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Qualified Insurance Plans on Health Exchanges May Reduce Drug Availability

P&T Journal
November 2013 - for a PDF copy of the published version go HERE.

Hospital Pharmacies Could Face New Pressures

Hospital pharmacy directors around the country are trying to figure out how their formularies match up with the formularies that will be used by the qualified health plans (QHPs) selling Obamacare policies in their state. "Hospital pharmacy formularies and QHP formularies will probably never be aligned as they have differing financial agendas, costs, etc., due to purchasing differences," says one West Coast pharmacy director who declines to be named given the political sensitivity of the issue. "If the hospital and the plan are aligned it would be best for patient care as there would be no changes between ambulatory care and hospital care and medication reconciliation. But that will probably not happen unless all incentives are aligned or one entity has control of the entire process/longitudinal care."

Of course, differences between commercial plan formularies today and hospital formularies are widespread. But the arrival of QHPs presents a whole new dynamic for hospital pharmacists. That is because QHP formularies must meet minimum federal drug access standards, which commercial, and even Part D, formularies do not. In addition, the QHPs are under intense pressure to reduce premiums, co-pays and co-insurance--again, a challenge of a different order than that faced by employer health plans, for example. Restricting drug access, whether through utilization reviews or off-formulary restrictions--may be the sharpest knife in the QHP apron.
 
But QHP formulary construction is only one of the issues that will be sorted out as the state health insurance exchanges open for business on January 1, 2014. The exchanges were conceived as a way to make health insurance affordable for about 40 million Americans who are without it. They are divided into two groups. The first is the quasi-poor, who earn too much to qualify for Medicaid currently, but would enter Medicaid as a result of what has come to be called Obamacare. The second is the better-off, self-employed and those working for smaller companies, neither of whom currently has health insurance.

The second group will buy their health insurance from the QHPs--the designation under Obamacare--in their state. The roster of QHPs will differ from state to state. All of them will have to provide benefits consistent with the federally-designated essential health benefit (EHB) standard, which is broken down into 10 categories.

One of those categories is pharmaceuticals. It is the only one of the 10 where the Department of Health and Human Services (HHS) established a minimum requirement. The EHB rule on pharmaceuticals says the QHBs in a given state must provide prescription drug coverage that is at least the greater of the following: (1) one drug in every United States Pharmacopeia (USP) category and class; or (2) the same number of prescription drugs in each category and class as the EHB-benchmark plan designated by the state. In most instances, the states chose a small group plan as a benchmark. In California, for example, that is the Kaiser small group plan. 

So for purposes of complying with the EHB pharmaceutical category requirement, every QHP in California must, at a minimum, have a formulary which has the same number of drug categories and classes as the Kaiser small group plan formulary. And the QHP must have the same number of drugs in each class as Kaiser, although they can be different drugs, as well as different formulations.  Or the QHP has to follow the USP option. In fact, almost all, if not every, QHPs will echo the benchmark formulary, a likely scenario given that the trade group for health plans--called America's Health Insurance Plans (AHIP)--tried to convince the HHS to delete the USP option. AHIP was unsuccessful. 

QHPs can have more drugs in a class than their state benchmark plan. The variability of benchmark formularies across the country is pretty striking. Avalere Health, a Washington, D.C. consulting firm, looked at the 50 states and assessed the number of total drugs each state's benchmark plan offered on its formulary. Some formularies were "open" and included 98 percent of the drugs sold today. Others like California were closer to 50 percent. 

Avalere came up with its percentages by looking at all 50 benchmark formularies, and taking the highest number of drugs, regardless of the state, in each category and class. This denominator was 1032. Then it looked, for example, at the Kaiser small group formulary in California and totaled up the drugs it offers in its categories and classes. That number is 644. Colorado is the low state on that totem pole, with 565, and Connecticut is at the top, with 1023.

Most QHPs will not supplement the benchmark because limiting drug access will be one of the few levers plans have to control plan costs. "Plans have significant flexibility on formularies," says Caroline Pearson, Vice President at Avalere. "That is something we will have to watch." The QHPs will use that formulary flexibility when setting drug deductibles, tiers and the exact drugs they will cover. Most commercial plans today charge dollar co-pays in higher drug tiers. However, based on some initial submissions from some states, QHPs could charge co-pays in the 30 percent to 50 percent range for their tier 4 drugs, especially in "bronze" plans. "That is just not done today," notes Pearson.

