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Budget Proposal to Divert Funds from Health Centers Faces Opposition

Budget Proposal to Divert Funds from Health Centers Faces Opposition February 22, 2023
Photo of nurse at computer.
Photo courtesy of Hudson Headwaters Health Network

After a two-year reprieve, New York plans to start diverting cash tied to big pharma – the so-called 340B revenues – from health care providers such as Hudson Headwaters Health Network to the state’s own Department of Health, creating a new revenue stream for New York but undermining the ability of providers to offer accessible, affordable health care.

The plan, which was included in Governor Kathy Hochul’s proposed 2024 New York State budget, must be approved by both houses of the legislature if it is to be adopted. 

If adopted, the plan “will have a financial impact on Hudson Headwaters, but not directly on patient care,” said Sean Philpott-Jones, Hudson Headwaters Health Network’s Vice President for Government Relations and Grants Management.

According to Philpott-Jones, the loss of 340B revenues to Hudson Headwaters could result in a continuing hiring freeze, reductions in the size and scope of education and outreach programs and delays in the renovations of health centers.

The 340B Prescription Drug Program

Created by Congress in 1992, the 340B Prescription Drug Program allows Federally Qualified Health Centers and other so-called Safety Net Providers to buy medicines from pharmaceutical companies at discounted prices, making prescriptions more affordable for low-income patients.

Moreover, the law authorizes the providers to pocket the difference between the manufacturers’ discounts and the funds they receive in the form of reimbursements from private insurers, Medicare and Medicaid.

Any gains that health centers may realize from the 340B program are eventually reinvested in the capitalization and expansion of the health center program, national experts say. 

According to Hudson Headwaters, that not-for-profit uses revenues from the 340B program to offset the cost of services such as palliative care, home-based care, obstetrics and gynecology.

State to Take Medicaid Managed Care Rebates

If Hudson Headwaters is less affected by the Governor’s proposal than other providers, that is because it is less dependent upon payments from Medicaid than most Federally Qualified Health Centers and many other Safety Net Providers.

According to Philpott-Jones, roughly a quarter of Hudson Headwaters’ patient population is on Medicaid, whereas, by comparison, 90% of the patients of some urban health centers are insured by Medicaid.

Governor Hochul’s plan seeks to capture only rebates tied to Medicaid patients and specifically, to patients enrolled in Medicaid Managed Care programs.

Under the Governor’s plan, Medicaid patients would be required to purchase their medication through the state rather than through Medicaid Managed Care programs and Managed Medicaid pharmacy networks, such as CVS Caremark.

“That’s not an insignificant amount of money, even for Hudson Headwaters, because of the rapid growth in the numbers of patients enrolling in CVS Caremark over the past two years,” said Philpott-Jones.

Huge Financial Impacts for Health Care Providers

According to the Community Health Care Association of New York (CHCANY), the diversion of 340B funds to New York State would result in an annual loss of $260 million to the state’s Federally Qualified Health Centers.

According to Sean Philpott-Jones, New York State has proposed returning $125 million to the health care providers affected by the change in policy.

“This reinvestment will backfill the loss of 340B revenues so these facilities are made whole and can continue providing care to vulnerable populations,” the Governor’s Budget Briefing Book stated.

Philpott-Jones said the $125 million “backfill” is inadequate and unlikely to reach the providers in time to avert lay-offs and even the closure of some facilities.

“Many health centers working in large, urban, underserved communities, live paycheck to paycheck,” said Philpott-Jones. “Any delay in receiving the rebates could cause them to miss a payroll, furlough staff, cut services or shut a clinic. The impacts will be huge.”

Philpott-Jones said he is working with a coalition of Federally Qualified Health Centers and Safety Net providers to persuade legislators – including those representing the Adirondacks and the North Country – to block the Governor’s proposal.

“We have bipartisan support from legislators who will stand up and speak out to protect the 340B program,” said Philpott-Jones.

While Hudson Headwaters’ bottom line would suffer less than many other providers’ will if the Governor’s plan is adopted, the issue is too important to ignore, Philpott-Jones said.

“Hudson Headwaters stands with other providers because we recognize that any erosion of safety nets affects the health and wellbeing of all New Yorkers,” said Philpott-Jones.

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