Hospitals are suing the Department of Health and Human Services over a revised plan to convert 340B drug discounts into a rebate system. The American Hospital Association, along with the Maine Hospital Association and four safety-net hospitals, filed a complaint on Friday alleging that shifting from upfront discounts to post-purchase rebates threatens the financial viability of hospitals in the program. The hospitals say that the Health Resources and Services Administration ignored the high costs and administrative work the rebate program would impose on safety-net providers. They’re asking the court to halt the pilot, which is scheduled to begin in January, while the legal challenge proceeds.
Legal Challenge Over Rebate Pilot
The complaint filed in Maine district court argues that HRSA’s cost analysis was “egregiously flawed” and significantly underestimates the expenses hospitals would face. HRSA estimated the rebate program would cost $537 million every year, but hospitals argue that figure excludes significant startup, information technology, training, vendor and reconciliation costs. The true administrative costs could surpass $1 billion annually, according to the complaint. Many hospitals would also need to use limited cash reserves to pay for drugs upfront, a burden that could be “devastating” for facilities already operating on thin margins amid Medicaid cuts and rising inflation.
The hospitals assert that the rebate program would jeopardize their ability to serve vulnerable patients, particularly in Maine where providers operate with less than two weeks of cash-on-hand on average. The lawsuit alleges that HRSA is moving forward with the pilot despite receiving hundreds of comments outlining its potential harms, including that it could strain safety-net providers, hurt patients’ access to care and force hospital closures. When the government makes a change of this magnitude, it must fully consider what it will mean for the patients and communities that rely on 340B hospitals every day, Steve Walsh, president and CEO of the AHA, said in a statement.
History of the 340B Program and Ongoing Dispute
The 340B program, established by Congress in 1992, allows eligible providers to purchase outpatient drugs at discounts typically between 25% and 50% off list price, enabling them to stretch limited resources while maintaining financial viability in underserved communities. Safety-net hospitals say the program is essential, enabling them to stretch their limited resources while maintaining their financial viability in communities where many patients cannot afford to pay for care.
Drug manufacturers have long criticized the program, arguing that hospitals unfairly profit from it and often use illegal duplicative discounts to inflate savings. Pharmaceutical companies point to soaring 340B spending-$100 billion in outpatient drug purchases last year, up 23% from the previous year-as evidence of profiteering. Growing criticism of 340B has put more pressure on regulators to curtail the program’s scope.