Conventional wisdom says formulary restrictions will have their biggest impact on out-patient access at retail pharmacies, and be of only limited concern to in-patient pharmacies, since drug costs for in-patients are bundled into the diagnosis related groups (DRGs). Moreover, the final EHB rule from the HHS said not a word about whether drugs on an in-patient pharmacy could count toward the QHPs "counts" in each category and class.

The Centers for Medicare and Medicaid Services (CMS) did attempt to clarify that question  after the final rule came out. "The CMS did say it would allow medical benefit drugs to count toward minimum requirements on pharmacy, but I don't think they realized the full implications," says a drug company policy expert. "There could be some gaming. Allowing medical benefit drugs to count toward the minimum requirements for pharmacy benefit drugs is like comparing apples to oranges."

Here is how that might work. Take the case of QHP A operating in a state with a benchmark formulary requiring 10 drugs for a chemotherapy "class." One class can cover multiple conditions. Further assume that the typical benchmark formulary today includes 10 oral drugs, perhaps the most recently-approved ones. If a hospital in that QHP's network instead uses five IV chemotherapy agents for that particular class, those five would count toward the 10 on the QHP formulary, and knock off the QHP formulary five of those other orals, some of which might be the only oral agent available for that condition. 

The second potential impact affects a hospital serving numerous QHPs. What if each of those QHPs uses a slightly different formulary? Would the hospital in-patient formulary be compelled to carry all the drugs on all the formularies of the, for example, 12 QHPs currently operating in California. 

Greg Low, RPh, PhD, Program Director, MGPO Pharmacy Quality & Utilization Program Performance Analysis & Improvement, Massachusetts General Hospital in Boston, thinks there may be a potential impact on MGH from that scenario, but he believes it will be very small. "The inpatient P&T does consider how frequently its formulary is causing switches and non-formulary requests," he explains. "The hospital does make some effort to align with ambulatory insurer’s formularies, but this is a tertiary concern to safety, efficacy, and economics."

Low illustrates a common situation. "For example, Nasonex (mometasone) is a formulary product for many of our local payers, but is not on the hospital formulary," he states. "A patient who uses Nasonex who is admitted will either use MGH’s formulary nasal steroid (fluticasone), go through MGH’s non-formulary process, or if the drug is unnecessary during the admission it would simply be restarted at discharge."

Ah, but for both in-patient and out-patient pharmacies, there is the rub: non-formulary process. The EHB final rule is unclear as to when QHPs have to pay for a non-formulary product. Drug companies wanted the HHS to lay out specific requirements such as more specific appeal rights for EHB pharmacy benefits, which should include shorter timelines for appeals determinations. The HHS did not include any additional safeguards in the final rule, or alter its proposed rule language in the slightest on that score. Instead, it said "additional guidance regarding our expectations for the required exceptions process is forthcoming in sub-regulatory guidance." It added that its research shows that a large number of plans already offer this option (i.e. access to non-formulary drugs) in the market today. "It is expected that plans that currently have such a process in place will not be expected to modify their existing process."

Besides HHS requirements for formulary coverage within the "pharmaceuticals" category under the EHBs rule, insurance plans will also have to meet anti-discriminatory standards which apply to all 10 categories, but have unique relevance when applied to pharmaceutical access. The big issue here has been whether plans can use utilization management techniques to tamp down unnecessary or overly-expensive drug costs. 

The final rule simply states the Affordable Care Act's prohibition against discrimination in formulary design and drug access but goes on to approve the use of "reasonable medical management techniques." It explicitly endorses the use of prior authorization, but a plan could not implement prior authorization in a manner that discriminates on the basis of membership in a particular group based on factors such as age, disability, or expected length of life that are not based on nationally recognized, clinically appropriate standards of medical practice evidence or not medically indicated and evidence-based. The final rule states: "For example, a reasonable medical management technique would be to require preauthorization for coverage of the zoster (shingles) vaccine in persons under 60 years of age, consistent with the recommendation of the Advisory Committee on Immunization Practices."

