Given the option between a hospital-backed bill or a pharmaceutical-backed effort to put state guardrails around a federal prescription-drug discounting program, members of the Colorado Senate chose to advance both seemingly conflicting proposals this week.
To be sure, senators clipped the major provisions around the pharmaceutical-backed bill that sought to direct how hospitals could spend money they saved through the federal 340B program, leaving largely only its transparency provisions intact. But by passing that along with a bill to bar drug manufacturers from limiting the number of pharmacies that hospitals could use in conjunction with discounts, they seemed to be trying to craft a compromise path on one of the most contentious subjects facing legislators this year.
The 340B program, created in 1992, requires drugmakers participating in the Medicaid program to give discounts of typically 25% to 50% to hospitals and clinics that serve a minimal percentage of uninsured or publicly insured patients. Hospitals are to use those discounts to care better for their underserved populations, but there are few guidelines on exactly how they must do that.
Good use or abuse of drug discounts?
At a March 13 Senate Health and Human Services Committee hearing, Pueblo Community Health Center CEO Donald Moore noted that his hospital uses 340B funds to lower drug copayments for some patients, and it opened a community clinic in a low-income area. Allen Qualls, CEO of Banner Health’s Northern Colorado market, said his organization saved $21 million via the 340B program in 2024, using the money to lower patient copays and help offer unprofitable lines of care despite the system’s negative operating margin.
But pharmaceutical leaders, noting that the national cost of the program ballooned from $43 billion to $66 billion just between 2021 and 2023, say large nonprofit hospital systems are abusing the program and using savings to pad their bottom lines. Many manufacturers have limited the number of pharmacies hospitals can contract with to dispense discounted drugs to patients, pointing to the fact that Colorado health systems alone contract with more than 1,000 pharmacies, more than half of which are located out of state.
Colorado state Sens. Dafna Michaelson Jenet and Janice Rich discuss a study while pitching their bill on the 340B program in the Senate.
Senate Bill 71, backed by hospitals and sponsored by Democratic Sen. Dafna Michaelson Jenet of Commerce City and Janice Rich of Grand Junction, would bar drugmakers from placing limits on contracted pharmacies. With 89% of the roughly 70 Colorado hospitals that participate in the program having operating margins below 4%, the discounts are the differences in some cases between offering and stopping services — or between keeping hospitals open and shutting them down, leaders say.
Both bills find levels of support
SB 124, backed by the pharmaceutical industry and sponsored by GOP Sen. Barbara Kirkmeyer of Brighton and Democratic Sen. Julie Gonzales of Denver, sought to require hospitals participating in the 340B program to use 55% of savings to lower patients’ out-of-pocket drug costs and 40% to lower other costs for low-income patients. Bill backers included a range of leaders from Colorado’s minority and low-income communities arguing that health systems were not helping them with savings as they should.
Senators on Wednesday passed SB 71 by an overwhelming 30-4 margin after adding two transparency amendments to the bill. One bars use of 340B savings for advertising, lobbying expenses, travel, entertainment or the payment of fines and penalties. The other requires participating hospitals to disclose their total operating costs and their costs related to providing charity care.
Colorado state Sens. Julie Gonzales and Barbara Kirkmeyer discuss their bill on the 340B program in the Senate.
They also passed SB 124 — by a much tighter 20-14 margin — after the HHS committee stripped the bill’s central provisions that would have dictated how savings could be spent. What’s left in the bill are more extensive transparency requirements mandating that hospitals report their 340B savings, the amount patients paid for the discounted drugs and the percentage of a facility’s prescriptions filled this way — all delineated by insurance payer type, from the commercially insured to those on Medicaid to the uninsured.
How major amendments kept two drug bills alive
Sen. Mike Weissman, D-Aurora, offered the significant amendment to SB 124 that saved the bill, as he said that while its use-of-savings requirements conflicted with the aims of SB 71, he felt its transparency mandates would benefit the program as it comes under fire. But while he and a handful of other senators then supported both bills, it’s clear as the measures head to the House for consideration that there is still a major conflict between supporters of the dueling proposals.
Sen. Kyle Mullica, a Thornton Democrat and emergency-room nurse, warned that major limitations on hospitals’ use of 340B savings would cause havoc to a sector suffering financially under the strain of massive cost increases for both labor and supplies. Contracting with many pharmacies is a way for health systems to get drugs more efficiently to patients, especially rural patients who don’t live near the main facilities, and limiting the program as drugmakers would like could result in direct harm to them, he said.
Colorado state Sen. Kyle Mullica discusses two bills on the 340B program on the Senate floor.
“I think there’s a lot of room to criticize the healthcare system. I think this program is probably broken … But we also really need to recognize the good that (hospitals) do,” he said before voting for SB 71 and against SB 124. “We can have these discussions about how we can do better. But I also want to be cognizant that I don’t want to let the people of Colorado lose health care.”
Pharmaceutical pushback continues
But the Pharmaceutical Research and Manufacturers of America said after the votes that restricting drugmakers’ ability to put reasonable conditions on 340B usage will not help safety-net providers like backers of SB 71 claim it will. Some manufacturers report that as much as one-sixth of all their sales are discounted through the 340B program now, even as 80% of Colorado’s hospital participants put a smaller percentage of their spending to charity care than the national average, the group said.
“Due to weak oversight, the program has expanded in a way that has allowed covered entities and others to use revenues for their own benefit,” Katelin Lucariello, PhRMA deputy vice president of state advocacy, said in a release. “PhRMA is committed to safeguarding the 340B program and supports efforts to ensure that it serves the communities that depend on it. However, we believe this legislation will not achieve that goal.”
House Speaker Julie McCluskie has assigned both bills to the House Health & Human Services Committee. No date has been set for hearings before the committee, though.