CMS' 340B Reform Effort Shakes Up Hospital-Clinic Partnerships

Deborah Abrams Kaplan
Published: Friday, Mar 29, 2019
Teri U. Guidi, MBA

Teri U. Guidi, MBA

Following a multiyear trend in which oncology practices merged with hospitals to achieve savings and improved care, it appeared as though the pendulum was going to swing the other way. The Centers for Medicare & Medicaid Services (CMS) in early 2018 changed the 340B Drug Pricing Program and reduced the outpatient drug purchasing advantage many hospitals had enjoyed over independents.

The result was that many formerly independent oncologists and their hospital partners began to rethink their joint agreements. Then, in December, District Court Judge Rudolph Contreras ruled that CMS had exceeded its statutory authority and overturned the payment reduction, restoring 340B payment to its previous format. Nevertheless, some industry insiders said many oncologists are now leaning away from hospital partnerships and that the trend toward alternative professional arrangements will continue.

The 340B provision in flux was a change in what CMS would pay for drugs acquired through the 340B drug discount program, which subsidizes the charitable care that hospitals provide. Through the program, hospitals have been able to acquire drugs from manufacturers at discounts of up to 50% and receive payment for more than 100% of the average sales price (ASP) of those drugs. Starting in early 2018, CMS began paying average sales price (ASP) minus 22.5%, which hospital groups contended was disruptive to the success of their programs. Contreras reversed the change on December 27, and this was the latest development in a long-running effort to control the growth and improve management of 340B (Figure).

Oncology management consultant Teri U. Guidi, MBA, said the CMS payment cut, while it lasted, caused a great deal of trepidation in the industry. Her firm, Oncology Management Consulting Group, of Pipersville, Pennsylvania, had hospital clients who told her, “If this happens, we won’t be able to pay the doctors what we guaranteed.” Meanwhile, the doctors worried, “They’ll want to cut my pay. They’ll want me to leave.” It became very difficult to make spending and facilities expansion decisions. One of her hospital clients spent weeks doing financial projections of whether it would be better to open an off-campus infusion center or expand the one already on campus.

During that tumultuous period, some oncologists reevaluated their hospital professional services agreements (PSAs) and ended or decided not to renew them. And although the 340B discount adjustments were a huge factor, there were other reasons why oncologists began to rethink their hospital partnerships. They may not have been happy with the status quo or wanted more decision-making authority, Guidi said. Culture and relationships between the hospital and the group may not have been aligned.

Figure. Evolution of the Troubled 340B Drug Pricing Program

Figure. Evolution of the Troubled 340B Drug Pricing Program

Figure. Evolution of the Troubled 340B Drug Pricing Program

Alternatives to Hospital Partnerships

Regardless of 340B and the drug purchasing discounts it provides to hospitals, conditions have become much more difficult for independent practices in recent years. Oncology practice has grown more sophisticated, complicated, and costly, requiring more staff, technology, investment, and patients to stabilize cash flows.

Over the past decade, 1249 community oncology practices and clinics have been acquired, merged, or closed, according to the 2018 Community Oncology Alliance [COA] Practice Impact Report. In that same period, 359 practices reported that at one time or another they were struggling financially, and 45 sent their Medicare patients to other treatment centers. COA reported that from 2016 to 2018, there was an 11.3% increase in the number of community cancer center closings and an 8.0% increase in consolidations with hospitals. However, it said the number of those struggling financially was down 7.9%, which was proportionate to the number of centers acquired or moved into the hospital setting.1

Various types of conglomerates of independent practices and other organizations have formed to provide efficiencies of care to rival those that hospitals have long enjoyed. These constitute increasing lures for some oncologists looking for arrangements that agree better with their own style of practice.

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