It is clear that QHPs will be relying on medical management and utilization reviews to keep patient drug costs under control. Molina Healthcare, Inc. will be offering a QHP in nine states. Like many of the other QHPs operating across the country, Molina has had a low profile. Companies such as United Healthcare, Cigna, Aetna and the other "big boys" have been missing from almost all states. Molina, started in California as a clinic in 1980, has had a thriving Medicaid managed care business in nine states. It is using those platforms to establish QHPs serving primarily lower income but not poor individuals looking for individual or family insurance on an exchange. In California, Molina will be offering exchange policies in Los Angeles, San Diego, and San Bernadino/Riverside areas where its Medicaid business is currently located, for the most part.

California has established different requirements for the QHP drug benefit than most other states. In the Golden State, all  QHPs must offer the same benefit structure with regard to co-pays and deductibles in each of the four health insurance categories. The least expensive, and therefore least expansive, is the bronze plan. Moving up the ladder is silver, gold and then platinum. So, for example, all QHPs in California must assess a 30 percent co-pay for tier 4 drugs in a bronze plan. For a bronze HSA, the co-pay is 40 percent. In a platinum plan that slides down to 10 percent. That is different in other states where QHPs have flexibility on co-pays as long as they meet an "actuarial value" for that level plan. In the case of bronze, that means the insured--on average--must pay 40 percent of the costs of coverage.

In California, because the pharmacy benefit structure is prescribed by the state, the QHPs try to keep premiums low by keeping costs low. Hashim says the key will be keeping administrative costs low, getting discounts from hospitals for medical charges and then "doing a great job in medical management," which will include prior authorization for off-formulary drugs which physicians may prescribe for patients. 

Besides carefully watching drug utilization and probably restricting off-formulary drug access, QHPs have also been careful in establishing hospital networks. "Where you can get the most competitive hospital contract is a big driver on how you can price your product," explains Hashim. "We have a Medicaid plan in the Sacramento area, but we couldn't get good rates from the providers up there so we aren't offering a QHP there." New Mexico is the only one of the nine states Molina is operating in which requires a QHP to serve the entire state.   
  
Molina, for example, is including about 80-90 percent of the physicians in its Medicaid networks in its QHP networks and 65-75 percent of its physician specialists. But only 40-50 of its Medicaid hospitals have been included in its QHP networks. Molina is not alone, not in California nor in any state, in picking and choosing the hospitals it wants in its networks. In some states, where there is a dominant hospital provider, the hospital has all the leverage, and can force Molina or any other QHP to pay commercial rates, somewhere around twice Medicare rates. That might be the case in eastern Wisconsin, for example, where Aurora Health Care has 15 hospitals and sits astride the health care delivery system like a colossus. In Los Angeles, where there might be much more hospital competition, Molina might get away with paying a hospital five percent above Medicare. 

Whether Molina or any other QHP in Wisconsin or any of the other 49 states survives is dependent not only on getting reasonable hospital rates but also getting a steady flow of new, profitable patients sent their way via Obamacare. The president and the Democrats in Congress who wrote the ACA, felt that if they "built it"--to parrot a famous line from the movie Field of Dreams--"they will come." But it isn't clear new patients are going to stream in the doors of QHPs starting January 1, 2014. The standoffishness of the major health insurance companies would seem to indicate some healthy skepticism about the profitability of the exchanges. United Healthcare, Aetna, Cigna and other majors have been standoffish. The health plans chosen for the state run plans such as Covered California and New York Health Benefit Exchange are a mishmash of companies, and the list rarely includes the "big guys." The California list of QHPs includes Blue Shield of California, Anthem Blue Cross and Kaiser Permanente. But the remainder of the list is filled in with what appear to be local and regional plans such as the Chinese Community Health Plan, Contra Costa Health Plan, Molina and Valley Health Plan, to name a few of the "no name" entrants. New York's players have a similar cast. Empire Blue Cross and Empire Blue Shield are the only known entities among that state's 12 QHPs.

