricing even if they used third-party pharmacies.
3. The Importance of Legislative Action for 340B
Despite these legal victories, ongoing pressure from pharmaceutical companies and federal agencies to limit 340B discounts remains. Hospitals and other 340B stakeholders continue to advocate for the program’s integrity through legislative action. For example, in 2019, the 340B Coalition, a group of hospitals, health centers, and other healthcare organizations, lobbied for Congressional intervention to restore cuts to 340B reimbursement rates and to prevent further reductions.
Conclusion: The Ongoing Fight for 340B
The 340B program remains a critical component of the U.S. healthcare system, particularly for hospitals and clinics serving vulnerable, low-income populations. Legal cases like the AHA v. Azar and AstraZeneca v. United States highlight the ongoing legal battles healthcare providers face in defending the program against cuts or restrictions. As healthcare costs continue to rise, the 340B program provides much-needed financial relief to providers and ensures continued access to essential medications for millions of patients.
While the future of the 340B program remains uncertain, its importance cannot be overstated. Hospitals, policymakers, and advocates will continue to play a vital role in ensuring that the program remains intact to provide affordable care and medications to underserved communities across the United States.
Key Legal Citations:
- 42 U.S.C. § 256b – Section 340B of the Public Health Service Act.
- American Hospital Association v. Azar, 911 F.3d 542 (D.C. Cir. 2018).
- AstraZeneca Pharmaceuticals v. United States, 11 F.4th 984 (D.C. Cir. 2021).