A four-month battle between hospitals and pharmaceutical manufacturers over the use of federal 340B drug discounts ended this week with the Legislature banning drug makers from limiting use of those discounts — and killing a bill that manufacturers had favored.
The dispute between two of the most influential sectors in healthcare came down to the final day of the legislative session and to a decision by backers of the pharmaceutical-backed bill that they would not compromise anymore. The result is that Colorado will join the growing ranks of states that bar drug makers from denying discounts to hospitals through certain pharmacies — a decision that financially battered hospitals say will be the difference between closing and remaining opening for some facilities.
“This has worn me down,” acknowledged Rep. Rick Taggart, a Grand Junction Republican and House cosponsor of Senate Bill 71, the successful effort to ensure Colorado hospitals can continue ordering discounted drugs to be distributed through contract pharmacies. “This is a very, very good bill that has been very well thought-out with a tremendous amount of stakeholders and a tremendous amount of input.”
What is 340B?
Launched in 1992, the federal 340B program allows nonprofit hospitals that treat a certain percentage of publicly insured or uninsured patients to get discounts of typically 25% to 50% on drugs from pharmaceutical manufacturers. The law requires hospitals to put the savings toward programs that help lower-income patients but allows broad interpretation of that mandate, leading some facilities to pass along drug-price discounts, others to subsidize unprofitable services like behavioral health and others to just stay open.
In Colorado, 68 hospitals and clinics employ the program — 89% of which have operating margins of 4% or less that are considered unsustainable. Nationwide, the program grew from $43 billion in discounts in 2021 to $66 billion in 2023, as hospitals struggled with rising labor and supply costs and increasing numbers of low-paying or nonpaying patients and turned even more to the discounts for help.
What those facilities called a lifeline, however, pharmaceutical manufacturers called abuse of the program, and in 2020 many began limiting discounts to drugs ordered through the in-hospital pharmacy or a very limited number of area pharmacies. Critics of the program’s growth, such as Democratic Rep. Lorena Garcia of Adams County, noted that the number of contract pharmacies participating in the program has grown 12,000% nationally since 2010 and that many of those pharmacies are in higher-wealth areas.
Colorado state Rep. Lorena Garcia speaks against Senate Bill 71 on the House floor.
What the hospitals’ bill does
SB 71, which got its final overwhelming legislative approval on Tuesday, bars pharmaceutical manufacturers from imposing limits on which pharmacies hospitals can contract with to dispense the drugs. But in a concession to drug makers, sponsors also added requirements that hospitals disclose their operating costs and charity-care totals and not use 340B discounts for advertising, lobbying expenses, travel, entertainment or the payment of fines and penalties.
Rep. Matthew Martinez, the Monte Vista Democrat who cosponsored SB 71 in his chamber, said the use of non-hospital pharmacies is essential in rural areas like his where hospitals serve six-county areas and patients must drive an hour or longer to get there. Not only would limitations on the pharmacies that hospitals use to distribute discounted drugs mean that some patients couldn’t easily get the drugs, but it would take vital business from small-town pharmacies, he said.
SB 124 originally sought to dictate how hospitals spent their 340B savings, requiring 55% of savings be used to decrease out-of-pocket costs for the patients purchasing the drugs and another 40% to go toward discounting drug costs in other ways for low-income patients. That requirement was stricken from the bill in its first committee, however, as it was clear that legislators had no interest in putting first-in-their-nation parameters ton how hospitals spent their savings.
Pharma bill underwent big changes
The bill advanced with increased transparency requirements, buoyed by supporters that included minority groups complaining that they don’t benefit from the savings that hospitals get and unions saying the 340B savings that hospitals get raises drug prices under their insurance plans because the federal government bars double-dipping on savings. And when the bill got to the House Health and Human Services Committee on Saturday, cosponsoring Rep. Kyle Brown, D-Louisville, added a major amendment in an effort to try to put more teeth into the bill.
Colorado state Rep. Kyle Brown discusses his 340B bill with the House.
Brown’s amendment would have required 80% of 340B savings be used on “direct patient services” or capital improvements to facilities that maintain or increase access for low-income populations. It modified transparency reporting to eliminate some requirements that hospitals called unworkable, exempted independent hospitals with less than 50 beds and added protections for all kinds of pharmacies to continue distributing the drugs.
The amendment surprised Brown’s cosponsor, Republican Rep. Lori Garcia Sander of Eaton, so much that she voted against it and later took her name off the bill. And it angered some of the House’s staunchest union supporters, who complained that there was no enforcement mechanism and tried unsuccessfully to make violation of the law a deceptive trade practice.
How the pharma 340B bill died
SB 124 passed the House by a 42-23 margin, but when it got back to the Senate, sponsoring Sens. Julie Gonzales and Barbara Kirkmeyer voted to adhere to the Senate version rather than go along with the House changes. And rather than go along with the Senate plan, Brown allowed the bill to die on the calendar without a final vote.
As such, hospitals will get the outcome that they had hoped for — allowance of 340B discounts at any pharmacy of their choice, which will mean that they can keep or restore an expected $800 million in such discounts. Hospital administrators from Craig to Pueblo to the Eastern Plains said they now will not have to cut programs with the money they would have lost and will continue to employ the discounts.
Pharmaceutical manufacturers, meanwhile, are likely to lean into congressional reform of the 340 program, where ideas like replacing the up-front discounts with rebates contingent on paperwork are being discussed.