Early indications are that there will be fewer uninsured signing up on exchanges than originally expected, at least at the start. During a webcast on September 16 hosted by the three major hospital trade groups, Dr. Mandy Cohen, senior adviser to the CMS administrator, told the participating hospital officials that HHS continues to focus its outreach efforts on the “younger cohort”—the 17.8 million uninsured individuals between the ages of 18 and 35—of whom more than 90 percent will be eligible for some sort of financial benefit for health insurance. Meanwhile, Cohen said, HHS continues to concentrate on eight states where more than 50 percent of the nation's uninsured individuals reside: California, Florida, Georgia, Illinois, New York, North Carolina, Ohio and Texas.
    
Hospitals are supposed to help with the education and sign up of prospective health exchange entrants. But a report published on September 18, 2013 by PwC's Health Research Institute (HRI) concludes that while the new customer base could provide a much-needed financial boost, few hospitals have developed comprehensive strategies to identify, educate and help enroll people in health plans sold through the new exchanges.

HRI  interviewed executives from major health systems that collectively represent more than 150 hospitals across 25 states, as well as national hospital associations and patient advocacy groups to understand their plans, progress and concerns related to participation in the 51 new state exchanges. Many providers have been slow to promote the expanded coverage options, HRI discovered. Health systems attribute delays in their enrollment efforts to multiple factors, including: "reform fatigue;" the need to finalize contracts with insurers; the slow trickle of information from regulators; and the desire for additional regulatory guidance, especially in the area of outreach designations and certification requirements.

"As the health industry moves from wholesale to retail, the customer takes center stage," said Ceci Connolly, managing director, PwC Health Research Institute. "Outreach and education should be top-of-mind for hospitals and health systems, but many are still coping with operational issues to ensure readiness for open enrollment. These companies will have to shift into gear quickly to focus on their consumer strategies and how to attract and retain a diverse mix of exchange customers."

Some of that caution may have to do with worries about reimbursement, either with regard to the commercial rates hospitals will be paid, or with regard to new enrollees choosing mostly the cheaper, bronze level plans, which are suppose to charge holders 40 percent of actuarial value, when cost-sharing, deductibles are added up. That 40 percent is the average for all people holding that bronze level coverage in a given plan. So that 40 percent will translate into a different dollar amount from state to state. Regardless, bronze level policy holders may leave hospitals with significant amounts of unpaid bills. Adding to that hospital angst in some states is the rejection of the Medicaid expansion, meaning the hope of transitioning current uninsured patients to Medicaid becomes a pipedream.
   
The promise of Obamacare may be illusionary, or it may be fulfilled. What is certain is that how hospitals will fare in this brave new world is, well, uncertain.

Good Kindling Fires-Up M&A Activity: Verizon Deal Provides the Fuel

November 2013
Financial Executive Magazine - for the online version go HERE.

When Verizon Communications Inc. Chairman and CEO Lowell McAdams spoke with analysts via a conference call on Sept. 3, 2013, he said his company was acquiring Vodafone Group plc’s 45 percent interest in Verizon Wireless “after a decade of anticipating.”

It was paying Vodafone $130 billion, consisting primarily of cash and stock, with about $49 billion of that total coming from the sale of bonds, marking it the largest corporate sale ever. Sitting in a studio at Verizon’s operations center in Basking Ridge, N.J., McAdams explained, in general terms, why the anticipation could now end: “The timing of this transaction is right from both the strategic and financial perspective.”

The timing appears to be right for many companies. “Many corporations have trimmed all the fat they can from their businesses and are now realizing their cost of capital is likely to rise. That’s one of the reasons we have been witnessing more M&A activity,” says Kathleen Gaffney, vice president and co-director investment grade fixed income, Eaton Vance Investment Managers. “If companies are going to finance a deal, there may be no better time than the present with rates still close to record lows.”

Microsoft Corp. announced its $7.2 billion purchase of Nokia Corp.’s mobile phone business at about the same time Verizon scooped up Vodafone’s share in Verizon’s wireless business. The Verizon and Microsoft deals overshadowed Koch Industries Inc.’s $7.2 billion purchase of Molex Inc. one week later.

Though the Koch acquisition was the same size as Microsoft’s, mention of its significance disappeared in the press the day after it was announced. As if acquisitions in the billions had suddenly become de rigueur. Deals continued to roll off the assembly line throughout the fall. On Sept. 18, Packaging Corporation of America acquired Boise Inc. for $1.995 billion.

