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Ky. health care providers depend on drug discount program that’s facing fire on several fronts

Sen. Stephen Meredith, R-Leitchfield, chairman of the Senate Health Services Committee, has scheduled a hearing Wednesday on a bill that would strengthen a controversial drug discount program. Some Kentucky health care providers say the 340B program is critical to their financial stability but it’s drawing fire from some strange bedfellows.
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Sen. Stephen Meredith, R-Leitchfield, chairman of the Senate Health Services Committee, has scheduled a hearing Wednesday on a bill that would strengthen a controversial drug discount program. Some Kentucky health care providers say the 340B program is critical to their financial stability but it’s drawing fire from some strange bedfellows.

Smaller hospitals say a little-known government program to funnel more money to charity care is a lifeline in Kentucky — helping some keep the doors open.

“We use the program to increase access to care to the most vulnerable patients,” Ashley Herrington, CEO of Owensboro Health Twin Lakes Medical Center, testified at a legislative hearing last year.

For larger systems, like University of Kentucky Healthcare, it allows expanded services such as testing and treatment for Hepatitis C, a costly and potentially fatal disease that disproportionately affects Appalachia, a UK official said at that hearing.

But Senate Bill 14, meant to strengthen what’s known as the 340B Drug Pricing Program in Kentucky, has drawn opposition from an unlikely quarter — a so-called “dark money” pro-Trump group, Building America’s Future.

In a recent news release, it claimed the program is being used to “subsidize health care for illegal immigrants and pay for gender transition for kids,” two hot-button issues of President Donald Trump’s winning campaign.

It urges Republicans to reject such bills in Kentucky and several other states.

Sen. Stephen Meredith, R-Leitchfield and chairman of the Senate Health Services Committee, has scheduled a hearing Wednesday, Feb. 5, for the bill he has sponsored for the second year in Kentucky’s Republican-controlled General Assembly.

A spokesperson for the Republican Senate majority provided a brief statement on behalf of Meredith about objections from the outside group.

“We have seen those claims and have been unable to substantiate them,” it said, adding that further comment before the committee meeting “would be premature.”

Melissa Mather, a spokesperson for Family Health Centers, a network of federally-authorized “safety net” clinics in Louisville, dismissed the pro-Trump group’s claim as “smoke and mirrors.”

Gender affirming care for minors was banned by the Kentucky General Assembly in 2023. And the role of federally authorized community health clinics is simply to provide health care, including to low-income patients, Mather said.

Family Health Centers, among 30 such community clinics in Kentucky, uses proceeds from the program to offer health services for those who can’t afford the cost of care.

“We reinvest 100% of savings into services that are uncompensated,” Mather said.

But the programsubsidized through discounts from pharmaceutical companies, is attracting other scrutiny — from the drug industry but also from consumer advocates who say the program is poorly regulated, has exploded in size and cost, and is no longer serving patients in the way it was intended.

“The program has grown exponentially, without a clear statutory purpose or transparency and accountability,” Sally Greenberg, CEO of the National Consumers League said in a recent podcast discussing the program.

‘An insider’s game’

Greenberg and others argue the program, enacted by Congress in 1992 to bring more resources to health services for low-income patients, should be reformed at the federal level. Few consumers are aware of it but people inside the industry know it well because 340B brings in billions of dollars to hospitals, clinics and other entities that serve low-income patients.

“There’s kind of an insider’s game going on,” said Greenberg, with the Washington D.C.-based consumer advocacy group.

Further, she said, the loosely-regulated program has expanded to where savings aren’t necessarily reaching low-income patients, with some providers “pocketing” the difference.

“Patients are not getting the discounts as intended under the original legislation,” Greenberg said.

But absent action at the federal level, where legislation to reform 340B is pending but has not passed, some states including Kentucky are moving to add new rules to the program.

Meredith, a former hospital executive, has said his bill would preserve savings from discounts on drugs pharmaceutical companies must provide to hospitals, clinics and pharmacies that participate in the 340B program.

That makes Kentucky among a handful of states that have proposed or enacted laws they say prevent pharmaceutical manufacturers from discriminating against certain providers by restricting shipments of discounted drugs.

Meredith has said that while the 340B program is complex and little understood, his solution is not.

“It seems to be some sort of mystery program and it’s really not,” he said last year in presenting the bill before the Senate health committee.

Rather, his bill, modeled after legislation enacted in several states, including Arkansas, simply requires pharmaceutical manufacturers to provide the same drugs at the same price in Kentucky as they do in other states, he said.

‘Leaping before they look’

Unsurprisingly, the pharmaceutical industry sees it differently.

In recent years, especially since health policy changes significantly expanded 340B, the program has exploded well beyond its original purpose to help the health system stretch resources for poor patients, said Reid Porter, spokesman for Pharmaceutical Research and Manufacturers of America, or PhRMA.

It now provides a revenue stream not just to rural hospitals and clinics but to larger hospital and pharmacy chains — as well as pharmacy benefit managers, or PBMS, companies that serve as middlemen in processing prescription claims for a cut of the cost, he said.

