Every year, the President submits a budget request to Congress for the next fiscal year. On March 11, President Trump released his budget request for FY 2020, which includes several proposals that would significantly impact the 340B drug pricing program and participating providers. The proposals would (1) give the Health Resources and Services Administration (HRSA) broad regulatory authority over the 340B program, (2) change how Medicare Part B pays hospitals for drugs acquired through the 340B program, (3) impose a user fee on 340B providers to supplement HRSA funding and (4) require covered entities to report their 340B savings and uses thereof. While the proposals are not binding on Congress, they demonstrate the continued interest of the administration in modifying the 340B program.

Expanding HRSA Authority. The President is seeking broad regulatory authority for the 340B program to “set clear enforceable standards of participation on all aspects of the 340B program.” At present, HRSA only has regulatory authority to issue standards for 340B ceiling price calculations, implement civil monetary penalties for knowing and intentional 340B overcharges by pharmaceutical manufacturers and establish an administrative resolution process to address claims brought by covered entities and manufacturers.

Medicare Part B Payment. Beginning in 2018, the Centers for Medicare & Medicaid Services (CMS) reduced Medicare Part B reimbursement for most separately payable drugs acquired through 340B program from average sales price (ASP) plus 6 percent to ASP minus 22.5 percent, although the lower payment rate is the subject of ongoing litigation. CMS applied the reimbursement reduction in a budget-neutral manner, under which the savings were used to increase payment for non-drug items and services, including those furnished by non-340B hospitals. The administration is now proposing a new distribution methodology that would not be budget-neutral. The proposal would instead distribute savings based on hospital levels of uncompensated care. Hospitals providing at least one percent of patient care costs in uncompensated care would receive a savings amount based on how much uncompensated care they provide relative to other hospitals. Hospitals falling below the one percent threshold would not receive any savings, and the savings from their payment reduction would return to the Medicare Trust Fund. The administration also proposes eliminating “pass-through payments” for a newly approved drug, biologic or biosimilar, which would make them eligible for the lower 340B payment rate if acquired through the 340B program.

User Fees. The administration calls for a user fee that would be set at 0.1 percent of total 340B purchases by covered entities. Put another way, covered entities would pay HRSA a user fee of $1 for every $1,000 of 340B drugs purchased. The administration projects that the user fee would provide HRSA an additional $19 million on top of approximately $10 million in discretionary funding. HRSA would apply the user fee funding to improving the 340B public database, program audits and oversight, and the 340B program’s automated compliance management tool.

Amount and Use of Savings. Lastly, the administration proposes requiring covering entities to disclose their 340B savings and their uses of those savings. Any efforts to adopt the proposal will likely trigger a debate over the meaning of “savings.” Hospital groups typically define 340B “savings” as the difference between what a hospital spent on drug purchased through the 340B program and what the hospital would have spent if it had not participated in the program. However, the proposed language for the reporting requirement uses the term “net income,” which might be a reference to the difference between what a covered entity spent on 340B drugs and what the entity was reimbursed for those drugs.

We will monitor these and other proposals that could affect the 340B program. In the meantime, please reach out to any one of us with questions.

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