Colorado bill would remake federal program that subsidizes hospitals in bid to lower patients’ costs

A bill in the Colorado legislature would remake a federal subsidy for hospitals into a tool to lower patients’ health care costs, if it can get past stiff industry opposition.

Senate Bill 124 would require some nonprofit hospitals to spend 95% of the proceeds from a federal drug discount program to reduce health care costs for patients earning no more than four times the federal poverty line, or $62,600 for one person.

The 340B program allows nonprofit hospitals and health centers to buy prescription drugs at a discount, then sell them to patients or their insurance companies at full price and keep the difference, which the Colorado Hospital Association estimated at more than $700 million annually.

Federal law currently doesn’t limit what recipients may do with the money, which effectively subsidizes facilities that care for an above-average share of low-income patients.

Sen. Julie Gonzales, a Denver Democrat who co-sponsored the bill, said she’d prefer if Congress would reform 340B as part of a broader effort to lower drug costs, but that hasn’t happened. Sen. Barbara Kirkmeyer, a Brighton Republican, is the other sponsor.

“At the end of the day, too many Americans are unable to afford their medication,” Gonzales said.

Until recently, states showed minimal interest in regulating 340B. During the pandemic, however, hospitals expanded the amount of 340B revenue they took in by partnering with other pharmacies, and drugmakers retaliated by limiting those partnerships. In the absence of congressional action, the two industries have started dueling over the discounts, state-by-state.

In Colorado, 68 hospitals and 20 federally qualified health centers participate in 340B. Patients may not know if their prescriptions fall under 340B, because their out-of-pocket costs and experience picking up medications typically aren’t any different.

The bill would direct 55% of profits from the program to lowering lower-income patients’ out-of-pocket costs for drugs and 40% to lowering their other health care costs. Patients with incomes below the poverty line ($15,650 for one person) would pay nothing if they picked up drugs bought through the 340B program at a hospital-owned pharmacy, and people earning up to twice that amount would pay no more than $3.

The proposed requirement to pass savings on to patients wouldn’t apply to 40 of the state’s rural hospitals, children’s hospitals or Denver Health, the region’s safety-net hospital.

The bill also would require reports on the 340B money and forbid hospitals from using the remaining 5% to compensate the hospital’s board of directors, pay fines, advertise the hospital or lobby lawmakers, among other restrictions.

The requirement to pass the money on to patients would be “incredibly onerous,” because patients typically pick up their prescriptions at outside pharmacies that don’t have information about their incomes, said Julie Lonborg, senior vice president of communications and media relations at the Colorado Hospital Association.

If the bill passed, hospitals would drop out of 340B, allowing drug companies to avoid selling at a discount, she said.

“We do believe that they are trying to reduce this program,” she said.

Pharmaceutical Researchers and Manufacturers of America is neutral on Senate Bill 124, but supports bringing more accountability to 340B, said Reid Porter, senior director of state public affairs at the drugmakers’ trade group.

“When hospitals, other covered entities and their contract pharmacies have free reign to mark up medicines, patients, employers and taxpayers across Colorado pay the price,” he said in an email.

Federal law gave hospitals wide latitude to use the funds for whatever their communities need, which can include supporting unprofitable services or setting up assistance funds for high-cost care, such as cancer treatment, Lonborg said.

“The federal program is broad, and it’s broad by design,” she said. “It allows us to take better care of patients in our communities.”

Some members of a Senate committee that considered the bill on Thursday expressed skepticism that they should redefine 340B’s purpose. Health and Human Services committee chair Sen. Kyle Mullica, a Federal Heights Democrat, said he has concerns about unintended consequences if hospitals can no longer afford to offer some services.

“The care has to be available,” he said.

The committee voted Thursday to hold the bill to consider amendments, including one from Sen. Mike Weissman, an Aurora Democrat, that would strip out the spending requirements, leaving only the obligation to report on 340B funds.

A separate bill, Senate Bill 71, would prohibit drug companies from restricting how many pharmacies hospitals can partner with under 340B. Under current law, they can refuse to sell the drugs to community pharmacies at the discounted prices.

Hospitals argue that they should continue receiving a portion of the 340B benefits even if their patients opt to fill their prescriptions at Walgreens or CVS, while drugmakers say that requiring them to sell more prescriptions at a discount raises costs for other patients.

That bill passed the Senate Health and Human Services Committee on Thursday night and will head to the full Senate.

Perry Knight, vice president of law for Johnson & Johnson, said the bill would expand 340B beyond supporting safety-net providers.

“Large, for-profit interests have been capturing an increasing share,” she said.

Kevin Stansbury, CEO of Lincoln Health, countered that drug companies are trying to avoid selling medications at a discount. He said the hospital in Hugo receives about $500,000 annually from 340B, which it uses to support mental health and home health care.

“If we didn’t have to comply with the restrictions imposed by the pharmaceutical companies, we could generate more revenue to help us strengthen our services,” he said.

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