Hospitals, Not Poor Patients, Gain From 340B Program

Roxanne Nelson, RN, BSN

January 29, 2018

A federal program that was created to assist vulnerable or uninsured patients access prescription medicines appears to have been diverted from its intended course.

The 340B Drug Pricing Program was created to provide discounted drugs to hospitals that treat low-income patients. It was designed to encourage participating facilities to dedicate resources generated from these discounts to expand and improve care to these populations.

However, not all 340B hospitals are good stewards of the program, according to a new study published online January 24 in the New England Journal of Medicine.

Participating hospitals did indeed boost their revenue from the discounted drugs, but the financial gains were not necessarily passed along to the intended recipients.

Instead, hospitals in the 340B program "have responded to program incentives" by increasing the administration of parenteral drugs in hematology-oncology and ophthalmology. They have also increased employment of oncologists or have acquired oncology practices, say authors Sunita Desai, PhD, an assistant professor in the Department of Population Health at the New York University School of Medicine, and J. Michael McWilliams, MD, PhD professor of healthcare policy at Harvard Medical School, Boston, Massachusetts.

Additionally, they point out that rather than expanding care to vulnerable populations, these facilities were more likely to treat Medicare patients who have private supplemental insurance to cover the 20% copay of Part B.

Patients who received care in these facilities were less likely to be insured by Medicaid, which offers lower reimbursement for medical services than other methods of coverage.

The fact that these facilities are less likely to accept Medicaid is "consistent with the financial incentives of hospitals," the authors note. There is also evidence that these facilities have become increasingly affiliated with hematology-oncology practices that serve more affluent populations.

"We have been characterizing the 340B program as a case of incentives dominating intentions that is unfortunately emblematic of a broader problem in US healthcare policy," Dr McWilliams told Medscape Medical News. "The healthcare system typically delivers us precisely what it is designed to deliver, so when the results are poor, it is typically because the system or policy was designed poorly."

Therefore, a smarter policy is needed to adequately help the most vulnerable patients. Dr McWilliams pointed out that the Department of Health and Human Services recently lowered the rate of drug reimbursements to hospitals participating in the 340B program. Hospitals were being reimbursed at the average sales price (ASP) plus 6%, but now reimbursement will be the ASP minus 22.5%, which will reduce spending by an estimated $1.6 billion in 2018.

"It's a step in the right direction, and our results do indicate that it may help to slow consolidation that has not been found to do anything but increase prices," said Dr McWilliams. "But it wouldn't solve the problem that care for our low-income patients has not been enhanced with the surplus generated by the drug discounts.

"A more fundamental reform would be to eliminate the 340B program and replace it with policies that would expand and improve care for low-income populations more directly, without distorting incentives to provide drugs," he added.

The B Stands for Bonanza

This is not the first study to scrutinize the 340B Drug Pricing Program, which was created in 1992 by Congress to subsidize the cost of medications prescribed by healthcare providers who provide care to large numbers of uninsured patients and others with low income.

An article by Rena Conti, PhD, assistant professor of pediatrics and population health sciences at the University of Chicago Medicine, and Peter Bach, MD, director of the Center for Health Policy and Outcomes at the Memorial Sloan Kettering Cancer Center in New York City, noted that the program has grown exponentially, even as more Americans have obtained insurance coverage.

Enrollment in 340B escalated in the past decade, and now more than one third of the 4375 nonfederal hospitals in the United States quality for the 340B program, noted Dr Conti and Dr Bach in their report. From 2001 to 2011, the number of sites participating in 340B roughly doubled.

Their findings show that the more recent affiliates were not targeting poorer communities or the uninsured. Instead, they were serving communities that have higher household incomes, much less unemployment, and higher rates of health insurance coverage.

In 2014, the American Society of Clinical Oncology (ASCO) issued a policy statement calling for the program to be revisited.

At the time ASCO issued its policy statement, Blase Polite, MD, chair of ASCO's Government Relations Committee, told Medscape Medical News that "there are certainly a percentage of hospitals in the program that don't meet the original intent of 340B."

The 340B program has been blamed for playing a prominent role in the acquisition of community oncology practices by hospitals. Closures of community cancer clinics have increased 121% during the past decade, and consolidation into hospitals has increased 172%, according to the Community Oncology Alliance. This in turn has forced patients to receive care in the hospital outpatient setting, which is far more expensive for both patient and payer.

