The Trump administration is pushing significant changes to the healthcare status quo that it says will save money, improve oversight and make the $4.9 trillion sector more efficient.
Many of the HHS’ most controversial actions since President Donald Trump took office in January have sparked widespread discussion or been litigated in court as the healthcare industry looks to adjust to the “move fast and break things” mentality of the new Washington.
But one proposal, to reshuffle which HHS agency is responsible for a massive federal drug discount program, has largely flown under the radar — despite the fact that it could have sweeping repercussions on U.S. hospitals and clinics that serve the neediest Americans.
The HHS wants to move oversight of 340B from the Health Resources and Services Administration to the CMS, a move that could prove negative for the the two-thirds of U.S. hospitals that rely 340B to fund patient services, cover uncompensated care and, in some cases, keep their doors open.
The potential change is putting providers on edge. And covered entities are right to be worried, given the CMS’ bellicose history with the program, according to experts.
“This could be truly devastating for some of these covered entity providers,” said Sarah Bowman, a principal with public accounting firm PYA who advises hospitals and health systems on 340B compliance.
But increased scrutiny of how 340B dollars are being generated and used is probably a good thing, especially amid mounting evidence of fraud and abuse in the drug discount program.
“If I was a hospital or a covered entity that was reliant on the 340B program, and I was told anything was going to change, not just who’s regulating it but that anything was going to change, I would be very concerned,” said Antonio Ciaccia, a drug market expert and the president of consultancy 3 Axis Advisors. “And the reason is because 340B has become gasoline in the tank for a lot of these institutions, rightly or wrongly.”
CMS versus 340B
Outside stakeholders scrambled to get a clearer picture of changes afoot at the HHS after Secretary Robert F. Kennedy Jr. announced a top-to-bottom overhaul of the department in the spring. Rumbles emerged that oversight of 340B could shift from the Health Resources and Services Administration, where the program has sat since it was founded in 1992, to the CMS as part of the restructuring, while HRSA and several other divisions would be folded into the new Administration for a Healthy America.
The HHS’ budget request released early June solidified that top regulators were pursuing those changes.
Shifting the program to CMS will “allow for streamlined processes and the ability to utilize in-house drug-pricing resources and expertise,” the budget document says. Under the proposal, the CMS would have $12 million to oversee 340B, the same budget that HRSA had this year.
Moving 340B under the CMS is not just a routine change to the letterhead, experts said. Instead, it could bode ill for the safety-net providers that benefit from the drug discount program, which was designed to help vulnerable and low-income patients access medications by requiring drugmakers to give discounts on outpatient drugs to certain hospitals and clinics that qualify.
Roughly 3,000 hospitals benefit from discounted drugs under the program, which accounted for a record $66.3 billion in purchases in 2023, according to government data. That’s up more than 50% from $43.9 billion just two years prior.
Critics of 340B say the program has mutated well beyond its original intent. Drugmakers argue that hospitals are manipulating 340B in order to profit, while hospitals say drugmakers are attempting to avoid shelling out discounts they’re owed to protect their bottom lines. That’s as 340B savings can be steep — generally 20% to 50% off the list price of a drug.
In disputes between the hospital and pharmaceutical industries over 340B, HRSA has typically sided with hospitals, which benefit from the agency’s interpretation of 340B law.
But the CMS has a different track record when it’s brushed up against the program.
In 2018, the agency, which oversees federal health insurance programs, cut Medicare reimbursement for 340B drugs by almost 30% — a decision that was later overturned by the Supreme Court on administrative grounds, forcing the CMS to repay hospitals the contested funds.
The CMS has also finalized rules limiting fee-for-service Medicaid reimbursement for 340B drugs to their actual acquisition cost, and made it harder for providers to collect rebates on 340B drugs dispensed to patients covered by Medicaid managed care organizations, according to 340B Health, a lobbying group representing covered entities in the program.
The CMS could approach 340B “with the hat on of a payer” looking to lower costs for federal insurance programs, instead of preserving resources for safety-net providers, said Maureen Testoni, the president and CEO of 340B Health.
“If they’re looking at 340B as a way to rein in costs relating to Medicare and Medicaid, that would be our concern — that 340B would be an avenue for that, which is something that isn’t an issue on the HRSA side,” Testoni said.
Moving oversight of 340B to the CMS makes sense from an organizational perspective, according to PYA’s Bowman. The agency already performs significant audit and oversight activities, has insight into drug pricing through Medicare’s prescription drug benefit and collects the data determining providers’ eligibility for 340B.
But providers are still concerned that the CMS will change what facilities are eligible for the program, require them to report more information as a condition of participation or try again to lower reimbursement, she said.
That’s especially as President Donald Trump signed an executive order in April directing Medicare to survey hospitals’ acquisition costs for outpatient drugs, which could empower the CMS to once again slash Medicare payment for 340B medications like it did in 2018.
“That was the component that was missing the last go-round. That’s the reason that that payment policy was essentially required to be reversed. So it’s certainly not out of the realm of possibility that we would see reimbursement reductions,” Bowman said.
The rebate question
Of particular concern to providers is that the CMS could be more open to a push from drugmakers to change how they divvy out discounts in 340B.
