Dear Director Britton,
Paragon Health Institute appreciates the opportunity to comment on the Health Resources and Services Administration’s (HRSA) Office of Pharmacy Affairs (OPA) new 340B Rebate Model Pilot Program, HHS Docket No. HRSA-2025-14619. We welcome HRSA’s renewed interest in improving the 340B Drug Pricing Program (340B), which we believe will improve transparency and efficiency within 340B.
Paragon is a non-profit health policy research institute committed to reforming government programs and restoring Americans’ control over their health care. We believe empowering consumers, instead of expanding government control, is the key to lowering costs and improving health outcomes.
We commend HRSA and the OPA on their efforts to reform 340B through the creation of a more trustworthy payment system. The 340B Program, in its current form, has long been a problem in American health care. Designed to support true safety-net hospitals, it has become a de facto subsidy for tax-exempt hospitals effectively financed by a de facto tax on pharmaceutical consumers. 340B is the fastest-growing government pharmaceutical program, and is on track to surpass Part D as the largest program in the near future. While this pilot program will not fix the largest problems with 340B, it will increase transparency and promises to mitigate more technical problems, including issues surrounding Maximum Fair Price de-duplication, duplicate discounts, and drug diversion. This is a welcome first step by the government in introducing transparency into a program that has largely been a black box for all participants beyond the “non-profit” entities it benefits.
The Positive Provisions of the 340B Rebate Model Pilot Program
The pilot proposes to allow qualifying pharmaceutical manufacturers to apply for and participate in a voluntary 340B Rebate Model Pilot Program for one year. Traditionally, 340B covered entities (CEs, including hospitals and other qualifying provider entities) purchase qualifying 340B drugs from the manufacturer with an upfront discount. This program would allow manufacturers to charge a CE the wholesale acquisition cost (WAC, commonly known as the “list price”), and then provide a rebate payment to the CE after the CE provides the necessary data to confirm the drug is not receiving the Maximum Fair Price (MFP) discount or that the 340B rebate is not being provided to another entity on the same claim. Manufacturers are required to give CEs 60 days’ notice before implementing a rebate model, are required to cover all costs for data submission, and cannot pass on the costs of running their rebate system to CEs. Additionally, CEs will have 45 days to submit data from the time the drug is dispensed.
The ability to confirm that a prescription qualifies for a discount under the 340B Program—and to ensure it is not subject to duplicate discounts or diverted to ineligible patients—is a significant win for reform advocates and consumers who benefit from lower prices. 340B has long suffered from a lack of transparency, particularly in separating which qualifying drugs are to receive the 340B discount and which are supposed to receive the Medicaid drug rebate. Manufacturers are practically unable to identify if a prescription is receiving a 340B discount or a Medicaid rebate, given the complex structure of how 340B discounts are provided. Duplication of discounts between 340B and Medicaid is banned under statute, and CEs are supposed to carve out 340B drugs being given to Medicaid patients. However, as noted by the Government Accountability Office, duplicate discounts and diversions in Medicaid and 340B still occur.
Similar duplicate discounts will likely occur through the MFP. The MFP creates additional issues because manufacturers are required to reimburse CEs the difference between what the CE paid for the drug and the MFP within 14 days of a drug being identified as MFP-eligible. The new rebate model program will ensure that manufacturers will have the data necessary to discern which drugs need to receive the MFP and which need to receive the 340B discount.
Additionally, the new program shows foresight in providing strict timelines for manufacturers to provide rebates to CEs. Contrary to claims from some 340B stakeholders, the 10-day waiting period would inflict minimal financial burden on CEs. Ten days is a faster turnaround time than most 340B discounts are delivered, particularly because most CEs use a “replenishment” model in which the discount is only received after the medication is dispensed. The requirements for 60-days advance notice to CEs that the manufacturer is joining the pilot, and that manufacturers must cover costs for data submission, ensure that CEs are ready and able to deal with the new rebate systems. HRSA ought to be skeptical of claims of administrative burden caused by 340B transparency, and we believe that the data required is currently readily accessible by CEs based in part on their ability to receive repayment from CMS for the 340B-acquired drug payment policy between 2018-2022. In the rule describing the repayment process, CMS stated that:
Assuming hospitals properly assigned the billing codes discussed below when submitting their CY 2018 through 2022 claims, as they were required to do, CMS noted that it expects the remedy payment to each 340B covered entity for 340B-acquired drugs to be approximately the same as if CMS manually reprocessed those claims.
CMS’ ability to repay CEs relied on the ability of CEs to track which drugs were purchased with 340B discounts.
Aspects that could be improved
Manufacturers cannot deny claims based on concerns about duplicate discounts and diversion, except for issues of MFP duplication or if another CE received a 340B rebate on the same claim. This creates an unnecessary limit on the usefulness of the rebate system. CMS states that manufacturers who suspect diversion or duplicate discounts with Medicaid must go through the statutory process to conduct an audit at the expense of the manufacturer. While an official audit would still be necessary to deny a rebate, the inability to even pause a 340B rebate based on red flags raised by the data sent by CEs unnecessarily obstructs efforts at program integrity. Manufacturers should be allowed to pause rebates where evidence is found that duplicate discounts are being received from both Medicaid and 340B, or that drug diversion is occurring.
The qualifying drugs are limited to the 10 drugs selected for the Medicare Drug Price Negotiation Program (MDPNP) for the initial negotiated price applicability year of 2026. Under the Inflation Reduction Act, manufacturers must give CEs the lower discount of either the 340B discount or the MFP. This provision also unnecessarily limits the value of the rebate system. Regardless of whether, as urged above, HRSA allows manufacturers to pause rebates upon finding evidence of duplicate discounts or diversion, the list of qualifying drugs for this pilot program should be expanded to maximize program integrity.
Conclusion
Paragon applauds HRSA’s new program as a welcome start to reforming the 340B Program. This rebate model pilot program will ensure stronger program integrity and eliminate illegitimate duplication of discounts between MFP and 340B, while ensuring CEs still promptly receive the 340B discounts they are entitled to. We urge HRSA to consider expanding the uses of the rebate system beyond merely preventing duplication between Medicare and 340B to include prevention of duplicate discounts between 340B and Medicaid and the diversion of drugs. Further, as part of preventing Medicaid duplicate discounts and diversion, we recommend that HRSA consider expanding the number of drugs covered by this pilot program. Finally, we strongly encourage HRSA to use the findings from this pilot program to inform future reform efforts.
Overall, until this pilot program and other reforms are scaled and expanded, 340B will continue to fuel and reward practices of covered entities that actively undermine the intent of the program. The savings produced from 340B discounts were meant to help serve the poorest populations; the program now prints money for the wealthiest hospital systems, which seldom pass discounts to patients, all at the expense of generally higher prices for consumers. It is critical to correct this dysfunction and restore the intended purpose of the 340B Program by placing patients’ needs ahead of health system subsidies.
Thank you for considering our views on these reforms and your important announcement.