The program has helped create a market distortion. "Community oncologists who are taking care of uninsured or underinsured patients have no way of qualifying," said Dr Polite. "They don't get the discounted drug prices, and as we know, drugs remain a source of cost and revenue for oncology practices. This puts community practices at a severe disadvantage, and that's why we are seeing many oncology practices being purchased by hospitals."

Increase in Physicians and Parenteral Drugs

In this study, Dr Desai and Dr McWilliams used Medicare claims to assess the effects of the program on hospital-physician consolidation and on the outpatient administration of parenteral drugs by hospital-owned facilities in hematology-oncology, ophthalmology, and rheumatology.

"We only looked at those three specialties, as they are the three top in terms of use of injectable or infused drugs that hospitals are reimbursed for when administered in hospital-owned facilities," said Dr McWilliams.

He added that although those drugs were the focus of their article, the 340B program also covers other prescription drugs, and there may have been more consolidation involving other specialties to increase capacity for prescribing prescription drugs.

They also evaluated the effects of the program on the care and mortality of low-income patients.

Hospitals eligible for the program had about 2.3 more hematologist-oncologists practicing in facilities that were owned by the hospital, which translated to 230% more hematologist-oncologists then would be otherwise expected (P = .02).

Similarly, there were 0.9 (or 900%) more ophthalmologists per hospital (P = .08), and 0.1 (or 33%) more rheumatologists per hospital (P = .84).

"The increase in hematologist-oncologists and ophthalmologists working in hospital-owned facilities suggests either acquisition of practices by 340B hospitals or employment of physicians in those specialties in 340B hospitals' existing outpatient departments and off-campus practices," Dr McWilliams said. "We could not distinguish between the two, but both are probably contributing."

There were significantly more claims for parenteral drugs billed to Medicare in hematology-oncology (90% higher, P = .001) and ophthalmology (177% higher, P = .03), but not rheumatology (77% higher, P = .12), in eligible hospitals.

In hospital-level analyses, program eligibility was not associated with the annual number of inpatient admissions for dually eligible Medicaid/Medicare beneficiaries, patients living in high-poverty areas, or beneficiaries served by safety-net providers.

There was no evidence that the facilities provided increased inpatient care to low-income patients or enhanced the care of this population in ways that reduce mortality.

Stay Tuned!

In a commentary that accompanies the study, Walid F. Gellad, MD, MPH, and A. Everette James, JD, MBA, both from the University of Pittsburgh, in Pennsylvania, discuss the complexities of trying to rein in the 340B program.

How the new 340B cuts will affect patients will depend on the response of insurers and providers. The authors point out that there are no requirements that 340B discounts be passed on to patients, and Medicare beneficiaries who receive drugs via hospital outpatient departments are responsible for the usual 20% copayment.

"The clear intent of the new CMS rule is to lower the 20% copayment for patients by lowering the Medicare-reimbursed amount," they write.

However, more than 80% of Medicare patients have supplemental insurance that covers part of the copayment, so insurance companies would benefit from the savings. "There is no guarantee that these companies will pass this new discount on to patients," write the authors.

"Ultimately, understanding the likely impact of the 340B changes is complicated by a morass of regulations and exceptions," they note. "The controversy surrounding 340B is an archetypal problem in modern US health care policy."

The 340B program was well intentioned, but it expanded beyond its planned scope and now requires scaling back. But this will "cause pain" for facilities that for years have relied on this additional revenue, the authors write.

Not surprisingly, there has been backlash among some of the stakeholders. The American Hospital Association is suing to halt the 340B cuts, and legislation was introduced into Congress to prevent the changes from taking place.

"As the current debate about 340B plays out and the policy changes are enacted in 2018, stay tuned for the next act in this long-playing drama," the authors conclude.

The study was supported by grants from the Agency for Healthcare Research and Quality and the Robert Wood Johnson Foundation and by the Marshall J. Seidman Center for Studies in Health Economics and Health Care Policy at Harvard Medical School. Dr Desai, Dr McWilliams, and Dr James have disclosed no relevant financial relationships. Dr Gellad has received personal fees from St. Mary's Health Care System and from the American Society of Health-System Pharmacists outside the submitted work.

N Engl J Med. Published on January 24, 2018. Full text, Commentary

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