Health systems brace for possible 340B cuts (2024)

Many hospitals across the nation rely on the 340B program to stay afloat amid challenging financial times. But that could change significantly in the next few years.

Legislators have their eye on 340B and pharmaceutical companies are trying to make changes. Earlier this year, the bill H.R. 8574, the 340B Affording Care for Communities and Ensuring a Strong Safety-net Act, was introduced in the House of Representatives, which would narrow the beneficiaries of the 340B program. One provision could remove 75% of urban 340B disproportionate share hospitals from the program and another would require rural hospitals to have 60% of annual inpatient discharges be from those living outside of metropolitan statistical areas, according to an American Hospital Association analysis.

The AHA said the bill would "dramatically diminish the program and undermine its purpose." It's unclear what will happen to the 340B program after Donald Trump takes office for his second term next year. But federal policy proposals from the Heritage Foundation recommend restructuring 340B subsidies to beneficiaries instead of hospitals.

Pharmaceutical companies also want to change the program, moving away from upfront discounts and offering rebates instead. Both Johnson & Johnson and Eli Lilly have made moves to redesign the program, and sued the federal government when the Health Resources and Services Administration declared the changes illegal.

What will happen to hospitals if there are changes? It could be dire, even for large systems and academic medical centers.

Nonprofit hospitals and academic medical centers care for all patients regardless of their ability to pay and depend on government programs to subsidize the cost of care. Sacramento-based UC Davis Health, for example, has 42% of its inpatient population as Medicaid beneficiaries and counts on supplemental funding programs to cover those costs.

"We count on 340B revenue to help pay for all of that care for the poor," said David Lubarsky, MD, CEO of UC Davis Health, during an episode of the Becker's Healthcare Podcast. "I'm concerned, and I don't know if preparing is the word, that some of that will be curtailed under the new administration in an effort to balance the books against proposed tax cuts. Having said that, making sure that there are alternative streams of revenue to offset those potential cuts is critical."

Erik Wexler, president and COO, and incoming CEO of Providence in Renton, Wash., is also preparing for multiple scenarios for the future.

"What may happen in terms of the changing climate in the federal government and Congress will be wildly impactful to us," said Mr. Wexler during a session at the Becker's CEO+CFO Roundtable, Nov. 11-14 in Chicago. "Just the idea potentially of the 340B program going away, hospitals around the country will be so impacted by that. We'll see some close if that carries forward."

Mr. Wexler sees the importance of advocating for balance and alignment with payers to ensure sustainability as healthcare policies change. Providence is a proponent of more value-based care arrangements and working toward creative partnerships across the board.

"I'm concerned about commercial payers and I think we all should be," said Mr. Wexler. "We need a balance here. If you look at what's happened in terms of the drain of financial resources from healthcare systems into the balance sheets of commercial payers, they've got a for-profit imperative and that's just fine. But what you can't do is destabilize the health system in the United States such that it could create a national emergency."

Providence is also a founding member of Longitude Health, a collaboration with Novant Health, Memorial Hermann and Baylor Scott & White Health to work together on solutions for the big problems facing healthcare. Their first challenge? Creating their own specialty pharmacy.

"The care is better for the patient because it creates a continuum of care from our physicians, from our hospital, from our home care to our own specialty pharmacy, and Longitude Health is going to launch that first," said Mr. Wexler.

UC Davis Health has been investing in the future of digital products and intellectual property within the organization as one way to secure additional revenue. It has developed ancillary pharmaceutical business operations to compete in the space.

"We're making sure that while we're never ever distracted from our primary goal of taking care of every patient to the best of our ability every single day, we're also aware that in a complex economic ecosystem, we need alternative streams of revenue to supplement what is basically a breakeven operation providing clinical care," said Dr. Lubarsky. "Or we don't have the money to reinvest in replacing or replacing facilities. It's a careful juggling act that I know my fellow CEOs across the United States struggle with every single day, and which is frankly underappreciated, perhaps by both the government and their own boards because of the amazing amount of effort it takes to run day to day and position for the future."

Health systems brace for possible 340B cuts (2024)
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