In August, J&J notified “disproportionate share” hospitals, which serve a significant population of struggling patients, that it would no longer be providing them with upfront discounts for the psoriasis medication Stelara and the anticoagulant Xarelto. Beginning in mid-October, the pharmaceutical company intended to demand that hospitals pay the full cost of the medications, providing them with a rebate later.
Hospitals promptly denounced the proposal, arguing that the modification would enable J&J to significantly postpone discounts and maybe evade their payment entirely. They also pointed out that the rebate scheme violated the 340B legislation. At present, pharmaceutical manufacturers must disclose the 340B price upon purchase.
The Health Resources and Services Administration (HRSA), the Department of Health and Human Services (HHS) office responsible for overseeing the 340B program, sent a letter to Johnson & Johnson in September, alerting that rebating 340B pharmaceuticals in that manner would constitute a violation of the law. If J&J executes its strategy, it may incur substantial penalties of around $7,000 per infraction or risk the annulment of its pharmaceutical price contract with the government.
Losing that deal would mean drugs developed by J&J would be pulled out of Medicare and Medicaid coverage – a hefty stick for regulators because J&J would be denied access to potentially millions of patients.
J&J has asserted that 340B legislation enables manufacturers to employ rebates to give the lower 340B pricing to hospitals. The strategy — which would offer J&J a chance to check a hospital’s buying and dispensing record for a 340B medicine before the hospital gets a reimbursement — would help enhance program authenticity, according to the firm.
“J&J’s Rebate Model is a necessary first step toward restoring the 340B program’s intended purpose of enabling the program to operate efficiently and effectively in today’s complex healthcare system,” the New Jersey-based firm wrote to HRSA. “But due to HRSA’s unwarranted threats of excessive and unlawful penalties, J&J has no choice but to forgo implementation of the Rebate Model.”
Pharmaceutical companies and hospitals are continuously at war over 340B, a program designed 30 years ago to make it easier for hospitals struggling with finances to acquire pricy drugs. However, drugmakers believe 340B has blown out of hand, and that hospitals are exploiting the program to gain a profit.
Meanwhile, hospitals believe drugmakers are seeking to evade paying discounts under 340B. That’s because the savings may be considerable — often 20 to 50% off the listed cost of a medicine.
Research is split on hospitals’ use of 340B money, with some evidence indicating hospitals utilize income from the scheme to broaden healthcare services and finance uncompensated treatment. Others have utilized it for goals unrelated to patient care, such as purchasing medical practices. Similarly, audits of covered companies have discovered many providers aren’t adhering to 340B standards, including not reselling cheap pharmaceuticals.
Concerns regarding program integrity have risen as the program has progressed. 340B has increased to encompass over 30% of U.S. hospitals, while medications bought in the program climbed by about a fourth to approximately $54 billion between 2021 and 2022.
