There’s at least one unassailable fact in the battle over the federal drug discount program: $1.6 billion is a lot of money.
That’s how much so-called safety net hospitals will lose from a Trump administration policy, revealed recently, to slash reimbursement to providers.
But other facts about the program, known as 340B, are muddy. Supporters say that the payments help pay for care of poor patients and that without them more hospitals will shutter. Various hospital groups are suing to stop the change from taking place on Jan. 1. Detractors say the program is being abused by some hospitals that use it to increase profits and market power.
The 340B program requires drug makers to offer discounts of up to 50 percent on medicines sold to safety net hospitals and health centers that serve low-income populations.
The Centers for Medicare and Medicaid reimburses hospitals for the discounted drugs at a much higher rate — 6 percent above average national prices. Hospitals get to keep the difference to spend on operations or services, in recognition of their efforts to serve the indigent and uninsured.
The program was created with bipartisan support and still enjoys backing from both parties. But there is also concern that it has drifted from its initial mission and that hospitals are not always using the money to serve disadvantaged patients.
Since its creation in 1992, 340B has expanded beyond a core of safety net providers and community health centers. By 2011, one study found, the number of 340B sites had ballooned to 16,500 nationwide, nearly double the number in 2001. Many of the new sites were outpatient clinics in more affluent communities, where hospitals could dispense discounted drugs to patients with commercial insurance.
“Hospitals could choose to act on the availability of these discounts to really profiteer without having to provide commensurate benefits to the community,’’ said the study’s coauthor, Rena Conti, a health economist and professor at the University of Chicago.
Conti, who has been studying 340B for nearly a decade, said hospitals do not have to explain how much money they make from the program, or disclose how they are using it. Furthermore, she said, commercially insured patients who received the drugs through outpatient clinics do not benefit from the discounts.
“This program, although it has wonderful original intent, doesn’t necessarily reflect the insurance reality of our time,’’ Conti said.
In recent years, government regulators have stepped up their scrutiny of the program. The Office of Inspector General conducted a series of reviews of 340B and its effect on Medicare, including a report that found that in 2013 participating providers were paid 58 percent more than the discounted prices, allowing them to make about $1.3 billion.
In the case of some drugs, the report found, a patient’s co-insurance payment alone was greater than the price paid by the provider. For example, the report said, participating hospitals paid $737 per treatment in the first quarter of 2013 for a drug used to treat bladder cancer. Meanwhile, beneficiaries were billed $831 per treatment, 13 percent more than the drug cost. In addition, the hospitals received $3,325 per treatment in reimbursement for Medicare. That’s $3,419 above the cost of acquiring the drug.
The inspector general recommended a series of options for trimming reimbursements under the program. The Medicare Payment Advisory Commission (MedPAC), which advises Congress on payments to hospitals, also recommended a 10 percent cut, with savings to be used to fund uncompensated care costs funded by the government.
The proposal drew fiery protests from hospital lobbyists and was not enacted. But the MedPAC plan would have been a much better deal than the one now being put into place by President Trump, which is a 28.5 percent cut in reimbursements — from plus 6 percent of average sales prices, to minus 22.5.
Trump’s director of Medicare and Medicaid, Seema Verma, said the cuts would save $320 million in 2018 for Medicare beneficiaries, who must pay 20 percent of Medicare’s reimbursement rate for their medicines. In a press release announcing the move, Verma portrayed the policy as part of Trump’s effort to fight high drug prices. But the facts are more complicated.
Drug prices for nearly all consumers will not be affected by the policy. Manufacturers will still be required to provide the discounts. And in slashing reimbursements, Trump is siding with drug makers who want to discourage hospitals from participating in the program, which would ultimately save them money, according to 340B supporters.
“It’s part of an effort by the pharmaceutical industry to create barriers to participation in the program,’’ said Richard Sorian, a spokesman for 340B Health, a lobbying group that represents hospitals that participate in the discount program.
The American Hospital Association and other groups are pursuing a lawsuit to stop the move while 340B Health and other groups are lobbying Congress to block CMS’s move legislatively.
STAT
Casey Ross can be reached at casey.ross@statnews.com.