Recent acquisitions have been both sizeable and smaller in dollars but still stunning. Amazon.com Inc.’s CEO Jeff Bezos’s $250 million purchase of the The Washington Post Co. in August is a prominent member of the latter category, although Bezos is making the purchase with his personal fortune, and for cash, so interest rates aren’t an issue there. US Airways Group’s merger with bankrupt American Airlines (AMR Group), announced last December, was perhaps less of a surprise, but no less significant, as two of the top five U.S. airlines could dissolve into one.
Conditions Driving M&A
The soil has been fertile for these kinds of deals for the past year, according to Greg Lemkau, co-head, global mergers and acquisitions, investment banking division, Goldman Sachs Group. Speaking in a webcast in July, Lemkau said, “Conditions driving M&A are as good as they have been in a long time.” He was referring to historically low interest rates, record corporate cash balances and relatively low corporate organic growth opportunities.

Given the current climate, Lemkau said it was “fascinating” that there had not been, up to that point in July, no big recovery in M&A. He cited as the reason “risk aversion by CEOs,” who had become gun shy because of big macroeconomic shocks such as the fiscal cliff and the euro crisis. But he noticed a big sentiment change over the past year. “CEOs of the biggest companies are much more forward leaning and much more confident than they were six or 12 months ago,” he said.

“They are thinking about big industry-changing transactions. Conditions are too good and all that is needed is a period of sustainable stability in the market,” said Lemkau. The Verizon, Microsoft, Koch and PCA deals were announced a few months later.

The pickup in M&A pace seems likely to continue barring any major economic shocks in the U.S. or elsewhere. KPMG issues its M&A Predictor, which bases predictions on two measures: predicted forward price to earnings ratios (P/E),its measure of corporate appetite, and the capacity to transact, as measured by forecast net debt to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). The July issue of M&A Predictor included data on 362 large U.S. companies, which were among 1,000 corporations worldwide included in the survey.

The model concluded the U.S. continues to outperform the market, even when times are tough. Forward P/E ratios were 4 percent higher than six months ago — modest but positive in an uncertain market — and 14 percent up year-on-year. The U.S.’s capacity to transact is robust, with an expected improvement of 20 percent over the next year. The U.S. market for mergers and acquisitions is in better shape than most other world markets, though Japan scored well, too.

Companies involved in this recent surge of M&A activity do not appear to be concerned about the Obama administration’s attempt to block some recent mergers, nor intimidated by the U.S. Department of Justice’s (DoJ) publication of new merger guidelines in 2010. “The changes in the 2010 merger guidelines were pro-enforcement because they expanded the theories and the types of evidence that the government could use to challenge mergers raising substantial competition issues,” explains Spencer Weber Waller, professor and director of the Institute for Consumer Antitrust Studies at Loyola University Chicago School of Law.

Those new merger guidelines might have been one factor in persuading the DoJ and six state attorneys generals to federal district court in August to block the US Airways/ American merger. Justice stepped in to force changes to a couple of big proposed mergers since 2010, including AT&T Inc.’s takeover of T-Mobile USA, which AT&T then dropped, and Anheuser-Busch InBev N.V’s merger with Grupo Modelo, which Anheuser-Busch subsequently revised in order to gain the Justice department’s approval.

Just one month prior to Justice flashing a red light to US Airways and American, the Federal Trade Commission (FTC), which is bound by the DoJ merger enforcement guidelines issued in 2010, issued an administrative complaint challenging Ardagh Group S.A.’s proposed $1.7 billion acquisition of Saint-Gobain Containers Inc.

The proposed acquisition would combine the second-largest manufacturer of glass containers (Saint-Gobain) and the third-largest (Ardagh). Owens-Illinois Inc. is the largest. Together, the three companies dominate the approximately $5 billion U.S. glass container industry. The next step in both cases is scheduled for this fall. An administrative law judge will hear the Ardagh case in early December.
Legislative Roadblocks
Verizon, Microsoft, Koch, PCA and any other purchaser or merger instigator is subject to the Hart-Scott-Rodino (HSR) law, which requires the Federal Trade Commission (FTC) or DoJ to review details of any large, proposed merger to insure it will be pro-competitive.

