Cancer Drugs Drive Costs Beyond Forecasts in 340B Discount Program

Mary K. Caffrey, from AJMC.com
Published: Saturday, Oct 31, 2015
Ted Okon is the executive director of the Community Oncology Alliance

Ted Okon

The discount drug program intended for safety-net hospitals and special AIDS clinics has mushroomed even more than earlier reports have suggested, with oncology drugs fueling much of the growth, according to a new report commissioned by community oncology providers.

An examination of Medicare Part B hospital outpatient spending shows that 340B institutions accounted for 58% of all spending on drug payments in 2013, with oncology drugs making up 40% of the Medicare fee-for-service costs. The study, by Aaron Vandervelde of the Berkeley Research Group of Washington, DC, was sponsored by the Community Oncology Alliance (COA), which has sounded the alarm about unrestrained 340B growth in recent years.

Figures from 2010 through 2013 reveal explosive growth in cancer drug spending in the 340B sector: Medicare Part B reimbursement rose 123% for oncology drugs in this period, compared with 31% for non-340B hospitals and a 5% decrease for community oncology practices. Medicaid expansion may only exacerbate these trends if there are no changes to the program, according to the report.

Cancer drugs have become “the pot of gold at the end of the rainbow,” for 340B hospitals, said Ted Okon, executive director of COA. Okon said the report underscores two key problems: it’s too easy for hospitals to qualify for the program, and hospitals have powerful financial incentives to buy up oncology practices, so these financial strategies can proliferate at sites beyond the hospital walls.

Total Hospital Outpatient Part B Drug Reimbursement

Vandervelde A. 340B Growth and the Impact on the Oncology Marketplace. Community Oncology Alliance website. http://goo.gl/ZffY2a. Published September 15, 2015. Copyright Berkeley Research Group. Reprinted with permission.

The original purpose of 340B was noble: Hospitals caring for patients who may be uninsured or underinsured can buy drugs at discounts of 20% to 50% but charge full price to those able to pay, or to their insurer, which can include Medicare or Medicaid. But if this practice extends to oncology practices owned by the hospital, the ability to buy discounted drugs and charge insurers a higher price does many things at once: First, it forces independent oncology practices to compete with hospital-owned providers when they lack access to similar discounts; many are compelled to either join with the hospital or go out of business.

Second, Okon explained, the ever-increasing pool of providers buying “discounted” drugs means those rebates have to be built into the overall price, which has contributed to trends in oncology costs seen today.

“Already, 340B expansion has had unintended consequences,” Okon said. “Anyone who doesn’t think all these rebates are not fueling drug prices is not paying attention.”

While a July report by the Government Accounting Office (GAO) found that the 340B program had created perverse incentives for hospitals to prescribe more drugs and more expensive drugs, its finding that 40% of hospitals were enrolled did not fully capture the scope of recent growth. By looking at actual spending on prescriptions and comparing 340B and non-340B hospitals, Okon said, the report shows that “the big growth is on the hospital side, not the grantee side”; the latter group includes federally qualified health centers, Ryan White HIV/AIDS Centers, and other specialized clinics.

What’s more, spending on cancer drugs appears to be a business strategy among the 340B hospitals; left unchecked, this will only encourage more program growth, with consequences for all payers, Medicare and Medicaid, and patients who will face a combination of higher copayments and fewer care options in their communities. The report stated, “Oncology drug reimbursement has increased by 86% at continuously enrolled 340B hospitals and 58% at non-340B hospitals. Although some of this growth is a function of changing demographics and advancements in chemotherapy (which typically come with an increased cost), the disparity in growth rates between 340B and non-340B hospitals speaks to the disproportionate role that 340B hospitals play in the acquisition of community oncology practices.”

Percent of 2013 Outpatient Part B Drug Reimbursement to 340B Hospital Type

Vandervelde A. 340B Growth and the Impact on the Oncology Marketplace. Community Oncology Alliance website. http://goo.gl/ZffY2a. Published September 15, 2015. Copyright Berkeley Research Group. Reprinted with permission.

“This is, in large part,” the report concluded, “a function of the sizeable profits that 340B hospitals realize on Medicare and commercial reimbursement of oncology drugs.”

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