Dive Brief:
A federal judge halted a controversial drug discount pilot over the holiday break, determining that the HHS didn’t adequately consider the consequences for safety-net hospitals in a setback for the Trump administration and for drugmakers.
The pilot set to take effect on Jan. 1 would have allowed drugmakers to divvy out savings to providers in the 340B drug discount program through post-sale rebates instead of upfront discounts. Hospitals sued to block the pilot in early December, arguing the Trump administration had illegally rushed it into implementation.
On Dec. 29, a Maine district court judge paused the payment experiment, agreeing that regulators likely violated the Administrative Procedure Act. Hospital groups cheered the news, while the Trump administration quickly appealed the ruling.
Dive Insight:
The HHS startled many in the healthcare industry when it announced the pilot last summer. Historically, the department has defended the status quo in 340B, in which drugmakers sell medications to eligible safety-net providers at a discount at the point of sale, despite the pharmaceutical industry’s efforts to push the decades-old program into a rebate model.
The pilot would require hospitals to file paperwork providing that a drug dispensation qualifies for 340B before drugmakers pay out an after-the-fact rebate. Though only a small group of medications would be subject to the additional restrictions, they’re some of the most commonly prescribed in the country. Moreover, all 340B entities would have to participate — some 14,600 providers, according to the Health Resources and Services Administration, which oversees the drug discount program.
As a result, the experiment has sweeping implications for safety-net clinics and hospitals, many of which rely on 340B to keep their doors open. As such, regulators should have followed proper notice-and-comment procedures in issuing the pilot, hospital groups argued — but HRSA decided to go ahead with the pilot in mid-October, giving hospitals just two months to comply and spurring the lawsuit from the American Hospital Association, Maine Hospital Association and four nonprofit health systems on Dec. 1.
Now, Judge Lance Walker of the Maine District Court has agreed with the hospitals, calling the 340B pilot “hastily assembled” in his order granting a preliminary injunction on Dec. 29.
The hospital groups showed irreparable harm to their finances from having to pay full price for 340B drugs at the point of sale, along with the costs to comply with the data reporting elements of the pilot, Walker said. Meanwhile, HRSA wasn’t able to provide adequate administrative documentation backing up its decision to create the pilot.
“[HRSA’s] roll out has involved a rather threadbare administrative record that likely fails to consider and reasonably explain the impact of a rebate model on 340B hospitals, who rely on upfront price concessions to stretch few resources as far as possible to serve rural and poor communities. The [Administrative Procedure Act] likely requires more from Defendants,” Walker wrote.
340B Health, an association representing some 1,500 hospitals that participate in the drug discount program, applauded Walker’s decisions as “a welcome and necessary safeguard” for hospitals.
“This ruling puts a necessary pause on a rebate program that was rushed through without fully accounting for the financial, administrative, and operational strain it would place on safety-net hospitals and the patients they serve,” Maureen Testoni, 340B Health’s president and CEO, said in a statement following the ruling.
HRSA did not respond to a request for comment on the decision. However, the Trump administration appealed the pause to the First Circuit Court of Appeals the same day it was ordered.
Regulators have argued that the pilot is an important mechanism to ensure drugmakers aren’t on the hook for discounts for drugs that shouldn’t be subject to 340B, a concern that’s grown as the program has swelled dramatically to encompass more providers and account for more spending.
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.
Some critics point to that growth as evidence that 340B has mutated beyond its original intent, with drugmakers accusing hospitals of manipulating the program to profit. It’s a worry shared by some lawmakers, including Sen. Bill Cassidy, R-La., the chair of the Senate Health, Education, Labor and Pensions Committee.
Last spring, Cassidy published an investigation finding that 340B discounts don’t always translate to lower costs or improved access for patients. The report added to conflicting evidence as to how providers use 340B funds.