A company such as Verizon submits a notification to both agencies, which decides which one of the two will conduct the review. That decision is made based on which agency has expertise in that particular industry area, on staff availability and other factors. Both agencies can go to federal court to obtain an injunction to prevent a merger from taking place.

The FTC has the additional option of forcing a company like Ardagh to submit to a hearing by an administrative law judge, who makes a decision. Going that route can be much faster than going to court and it also allows the FTC to build a factual case that judge rebuffs the commission.

FTC Chairwoman Edith Ramirez told the Senate Judiciary Committee last April that fiscal 2012 saw twice as many HSR filings as FY 2009. In fiscal 2013, the FTC stepped in to block 16 mergers, in the energy, manufacturing, pharmaceuticals, health care and automotive industries. In a number of those cases, the mergers or acquisitions were approved when the dominant partner agreed to divest some of the assets of the purchased or merged company.

The Justice Department attempt to ground the US Airways/American deal could be viewed as a little perplexing given that the George W. Bush and Barack Obama administrations allowed six major airline industry mergers since 2005: U.S. Airways/ America West in 2005; Delta/Northwest in 2008; Republic Airlines’ acquisitions of both Midwest and Frontier Airlines in 2009; United/Continental in 2010; and Southwest/ AirTran in 2010.

But when Justice and six attorneys general filed the US Airways lawsuit on Aug. 13, Bill Baer, assistant attorney general, said the US Airways/ American combination would lessen competition for commercial air travel throughout the United States. “Importantly, neither airline needs this merger to succeed,” he added. “We simply cannot approve a merger that would result in U.S. consumers paying higher fares, higher fees and receiving less service.”

The two airlines argue the merger is “pro-competitive.” In testimony before the House Judiciary Committee last February, Gary F. Kennedy, senior vice president, general counsel and chief compliance officer, American Airlines Inc., called the merger a combination of two complementary networks that will offer consumers more service at more times to more places.

“And because this will be a merger of complementary networks, these benefits come with virtually no loss of competition,” he explained. “Of the more than 900 domestic routes flown by the two carriers, there are only 12 overlaps. This is one reason we are convinced that this merger is consistent with good public policy.”

Clifford Winston, senior fellow, economic studies program, The Brookings Institution, has studied the U.S. airlines industry. “I don’t see the basis for DoJ opposition and they have not clearly and persuasively articulated it,” he says. He explains that carrier competition would continue to be intense and low-cost carriers would continue to put downward pressure on fares.

Entry and exit would continue to be fluid in airline markets as a merged American and US Airways would optimize its network by exiting some routes and entering others, while other carriers would adjust their networks by entering some of the routes that American exited and exiting some of the routes that they entered.

Of course, Justice’s attempt to scuttle the US Airways/American merger has raised concerns over whether it will do the same in the case of the Verizon merger with Vodafone.

Robert Doyle, Jr., a partner with Doyle, Barlow & Mazard PLC and former deputy assistant director in the FTC’s Bureau of Competition, says: “Given that Verizon Communications had a preexisting 55 percent controlling interest in Verizon Wireless, buying its remaining 45 percent from Vodafone doesn’t seem to change the competitive dynamics in the industry, since it won’t change the controlling interest in Verizon Wireless.”

Verizon Communications controlled Verizon Wireless before the Vodafone deal, he says, and will control it after the deal. Nothing changes, he says, “I don’t see any change post acquisition that should raise any DOJ antitrust concerns with the deal.”

A Justice challenge to Verizon would be a lot more surprising than its challenge to US Airways, which itself elicited some head scratching. Whatever the level of anti-trust enforcement from the Obama administration, it is not impeding the announcement of M&As, which continued to appear through the fall, including some big ones, such as Applied Materials Inc.’s merger with chip-equipment rival Tokyo Electron Ltd., a $10 billion deal.

Barring the U.S. falling off some fiscal cliff or Federal Reserve Chairman Ben Bernanke turning off the cheap money faucet, other blockbusters seem certain to follow.

Sidebar
U.S. Approval of Chinese Acquisition of Smithfield Sends ‘Open Door’ Message
The U.S. government’s approval of a Chinese acquisition of one of America’s leading food processors may have opened the door to a broader range of foreign buy-ups of U.S. companies. In September, The Committee on Foreign Investment in the United States (CFIUS) green lighted Shuanghui International Holdings Ltd.’s acquisition of Smithfield Foods Inc., the world’s largest pork producer and processor. The acquisition represents the largest-ever purchase of an American company by a Chinese company.