Eli Lilly, Bristol Myers Squibb, Sanofi and Novartis all took to the courts this year against HRSA after it stopped them from implementing plans to pay hospitals after-the-fact rebates for 340B medications. The drugmakers said the plan would allow them to make sure the discounts were appropriate, but hospitals — and HRSA — said the move was illegal without the HHS secretary’s approval, and that 340B statute implies that savings should be upfront.
The CMS, however, is more open to rebating systems.
The agency is preparing to implement new price caps on select Medicare drugs under the Inflation Reduction Act passed in 2022. Regulators plan to set up an arrangement in which pharmacies pay list price for the drugs and get a subsequent payment from drugmakers equal to the difference between the list price and the lower Medicare price — essentially, a rebate, according to guidance from the CMS.
Drugmakers have argued this process will be onerous to implement. But they’re also worried about the potential of duplicate discounts, in which the 340B discount and maximum fair price under the IRA could both be paid out for the same drug.
If drugmakers are allowed to pay discount rebates in 340B as well, it could lower the chance of that happening, experts say. All the drugmakers that have sued HRSA seeking to change their 340B payment terms have a drug up for negotiation in Medicare, save Sanofi.
In response to the industry’s concerns in guidance from 2023, the CMS stressed that it doesn’t have authority over the drug discount program.
But “CMS intends to work with the Health Resources and Services Administration, which administers the 340B Drug Pricing Program, to help to ensure that the [maximum fair price] is made available to 340B covered entities where appropriate and that there is no duplication with the 340B ceiling price,” the agency wrote.
But overall, the CMS’ receptiveness to rebate arrangements could mean the agency might consider a change to how 340B discounts are paid, according to experts.
“The 340B program operates as an upfront discount. And it always has. And we are very concerned. We believe it would be very harmful if the 340B program turned into a rebate program,” Testoni said. But “the CMS is doing it with the Medicaid rebate program, and then they’re essentially doing it with the IRA. And so that’s a concern that we would have, that they might look at 340B from that perspective.”
‘A sacred cow like none other’
Any new restrictions on 340B would have a dramatic effect on providers in the program, forcing them to halt certain services, cut back on uncompensated care or even close, experts say.
The ramifications would be particularly drastic for rural facilities, which are often the only source of medical care in their area.
“They may not be able to sustain their operations at the end of the day. They may have to shutter their doors, which is really scary to think about, particularly when you think about access to care in some of these different markets,” Bowman said.
But not all covered entities are investing 340B savings directly into care.
In April, the Republican chair of the Senate Health, Education, Labor and Pensions Committee released an investigation finding sharp discrepancies in how safety-net providers were using 340B funds.
Two major nonprofit systems included in the analysis, Cleveland Clinic and Bon Secours Mercy Health, generated millions of dollars in 340B revenue over five years but didn’t pass those savings along to patients, according to the report.
The investigation from Sen. Bill Cassidy, R-La., builds on conflicting evidence as to how providers use 340B funds. Studies show that some hospitals use the savings to expand services for low-income people while others use the money for other purposes, like acquiring practices or opening new sites of care.
The mixed research and reports of providers improperly profiting from the program have fueled calls for increased transparency in 340B. Right now, there is very little mandated reporting in the program. Advocates for reform have also asked for more guardrails on what providers can do with the savings and stricter oversight from the government. HRSA audits are generally insufficient to ensure compliance in the program, the Government Accountability Office said in 2020.
340B is a valuable source of income for operators struggling with underpayments from other insurers, especially Medicare and Medicaid, said 3 Axis Advisors’ Ciaccia.
But “it is reasonable to say that the lack of oversight and accountability in how these dollars are spent presents legitimate questions as to what the overall value proposition of the program is. The scrutiny hitting the program is deserved,” he added.
The main lobby for the pharmaceutical industry, PhRMA, said it welcomed the CMS having control over 340B, because the agency might increase supervision of a program run amok.
“The possibility of shifting oversight of 340B from HRSA to CMS could create the opportunity for better agency oversight and more efficient coordination of 340B, Medicare and Medicaid,” a PhRMA spokesperson told Healthcare Dive. “We urge the Administration improve oversight and address the well documented program integrity issues and misaligned incentives in the program that are driving up costs for patients, taxpayers and employers.”
It’s not clear whether 340B oversight currently remains with HRSA or is in the process of being transferred to the CMS. The CMS declined to comment on the record for this story. HRSA did not respond to a request for comment.
However, HRSA sent a notice regarding 340B rebates to the Office of Management and Budget for review on June 1, suggesting the agency still manages the drug discount program — at least for now.
If the handover does happen, it’s unclear whether the CMS could make bedrock changes to 340B, like implementing rebates across the board, without additional statutory backing, according to experts.
HRSA, for one, has limited rulemaking power, instead making most updates to 340B through guidance — strictures that would probably remain in place for the CMS unless Congress elects to give the agency more authority, Testoni said.
Meaningful changes to 340B are also unlikely given the political blowback that would come from targeting a program set up to help America’s safety-net providers, according to Ciaccia.
340B “is a sacred cow like none other,” Ciaccia said. “I don’t doubt the conviction of lawmakers and maybe CMS to try and create more program integrity. What I’m pessimistic about is whether or not they actually have the political juice to get whatever it is they want to do through.”
