A bill in the Colorado legislature would get rid of drugmakers’ limitations on a program that helps fund safety-net hospitals and clinics through discounts on medication.
Pharmaceutical manufacturers argue the program has grown beyond its intent, however, and raises the cost of health care to subsidize hospitals that may not need the help.
The federal 340B Drug Pricing Program allows certain hospitals and clinics to buy medications given to outpatients at a discount, then bill patients and insurers the full price — keeping the difference.
For example, if a patient needs a drug that an insurance company normally pays $10,000 for, but the hospital purchases it for $6,000, the medical facility can keep the remaining $4,000.
The idea is that hospitals and clinics serving large numbers of low-income patients will use the money to pay for their uncompensated care and to support unprofitable services, such as addiction treatment. In Colorado, 68 hospitals and 20 federally qualified health centers participate.
The arrangement isn’t controversial when patients get the drugs at pharmacies owned by hospitals or clinics treating large numbers of low-income patients. Sometimes, however, those facilities decide to partner with other pharmacies, so that even when the patient picks up their medication somewhere else, the hospitals or clinics still get some of the discount, though they split the money with the pharmacy.
Drug companies have pushed back and refused to sell their products at the 340B discount to those “contract pharmacies.” But a new bill in the state legislature would forbid drugmakers from setting those kinds of limitations.
Senate Bill 71 would label limits on contract pharmacies as a “deceptive trade practice,” which the Colorado Attorney General’s Office could investigate. It also would require hospitals to post information about their 340B discounts, and how they spend the excess funds they receive through the program. Safety-net clinics wouldn’t have to post that data.
The bill doesn’t yet have a fiscal note, which attempts to predict how much the legislation would cost the state, if anything. Eight states have laws preventing restrictions on contract pharmacies in place, and 10 introduced similar bills this year.
Congress created 340B to “stretch scarce federal resources” and support hospitals and clinics caring for the most vulnerable people, said Saskia Young, vice president of legislative affairs at the Colorado Hospital Association.
When drugmakers limit contracts, they reduce patients’ ability to chose where they get their prescriptions, forcing them to take time off work and find transportation to the hospital’s pharmacy, she said.
“This is about access,” she said, adding that some drugmakers have limited hospitals to only one pharmacy.
Denver Health, which operates a safety-net hospital and outpatient clinics, said contract pharmacy limitations haven’t affected it as much as some providers, because most patients pick up their prescriptions at pharmacies that the health system owns. A spokesman declined to say how much money Denver Health receives from 340B discounts.
Limiting where 340B discounts can apply doesn’t prevent patients from getting their prescriptions at a convenient pharmacy, said Reid Porter, senior director of state public affairs at Pharmaceutical Researchers and Manufacturers of America. Their out-of-pocket costs are the same whether or not the hospital receives money under the program, he said.
“The medicines themselves are already available to patients at these locations,” he said.
In some cases, hospitals pass on drug savings to patients who can’t afford medication, said Kevin Forbush, 340B program director for Intermountain Health. For example, Intermountain hospitals in Colorado used some of their 340B discount funds to lower out-of-pocket costs for at least two cancer patients who were planning to forgo treatment because of the expense, he said.
“We were able to bring the cost down without negatively impacting the hospital,” he said.
Forbush said the Colorado bill wouldn’t expand the discounts, but return the playing field to what it was before drug companies began imposing restrictions in 2020.
“We only seek to return to the state we were pre-COVID,” he said.
Katelin Lucariello, deputy vice president of state advocacy for PhRMA, countered that the option to use contract pharmacies has only been available since 2010, when federal guidance expanded the program. When hospitals receive a 340B discount, that means the patient’s health insurance doesn’t get any rebates, increasing the cost of health care for everyone, she said.
About half of the more than 1,100 pharmacies that Colorado 340B providers contract with aren’t in the state, which raises questions about whether hospitals are misusing the discounts, Lucariello said. Some may provide drugs to Colorado customers via the mail.
“When we see a large number of the contract pharmacies moving outside the state, that raises concerns that this is not about access,” she said.
PhRMA supports a federal bill that would require passing some discounts on to patients, Porter said. The bill would also limit hospitals and clinics to five contract pharmacies, which would have to offer the same financial assistance that the hospital or clinic does.
Hospitals and clinics have to report how they use their 340B revenue, but no such requirement exists for pharmacies they contract with, said Rena Conti, an associate professor at Boston University’s Questrom School of Business.
That arrangement can benefit patients if the pharmacy offers a sliding fee scale to people who can’t afford their full share of a drug’s cost, allowing them to get affordable medications at a convenient location, Conti said. They don’t benefit directly if the pharmacy doesn’t pass on a discount to them, and whether they get an indirect benefit depends on how the hospital or clinic uses its share of the savings, she said.
The program may also indirectly raise costs for people with private insurance, Conti said. When drugmakers know they’ll have to offer significant discounts to some customers, that gives them an incentive to further raise their products’ sticker price, she said.
“We’re kind of squeezing the balloon,” she said.
For some hospitals, 340B is vital to maintaining services.
Jonathan Cohee, CEO of Delta Health, said the hospital had to leave the program last year because it didn’t have enough overnight stays by patients covered by Medicaid to qualify. Not having 340B cost it about $3.5 million in 2024, which was a difficult loss for a facility already facing financial trouble, he said.
Delta Health likely will become eligible again in July, and while the hospital didn’t have to cut service lines, such as maternity care, it likely would if 340B discounts went away permanently, Cohee said.
“That money is really used to keep those programs afloat,” he said.
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