CFIUS reviews potential purchases of U.S. companies that could threaten national security. Its review of the Smithfield deal was the first time the committee had looked at a potential acquisition in the field of agriculture.

Some members of Congress questioned the thoroughness of the CFIUS review. Sen. Debbie Stabenow (D-Mich.), chairwoman of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, was unsure, given CFIUS’s non-public process, whether issues such as the potential impact on American food security, the transfer of taxpayer-funded innovation to a foreign competitor or China’s protectionist trade barriers were considered.

“It’s troubling that taxpayers have received no assurances that these critical issues have been taken into account in transferring control of one of America’s largest food producers to a Chinese competitor with a spotty record on food safety,” she said.

Larry Ward, a partner at international law firm Dorsey & Whitney, notes that “Within the last year, at least two deals where the acquirer was ultimately owned by a Chinese state-owned entity were effectively prohibited by CFIUS and so clearance of this transaction may ease concerns so such entities may feel comfortable again in investing in  the United States.”

Read more: http://www.financialexecutives.org/KenticoCMS/Financial-Executive-Magazine/2013_11/Good-Kindling-Fires-Up-M-A-Activity--Verizon-Deal-.aspx#ixzz2k5JTpj31

Possibility of FDA Regulation of Health Information Technology Looms Large

P&T Journal
October 2013 - for a PDF copy of the published version go HERE.

Pharmacies and Their Vendors Worry About Quality


The hospital drive to implement health information technology (HIT) systems, driven in good part by Medicare and Medicaid incentives (and penalties), has certainly affected pharmacy systems, and will continue to do so as the definition of "meaningful use" is expanded to incorporate more required medication tasks. So anyone who works in a hospital pharmacy ought to be interested in how the federal government regulates these new technologies, be they hardware or software. Retail pharmacies, too, even though they are not being pressured by incentives, are concerned about how any regulation would affect mobile medical devices such as glucose monitoring/diabetes management, at home hypertension monitoring/management, medication management, and medication reconciliation at transitions of care. 

Pharmacy organizations such as the Pharmacy e-HIT Collaborative are communicating with a work group within the Department of Health and Human Services (HHS) Office of the National Coordinator for Health Information Technology (ONC) which will be making HIT recommendations to Congress imminently. That report will provide directions to the Food and Drug Administration (FDA).

Surescripts, too, is concerned about the failure of some pharmacy systems vendors to police the quality of their products. Surescripts provides the e-prescribing electronic backbone which software vendors plug into. Those vendors sell plugged-in e-prescribing systems directly to end-user pharmacies. David Yakimischak, General Manager, E-Prescribing, says the company has worked hard to encourage its vendors to adopt quality programs leading to fewer pharmacy errors. "Vendor responsiveness has been relatively random," he explains. "Quality/patient safety performance does not appear to play heavily in end-users’ purchasing decisions. Our conclusion is that in the absence of new incentives and penalties, there is currently little or no business case for vendors to make significant investments in high quality patient safety programs."

The FDA is under a congressionally-mandated deadline of January 2014 to produce a regulatory framework for HIT. The key issue is whether the FDA should be allowed to regulate all HIT as it does medical devices. Or should some HIT, especially software where pharmacists and physicians interact with a system to make clinical decisions or observations, even be regulated at all. There are those who think systems requiring clinical intervention should be certified, not regulated, by a non-federal body such as The Joint Commission, with that certification process overseen by the ONC. The ONC already has a few years of experience certifying HIT eligible for incentives (which go to the purchasers, such as hospitals) decreed by the 2009 stimulus bill. "The ONC is well positioned to coordinate oversight among these various organizations to ensure patient safety, prevent overlap and continue to foster innovation and adoption of health IT by providers," states Ann Richardson Berkey, Senior Vice President, Public Affairs, McKesson Corp. She says organizations such as the National Committee for Quality Assurance (NCQA), The Joint Commission or URAC have track records in the rigorous accreditation of healthcare software.

