Safety Net Hospitals Game 340B Drug Price Program To Exploit Privately Insured Patients

The the 1992 Public Health Service Act (PHSA) Section 340B Drug Pricing Program, administered by the U.S. Health Resources and Services Administration, is now the second-largest federal prescription drug program after Medicare Part D.  Pharmaceutical manufacturers are required to provide steep discounts on medicines to clinics and hospitals serving low income patients. Participating health care providers save over 50% of outpatient drug list prices through the 340B program.

The 340B program grew when Congress allowed four more categories of health care providers in the 2010 Affordable Care Act.  The 340B Program now covers more than $ 80 billion in list price drug sales; more than $ 38 billion in actual transactional prices (at the discounted rates).

https://www.medpagetoday.com/hospitalbasedmedicine/generalhospitalpractice/108402

Infusion Drug Mark-Ups Higher at Safety Net Hospitals
— Study shows big difference in reimbursement-to-acquisition cost ratio versus private practice
By Crystal Phend - January 24, 2024

Hospitals given federal 340B Drug Pricing Program discounts to support their service for low-income populations marked up the cost of outpatient infusion drugs for privately insured patients substantially more than other hospitals, a study showed.

At 340B discount-eligible hospitals, the average price reimbursed for a set of the most used physician-administered medications was 3.08-fold higher than the acquisition cost, with an interquartile range for the median price mark-up from 1.87 to 6.38, reported James C. Robinson, PhD, of the University of California Berkeley, and colleagues writing in the New England Journal of Medicine.

After adjustment for drug, patient, and geographic factors, those hospitals' markups were 6.59 times higher than those seen in independent physician practices, whereas the markup at hospitals not eligible for the 340B discount were 4.34 times higher than those in physician practices, "which lack negotiating leverage with insurers and are not eligible for 340B acquisition-price discounts."

The 340B discount hospitals also held on to more of the profit, retaining 64.3% of insurer drug expenditures compared with 44.8% among non-eligible hospitals and just 19.1% at independent physician practices.

"The 340B [program] is not working as intended," Robinson told MedPage Today.

The federal 340B program was "designed to ensure that hospitals and outpatient clinics serving low-income patients could afford expensive drugs," his group noted.

However, Robinson argued that most of the money is going to mainstream hospitals treating non-indigent patients. "This gives them incentives to increase the volume of the drugs they administer, by purchasing the practices of physicians and inducing them to shift their patients from lower-cost community settings to high-cost hospital outpatient settings, in order to obtain the 340B discounts and resulting revenues."

That's bad for society, his group argued, because it undermines efforts to balance affordability for patient access against pharmaceutical industry revenues that fund research and development of treatments.

"The balance of access and innovation can be furthered if the funds expended by payers accrue to pharmaceutical innovators with a minimum amount of diversion by intermediate entities," they wrote. "Diversion drives a wedge between the amounts paid for health care by employers, individual persons, and government programs, on the one hand, and the amounts received by drug manufacturers, on the other."

The findings showed, however, that "hospitals that imposed both price markups to insurers and 340B discounts to manufacturers retained almost two thirds of insurer drug expenditures, passing on only one third to the drug companies," Robinson's group noted. Thus, "the eligible hospitals are not passing on to insurers the value of the acquisition-price discounts."

The discounts, for which about one-third of hospitals and their outpatient departments nationally are eligible, allows them to acquire outpatient drugs from drug manufacturers at an estimated 35% off the average sales price whether used for patients covered by private insurers or Medicare.

"The markup of reimbursement prices charged to insurers over the acquisition prices paid to drug manufacturers highlights the importance of payer mix to hospitals and physician practices, given that Medicare pays a markup above the acquisition price of only 6%," the researchers noted.

The 340B program has long faced skepticism as a generous subsidy to so-called safety net hospitals, "many of which are quite wealthy and successful hospital systems," commented Michael L. Barnett, MD, of the Harvard T. H. Chan School of Public Health in Boston, who was not involved in this study.

"This analysis shows that a government program meant to provide incentives to serve lower income Americans is actually a cash cow for hospitals with little accountability for whether that extra profit is allocated towards the population 340B is intended to serve," he told MedPage Today. "The lesson here is that drug spending in the U.S. is extremely distorted due to intermediaries pocketing enormous markups for drugs of all kinds. Even though the markup that hospitals put on infusion drugs and profits on retail pharmacy drugs have very different mechanisms, the level of dysfunction is similar. Patients end up paying billions of dollars to support markups that are untethered to the value of the drugs or standard competition that can control prices in other industries."

The pricing on infused drugs is a little more transparent because they "are not subject to the confidential rebates to payers that are prevalent for oral drugs and patient-injected drugs and that are managed by pharmacy benefit management firms," Robinson's group added.

The researchers obtained the actual amount reimbursed by Blue Cross Blue Shield for 2020-2021 nationally for a set of 57 infused drugs used primarily for oncologic conditions, inflammatory conditions, and blood-cell deficiency disorders that together "represent the most expensive physician-administered drugs, taking into account both unit prices and volume of prescriptions." The analysis didn't include drugs that are administered to hospital inpatients.

The deidentified claims data covered approximately 50 million persons ages 18 to 64 with employment-based or individually purchased insurance but not Medicaid or Medicare managed-care plans. Among them, 404,443 patients had infusion visit claims during the 2020-2021 period, with 4.4% of those visits occurring at hospitals eligible for 340B discounts, 7.2% at non-eligible hospitals, and 88.3% at community-based physician practices.

Discount-eligible hospitals accounted for 24.5% of all the infusions.

Absolute reimbursement price per drug unit was $650.24 more per drug unit at 340B discount-eligible hospitals and $633.90 more per drug unit at non-eligible practices than that earned by physician practices.

"Reimbursement-price markups above acquisition prices varied widely across drugs and care settings but were consistently higher in hospital outpatient clinics than in physician offices," the researchers reported. "There was little variability in the price markups for physician practices ... given that physicians lack the bargaining leverage used by some hospital systems to increase prices charged to insurers."

Reimbursement price was calculated by dividing the total paid amount on each insurance claim by the number of drug units administered to the patient during the infusion visit, reflecting just the amount paid for the infused drug. Charges for the clinical work of administrating the drug to the patient were paid separately and not assessed as part of the study.

Drug acquisition price paid by each hospital to the manufacturer had to be estimated using average sales price as calculated by the Centers for Medicare and Medicaid Services to reimburse drugs under Medicare Part B, which is based on net revenue data from drug manufacturers that accounts for all discounts and rebates to insurers, wholesalers, distributors, specialty pharmacies, mail-order pharmacies, retail pharmacies, and other supply-chain intermediaries.

Limitations included lack of information on patient income and a population enrolled in BlueCross BlueShield plans, which may not be representative of the entire population nationwide, especially those covered by Medicaid and Medicare or Medicare Advantage plans.