Bloomberg Law
Aug. 19, 2020, 7:59 PMUpdated: Aug. 19, 2020, 9:03 PM

Drugmakers Take Own Steps to Narrow Drug Discount Program (1)

Jacquie Lee
Jacquie Lee

AstraZeneca, Novartis, and other drugmakers are moving to rein in a federal drug discount program worth billions as hospitals and pharmacies struggle to hold onto savings.

The program, known as 340B, requires drug companies to offer steep discounts on their products to hospitals with primarily low-income patients. Patients can also get the discounts at multiple pharmacies as long as they are associated with the 340B hospital.

AstraZeneca PLC will limit discounts to the hospitals themselves and only one pharmacy per 340B facility, the company said this week. And starting Oct. 1, Novartis will require 340B facilities to submit drug claims data to a third-party vendor to ensure they aren’t getting duplicate discounts, according to an Aug. 17 letter obtained by Bloomberg Law.

The latest actions mirror similar changes Sanofi, Merck & Co. Inc., and Eli Lilly and Co. made earlier this summer. The federal government hasn’t stepped in to clarify what drug companies can and can’t do to limit the discounts they offer within the program.

The drug pricing program has expanded considerably in the last few years, but drugmakers argue it is now too broad due to expansive definitions and little federal oversight. Companies are taking steps to limit the scope of the program on their own, and without input from the agency, they aren’t likely to stop, attorneys and analysts said.

“Drug companies and other stakeholders have asked the department to change the 340B program via regulations and guidance,” said John O’Brien, a senior fellow at the Leonard D. Schaeffer Center for Health Policy and Economics and former senior adviser to the Secretary of the Department of Health and Human Services. “In the absence of that, I expect drug companies to rein in the growth of this program via their own methods, especially since technology vendors are creating more transparency in the system.”

That leaves hospitals and pharmacies largely on their own to navigate the new challenges that come with drug companies’ requests for more data and efforts to curtail the program.

Liability Protections Lacking

The 340B program has gotten increasingly controversial as it’s grown. Drugmakers and parts of the federal government argue some pharmacies and hospitals use the savings to line their own pockets. Advocates for an expanded 340B program say the discounts should be available for any patient who needs them, and that increased participation by pharmacies is crucial to making that happen.

But how those discounts are calculated and who gets them has created another layer of complexity in the drug industry. Companies collect drug data from health-care providers and pharmacies, enabling drug makers to keep better track of duplicate discounts. Manufacturers aren’t required to provide a 340B discount and a Medicaid drug rebate for the same product.

That sort of data collection falls within 340B regulatory rules, according to Jeremy Docken, CEO of Kalderos, a technology company that helps manage drug discount payments.

But CVS and other pharmacy giants are raising privacy concerns over drugmakers’ new data collection requirement for 340B facilities. They’re worried that 340B facilities could be held liable for potential data breaches once they share information with a third party.

CVS agreed to let 340B hospitals hand over Medicaid drug claims data to third-party vendors that check for duplicate discounts, but said 340B entities couldn’t offer drug data from Medicare claims or commercial insurance, according to a letter obtained by Bloomberg Law. CVS, in addition to being a pharmacy, also acts as a drug middleman, known as a pharmacy benefit manager.

Facilities that get 340B discounts say they’re worried that providing the data will come back to bite them later.

“The unintended consequence in the use of this data is a shrinking or reduction of the 340B program,” said Peggy Tighe, the lead legislative strategist for a 340B advocacy nonprofit, Ryan White Clinics for 340B Access. Manufacturers say they want transparency, “but they really have a more nefarious goal,” she said.

More stringent requirements might make it difficult for pharmacies or hospitals to partake in the program, advocates say.

Regulatory Gridlock

Drug companies argue they’re committed to the program and want to ensure discounts get to needy patients, but that they also want to keep the program sustainable and transparent.

“Part of this commitment means ensuring 340B program integrity remains a shared objective of Pharmaceutical Manufacturers, Covered Entities and Health Resources and Services Administration,” Sanofi said in a statement.

Novartis said it believes “as many other manufacturers do—that the program has grown beyond its original intent.” A new system that allows the company to “identify and mitigate the issue of duplicate discounts and ineligible rebates from 340B contract pharmacies” won’t affect patient access to prescribed medicines, a company spokesman said in an emailed statement.

The Health Resources and Services Administration, the agency that would typically mediate the feud, said it has its hands tied.

The current authority to enforce 340B policies “is limited unless there is a clear violation” of the statute, HRSA spokesman David Bowman wrote in an email.

“Without comprehensive regulatory authority, HRSA is unable to develop enforceable policy to ensure clarity in program requirements across all the interdependent aspects of the 340B Program, although HRSA is still considering this matter as raised by the actions of these two manufacturers.”

The agency has previously asked Congress to step in, but lawmakers told HRSA to use its regulatory authority to clarify the program’s requirements further.

Hospitals and pharmacies are left to question what happens next.

“Why are they doing this and why is this not a government role?” Tighe asked. “It feels from covered entities’ point of view that the manufacturers are regulating this on their own.”

(Updated with additional reporting in the ninth and tenth paragraphs.)

To contact the reporter on this story: Jacquie Lee in Washington at

To contact the editors responsible for this story: Fawn Johnson at; Alexis Kramer at