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340B Program Costs Exceed Earlier Estimates

Tony Hagen @oncobiz
Published: Tuesday, Sep 15, 2015

Mr. Ted Okon

Ted Okon

Key Takeaways
  • Independent oncology practice spending on drugs is flat while 340B hospital spending is climbing rapidly.
  • Contract pharmacy arrangements are proliferating as a result of 340B profit potential.
  • Critics say 340B draft revisions address need for stronger patient definition but not contract pharmacy loophole.
Costs under the 340B program, which allows many medical facilities to profit from government protected drug discounts designed to aid the uninsured and underinsured, have ballooned far beyond earlier estimates, based on certain aspects of the program that have not been looked at closely, says a report by the Berkeley Research Group and commissioned by the Community Oncology Association (COA).1

The report was made public this week as many authorities are poring over details of a voluminous 340B draft revision document that tightens the standards on when healthcare institutions can qualify for drug discounts under the program.

“Hospitals enrolled in the 340B program received 58% of total Medicare Part B hospital outpatient drug reimbursement in 2013, and over 60% of Part B reimbursement for oncology drugs, up from 43% and 47%, respectively, in 2010,” the Berkeley report says.

The findings show that growth in unfocused spending is soaring, large medical institutions and contract pharmacies are becoming enriched, and smaller independent oncology practices are at an increasing competitive disadvantage, says Ted Okon, executive director of COA.

For independent oncology practices not participating in 340B, Part B oncology drug reimbursement declined 5% during the 2010 to 2013 study period, whereas 340B hospitals realized a 123% increase and non-340B hospitals saw a 31% increase, according to the report.

The 340B program allows outpatient drug providers to get manufacturer drug discounts of up to 50% while obtaining full reimbursement from Medicare and private payers. The goal is to deliver drugs to needy patients at affordable prices while also allowing medical facilities to plow purchase savings back into their facilities and programs to help indigent or underinsured patients further. What is happening instead is that institutions often pocket the spread between the purchase discount and the reimbursement without benefiting needy patients, critics of the program say.

Hospitals Are “Intentionally” Using More Expensive Drugs

The Berkeley report confirms a finding by the General Accountability Office that 340B certified hospitals are “using more drugs and more expensive drugs” in order to maximize their gains, Okon said.

The problem is partly that Disproportionate Share Hospitals that receive subsidies for helping the needy are not held to high enough standards of accountability and transparency, Okon said.

A May 2015 report by the Medicare Payment Advisory Commission stated that 340B covered entities and their affiliates spent over $7 billion to purchase 340B drugs in 2013, three times the amount spent in 2005.2

Stephanie Silverman, spokeswoman for the group reform effort AIR340B, commented that the revisions are promising in that they represent an attempt to reconnect the program with its original mission. “It’s been a huge issue to be able to tie the benefits of 340B back to patients, who are vulnerable and in need. I think that’s the most promising part of the document,” she said.

However, there is no attempt in the revisions to curtail the exponential growth of contract arrangements between 340B hospitals and pharmacies, which often serve affluent communities and have little legitimate involvement with the 340B program, Silverman said. In addition, it’s not clear that pharmacies are extending the drug discounts to indigent or underinsured patients or that they are properly tracking to ensure that patients presenting prescriptions have obtained them from 340B providers, she said.

Figure: 340B Covered Entities Contracting With Retail Pharmacies and Mail Order / Specialty Pharmacies

340B Covered Entities Contracting With Retail Pharmacies and Mail Order / Specialty Pharmacies
The number of 340B covered entities contracting with retail pharmacies and mail order/specialty pharmacies has soared to over 3000 this year from less than 1000 in 2010, according to the Berkeley report. Pharmacy contracts were allowed under the program in order to extend drug discounts to poorer regions, but many pharmacies taking advantage of 340B operate in affluent areas, Silverman said.

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