Understanding What Recent Court Action Means to 340B Reform

The federal 340B program, which allows participants to buy drugs at discount while billing insurers for full price, draws strong reactions across the health care spectrum. Hospitals and health systems that benefit say without it, they couldn’t provide essential care to those who lack insurance or are underinsured. But critics say the program has evolved into a revenue generator at others’ expense: Notably, community providers are being forced out of business, and Medicare patients must pay cost-sharing on drug prices that are inflated to absorb the discounts.^1,2

Community oncology practices have long argued that while well intentioned, 340B has exploded due to hospitals’ ability to use cash generated by discounts for purposes other than helping indigent patients.² A study by the National Pharmaceutical Council, appearing in the journal Inquiry, found that participants made the most money off 340B from drugs prescribed in wealthy areas.³

Over the past year, pharmaceutical manufacturers sought to institute changes to 340B from their end, following implementation of the Inflation Reduction Act (IRA). The drug companies sought to change 340B from a discount program to one that allowed participants to get rebates after paying for drugs up front, then submitting documentation to show the benefit to vulnerable populations. When CMS declined to allow this, several major pharmaceutical companies sued.^1,2

As this dispute unfolded, West Virginia passed a law to compel pharmaceutical companies to offer discounts to contract pharmacies that fill prescriptions for 340B entities. That prompted more litigation as pharmaceutical companies sued to overturn the law; they have drawn support from community oncology providers.^1,4

Dinesh Kabaleeswaran | Image credit: MMIT

Dinesh Kabaleeswaran is senior vice president, consulting and advisory services for MMIT, which serves pharmaceutical companies by providing real-world evidence, market research, and data intelligence for companies launching drugs and developing reimbursement strategy. Among the challenges facing today’s pharmaceutical companies are the dual obligations of 340B and the requirements of the IRA. Among other requirements, the law calls on industry to negotiate prices with Medicare for certain high-cost, single-source drugs, establish maximum fair prices, and pay rebates when drug prices rise faster than inflation.

The American Journal of Managed Care (AJMC) asked Kabaleeswaran to comment on the competing pressures on drug companies as well as the legal arguments surrounding the industry’s recent pushback on 340B.

AJMC: Can you discuss the central challenge with pharma companies responding to the Inflation Reduction Act while maintaining 340B?

Kabaleeswaran: Central challenge from a manufacturer perspective is really the fact that the IRA may not have the necessary infrastructure or systems implemented to ensure that there is no duplication of discounts offered between the IRA and 340B. For the longest time, there have been concerns that Medicaid prescriptions dispensed at contract pharmacies also receive 340B discounts, and now with the interplay of IRA, drug manufacturers would want to ensure that there are no further duplicative discounts.

AJMC: On March 17, HHS filed a brief asserting the authority of the Health Resources and Services Administration (HRSA) over the 340B program, stating that pharma companies could not unilaterally change it. However, HHS did not argue that 340B could never be changed. Is this leaving the door open to a policy shift within HHS?

Kabaleeswaran: Perhaps. However, per my understanding, the agency has exerted in past communications that the cash replenishment models would be a violation to the 340B statute as covered entities would have to pay significant costs up front.

AJMC: Will the job cuts at HHS have any bearing on the agency’s ability to respond to what is happening with 340B?

Kabaleeswaran: I am uncertain as to the exact impact on HRSA, as I understand there will be increased consolidation for the organization. Also, a centralized model for functional groups within HHS could also result in greater efficiencies long term in responding to such motions.

AJMC: In a recent interview, Debra Patt, MD, PhD, MBA, the current COA [Community Oncology Alliance] president, said that due to some stakeholders’ reliance on 340B revenue, it might not be possible to make all needed reforms at once.5 Is there a route toward gradual change to 340B that industry could support?

Kabaleeswaran: With increasing cost pressures, I remain hopeful of legislative reform. And given the complexity of stakeholders involved, I am unsure if there are alternative routes toward 340B reform; even if gradual, [it] is going to be tenuous.

AJMC: What are your thoughts on the study that appeared in Inquiry ?

Kabaleeswaran: I am really happy to see such research being conducted and published. I am not surprised by the findings. Also, 2021 was a year that saw large contract pharmacy operators’ gross profits peak. From an academic standpoint, it would be more compelling to integrate [pharmacy benefit manager] data and have a larger sample size. From an industry standpoint, this paper just adds to the voice for the need for reforms and in ensuring that the low-income patient population is served.

References
1. Caffrey M. As court action heats up, study shows more money made on 340B in wealthy areas. AJMC. April 3, 2025. Accessed April 8, 2025. https://www.ajmc.com/view/as-court-action-heats-up-study-shows-more-money-made-on-340b-in-wealthy-areas
2. COA submits amicus briefs in support of 340B program rebate suits. News release. Community Oncology Alliance. February 19, 2025. Accessed April 8, 2025. https://mycoa.communityoncology.org/news-updates/press-releases/coa-submits-amicus-briefs-in-support-of-340b-program-rebate-suits
3. Nordyke RJ, Motyka J, Patterson JA. The association of 340B program drug margins with covered entity characteristics. Inquiry. 2025;62:469580251324051. doi:10.1177/00469580251324051
4. Community Oncology Alliance files amicus brief opposing 340B contract pharmacy abuses in West Virginia case. News release. Community Oncology Alliance. April 3, 2025. Accessed April 8, 2025. https://mycoa.communityoncology.org/news-updates/press-releases/community-oncology-alliance-files-amicus-brief-opposing-340b-contract-pharmacy-abuses-in-west-virginia-case
5. Caffrey M. As COA president, Patt promotes advocacy: “Each of us holds an important part of the story.” Am J Manag Care. 2025;31(2):SP109-SP111.