San Diego City Wire

174 California hospitals, including three hospitals in U.S. Rep. Scott Peters' (D-CA-50) district, participate in a federal drug program that enables eligible hospitals and healthcare organizations to purchase outpatient medications at significantly discounted prices.

Johnson & Johnson (J&J) last month proposed a change to the program that one health analyst called a “trust, but verify” strategy to create more transparency in the program.

"On August 23rd, Johnson & Johnson announced that disproportionate share hospitals serving low-income patients will receive 340B discounts on Xarelto and Stelara through rebates, rather than upfront discounts,” wrote Peter Pitts, former FDA Associate Commissioner, in a Sept. 12 commentary in RealClearHealth. “Under this new arrangement, hospitals will receive 340B prices only after submitting certain medical, purchase and dispensing data.

“In other words, ‘trust, but verify,’” wrote Pitts.

Established in 1992, the 340b program is facilitated by the Health Resources and Services Administration (HRSA) and enables eligible hospitals and healthcare organizations to purchase outpatient medications at significantly discounted prices. Hospitals participating in the program can use the savings to fund essential services and programs, such as free or low-cost medication assistance, expanded access to healthcare, and community outreach initiatives.

At least 174 California hospitals participate in 340b, according to 340bHealth, including Palomar Medical Center in Escondido, Scripps Mercy Hospital in San Diego, and UCSD Medical Center in San Diego.

Participating hospitals, however, “often extend their 340B discounts to clinics in well-off communities, where they can charge privately insured patients more than those on Medicaid,” reported the Wall Street Journal.

“In some cases, the program appears to be bolstering profits in well-off areas more than it is underwriting services in less-privileged neighborhoods,” said the Journal article.

U.S. Rep. Scott Peters (D-CA-50) recently led a group of bipartisan legislators alongside Rep. Mariannette Miller-Meeks, MD (R-IA-1) in writing a letter to the Chair and Ranking Member of the House Energy and Commerce Committee requesting reforms for the 340B drug program. 

"Recent reporting reflects a growing possibility that we may soon see substantive efforts proposed to strengthen the 340B program," the letter said. "We are all committed to the long-term viability of the program, and we are encouraged that a bipartisan group of Senators has invested years seeking wide stakeholder input and developing a set of policy reforms aimed at achieving consensus."

Dr. Anthony DiGiorgio, a neurosurgeon and scholar at the Mercatus Center at George Mason University told Empire State Today in March that he sees a "potential for abuse" in the program. 

“The hospitals often buy these drugs at the 340b discount and then resell them to Medicare and private insurance through independent pharmacies,” DiGiorgio said. “They charge Medicare and private insurance much more than the discounted price, reaping huge revenues.”

DiGiorgio said the program “makes no provisions requiring that the discounts be passed on to patients,” and there are also “no provisions that those revenues go back to charitable care, either.”

“The hospital can use that money for whatever it wants," he said. “This potential for 340b abuse has led hospitals to contract with pharmacies in wealthy areas and acquire independent clinics in these wealthy areas as well.”

In California, more than 50% of "disproportionate share hospitals" are estimated to have 340b profits that exceed charity care, according to a report released by the Alliance For Integrity & Reform (AIR340B). 

Nationwide, total drug purchases at the discounted 340B price were $54 billion in 2022, 87 percent of which were made by hospitals, with DHS hospitals accounting for $42 billion, or 78 percent of program sales, said the AIR340b report. However, despite these savings, the report found that many DHS hospitals aren't applying their profits toward financial assistance programs for the patients intended to benefit from the 340B program. 

While J&J has taken flak for its rebate proposal, billionaire Mark Cuban, star of "Shark Tank" and founder of Cost Plus Drugs said "it looks like Johnson & Johnson is just asking to be able to fully audit claims in a reasonable period of time."

“I think this is to reduce the significant amount of fraud that Johnson & Johnson (and other manufacturers face),” Cuban posted on X. “Every single meeting I have had with a drug manufacturer has included a discussion about 340b fraud amounting to tens of millions of dollars or more.”

There have been several proposals in Congress to address fraud and transparency concerns with the 340b program.

U.S. Sen. John Kennedy (R-La.) introduced a bill in 2023 that he said would ensure “that organizations are transparent about how they use resources from” 340B.

Earlier this year, U.S. Rep. Earl L. “Buddy” Carter (R-GA-1) introduced the "340B Affording Care for Communities and Ensuring a Strong Safety-Net Act" to increase oversight and transparency in the 340B drug pricing program. 

Neither of these proposals has advanced on Capitol Hill.

Whether or not the Johnson & Johnson rebate proposal becomes a reality, it has put the fast-growing 340b program in the spotlight with a new approach that may end up shaping the legislative and regulatory approach that determines the future of the program.