PhRMA supports a federal overhaul of the program rather than a patchwork of state legislative changes, he said.

“States are essentially leaping before they look,” he said in an interview. “We believe a fix at the federal level will bring the program back to its original intent.”

Meredith, in comments last year, said he agrees a solution at the federal level would be helpful.

“I will admit that the 340B program has a multitude of problems which have been going on over the past couple of decades,” he said. “But it’s not our role to fix that — it’s the role of the federal government.”

A “dark money” group whose backers include Elon Musk is bankrolling a media campaign against the 340B program in Kentucky and other states.
Screenshot
A “dark money” group whose backers include Elon Musk is bankrolling a media campaign against the 340B program in Kentucky and other states.

‘Five-figure’ ad buy

Opposition recently arose from the pro-Trump Building America’s Future, which issued a news release blasting 340B legislation pending in several states.

It said it is launching a “five-figure” television and podcast ad buy appealing to Republicans to oppose pending bills in Utah, Nebraska, North Dakota and Kentucky. It included a link to the ad in its press release, describing 340B as an “out-of-control government program” that is “secretly sabotaging” Trump’s agenda.

“Tell state Republicans to support Trump’s agenda, stop the expansion of 340B,” it concludes.

It’s not clear why the group targeted this program. The organization did not respond to a request for comment.

A New York Times story last year described the group as having a number of individual and corporate backers, including Trump advisor Elon Musk, and that it funded two super-PACS that ran controversial ads against Trump’s opponent, Democrat Kamala Harris. It said the group is not required to reveal names of donors.

The group doesn’t specify where its ads are running but one appears on X, formerly Twitter, which is owned by Musk.

On its website, the group describes itself as a “non-profit organization that supports conservative policies.”

How 340B works

Named for a section of the federal Public Health Services Act that authorized it in 1992, the program was meant to aid health providers by giving them access to more money to help low-income patients, including providing lower cost drugs.

Created with the support of the pharmaceutical industry, it required drug manufacturers to provide drugs at discounts of up to 50% to hospitals and clinics that provided care to a certain percentage of low-income patients including those covered through Medicaid, the state-federal health plan.

Hospitals and clinics provide those discounted drugs through their pharmacies, then bill insurers including Medicaid for the market price of the drugs and keep the difference — the goal being to use those resources for low-income patients.

Two changes accelerated growth of the program.

The Affordable Care Act in 2014 allowed more people access to Medicaid, significantly expanding the rolls in most states.

But the biggest change was in 2010 when a federal rule change expanded access to “contract” pharmacies that serve hospitals and clinics that may not have on-site pharmacies.

It was meant to expand access for patients but critics say it also allowed an explosion of growth in pharmacies participating in the program including some of the nation’s largest drugstore chains.

“It has been, for lack of a better word, hijacked by hospitals and contract pharmacies,” said Greenberg, with the National Consumers League.

Providers in Kentucky disagree, saying it’s a key source of funds for nonprofit hospitals and other providers to expand resources in a poor state.

“This is a way for covered entities to stretch scarce federal resources,” said James Musser, senior vice president with the Kentucky Hospital Association, which supports Meredith’s bill. “We’re very proud of the way it works.”

In Kentucky, 73 of 128 hospitals qualify for the program and most rural hospitals lack onsite pharmacies. That’s why it’s important to be able to contract with outside pharmacies, he said.

“We’re using it the right way,” Musser said. “We’re using it to take care of patients.”

Open the books

A key problem with the 340B program, advocates say, is its lack of transparency — including how much money flows to participants because they are not required to publicly report it.

Dr. Ge Bai, a health policy professor at Johns Hopkins University, who spoke on the consumers league podcast, said that makes it hard to determine exactly how much money is going to participants and how it’s used.

“We don’t know,” said Bai, who has testified before Congress about the program. “There’s no transparency.”

But studies have been able to determine the rapid growth of 340B, she said,

In 2018, drugs purchased through 340B totaled $54 billion. They currently total $124 billion, she said.

“This program,” she said, “is really out of control.”

But Bai doesn’t necessarily fault the health providers who benefit. “This loophole was created by the government,” she said.

It’s not clear how much the program brings into Kentucky because no reporting is required.

But one state, Minnesota, found 340B generated at least $630 million in revenue in 2023, with the majority of money going to larger hospital systems, according to a study by that state’s Department of Health.

Advocates support a measure pending in Congress, the 340B Access Act, which would increase federal oversight, reporting requirements and ensure money is going to the intended use — to increase access to care for low-income and underserved patients.

“Create a database showing where the money is going,” said Amy Hinojosa, CEO of Mana, a national Latina advocacy group, who participated in the consumers league podcast. “We need for the books to be open.”

This article was originally published by the Kentucky Lantern.

Deborah Yetter is an independent journalist who previously worked for 38 years for The Courier Journal, where she focused on child welfare and health and human services. She lives in Louisville and has a master's degree in journalism from Northwestern University and a bachelor's degree from the University of Louisville.
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