Updated: Jun 15, 2022
[Cue music for ambiance]
In my days as a Managing Director at a national publicly traded consulting firm, I remember working for a large non-profit health system where we were helping the organization roll out a 340B program for the entire system, despite having only 2 Critical Access Hospitals among their portfolio of 24 hospitals. Both Critical Access Hospitals already participated in the program. Targeted reimbursement increase was $225MM annually. A lot of these savings were getting large pharmacy systems in their areas to sign up as contracted pharmacies with the health system so that the health system would get the difference between the 340B discounted price and the Average Wholesale Price (AWP).
I remember thinking that I was not sure that the 340B program, as initially designed, was to give hundreds of millions of dollars to large health systems from the drug manufacturers. Sooner or later, the drug companies would identify and act against this transfer of wealth from pharmaceutical industry to both for-profit and not-for-profit health systems. Well, over the last several years, that awareness is rapidly increasing as drug companies focus on limiting the impact of these programs by reducing qualifying drugs and limiting contract pharmacy payments. And, of course, these changes impact the beneficiaries of the initial program - rural hospitals - the most.
The federal 340B program requires pharmaceutical companies participating in Medicaid or Medicare to discount products at significantly reduced prices for safety-net providers, including the hospital, hospital clinic pharmacies, and contracted pharmacies.
Discounts on drugs dispensed at contract pharmacies make up a quarter of overall 340B savings for hospitals, and more than 50% of savings for critical-access hospitals. In 2020, manufacturers began limiting discounts on outpatient drugs, including by prohibiting hospitals from using the discount at multiple contract pharmacies and limiting 340B discounts for specialty drugs dispensed at contract pharmacies. 16 drug companies are now implementing restrictions on 340B use.
According to a March survey of 550 hospitals conducted for the hospital group, 340B Health, disproportionate share hospitals, rural referral centers and sole community hospitals expect to lose a median of $2.2 million a year in contract pharmacy savings due to 340B discount limits. For 10% of those hospitals, losses are expected to be at least $21 million. Critical access hospitals expect to lose a median of $448,000 a year, up from $220,000 in December from these 340B reductions. Critical-access hospitals report losing 39% of savings on average.
More than 75% of survey respondents said they will need to make cuts or adjustments to their service programs if the 340B discount restrictions remain in force. Hospitals report this could affect their patient care services, as well as their ability to provide discounted and free drugs. More than 20% of hospitals said the restrictions put them at risk of closure.
340B program drug manufacturer’s reimbursement restrictions for both limiting the drugs that are covered and removing contract pharmacies participation in these programs take away one more arrow in the Critical Access Hospital’s quiver of tools to maintain financial viability. And argues for rural hospitals to pursue other strategies to maintain their bottom line. Before the drug companies fight back even more.
Rural Health Solutions models for an integrated Ambulatory Care Coordination Program makes more sense than ever to rapidly increase patient wellness care and reimbursement for rural hospitals. Contact us for more information on how we can help our rural hospitals thrive.
Rural Health Solutions (RHS)
RHS has over 30 years of experience working with more than 200 hospitals and ambulatory care organizations across North America to improve staffing, patient access, operating margins, quality of care and patient experience.
RHS provides solutions to our client unaffiliated rural hospitals. Learn how RHS has helped other rural hospitals increase their long-term financial viability at https://