The American Hospital Association (AHA) thinks products should be regulated based on the risk they pose to patients. Key factors to be considered include the potential for harm, the extent of harm, and the extent to which software is automating and or guiding clinical decision-making. "For example, when drug dosage data are sent from an order entry system to a pharmacy information system, it is crucial for safety that both the data points and their units of measure are accurate within each system and across systems," says Linda E. Fishman, Senior Vice President, Public Policy Analysis & Development, AHA.

Last February, the Bipartisan Policy Center, a think tank of sorts meant to meld Democratic and Republican views, produced a report called An Oversight Framework for Assuring Patient Safety in Health Information Technology. It stated: "The FDA’s current regulatory approach for medical devices is generally not well-suited for health IT." The report recommends that HIT products be divided into three categories according to the relative risk to patients and the opportunity for clinical intervention. Those where there is no or little opportunity for clinical intervention represent a higher potential risk of patient harm. Such devices are currently regulated by the FDA as Class I, Class II, or Class III medical devices. The FDA would continue to regulate these devices.

The lowest risk category would be administrative software which supports the administrative and operational aspects of healthcare but is not used in direct delivery of clinical care. Population analytics, back office billing systems, claims payment systems, and prescription drug refill reminders are all examples of software that are not used for patient specific treatment or diagnosis. The BPC recommends no additional oversight for this category.

The middle category would include products which can be used to recommend a course of care; call this category clinical software. Very few participants in the debate, at least on the industry side, think this category should be regulated by a federal agency.
    
Meanwhile, the ONC's ability to translate its considerable HIT experience into political weight in any upcoming battle with the FDA over new regulations is compromised by the absence of a National Coordinator, given the departure of Farzad Mostashari, M.D. The position needs to be filled quickly, and for a lot of reasons.

New Silica Dust Proposal Would Have Big Impact on Foundries, Other Manufacturers

The Fabricator
October 2013

The Occupational Safety and Health Administration (OSHA) could impose new costs on metal casters and other manufacturers if it moves forward with new workplace exposure rules for crystalline silica, which gets into the air, in the case of foundries, when silica sand molds are broken in order to remove the  cast metal part. The OSHA lists foundry workers as numbering the highest among any general industry category for being exposed to levels of crystalline silica above the current permissible exposure limit (PEL). And only the concrete products sector has more total workers exposed to crystalline silica.

The proposed rule would replace a 40-year-old PEL of 100 micrograms with one set at 50 micrograms and an action level of 25 micrograms. The action level is the standard’s trigger for increased industrial hygiene monitoring and initiation of worker medical surveillance.

Groups such as the National Association of Manufacturers say no new standard is needed because there has been a 93 percent reduction in silicosis mortality from 1968 to 2002, according to the Centers for Disease Control and Prevention. Silicosis, an incurable sometimes fatal lung disease, is the major health effect caused by crystalline silica exposure.

The costs for all companies subject to the new standard, even those with admirably low current exposure limits, might be substantial given the exposure monitoring, medical monitoring and training costs. The OSHA estimates those to be $630 million for all sectors, total, on an annual, recurring basis. Amanda Wood, Director, Labor and Employment Policy, NAM, says industry estimates are $5 billion. Given the costs of compliance that all companies would face, Wood says the OSHA ought to focus on companies violating the current standard. 

The yawning difference between the OSHA and industry cost estimates may be because the OSHA says the  provisions of the proposed rule "are similar to industry consensus standards that many responsible employers have been using for years, and the technology to better protect workers is already widely available."

New SEC Task Force on Financial Reporting

Strategic Finance
September 2013

The head of the Securities and Exchange Commission's new Financial Reporting and Audit Task Force says he will be using data mining and other techniques to find companies who may be skating on thin accounting ice. In an interview with Strategic Finance, David Woodcock, Director of the SEC's Fort Worth Regional Office and head of the task force announced in July, explains that instead of relying on whistleblower tips or looking at public restatements, the task force will use internal and external data mining technologies and data bases such as the SEC's accounting quality model to locate companies who appear to be using aggressive accounting. "We will incubate the cases, basically kicking the tires of the company's accounting," he explained. If the task force finds some potential financial reporting or accounting fraud, it will refer the company to either a regional office or the national enforcement division for additional investigation.

Woodcock appears to be uniquely suited for this job, which he will be doing part time, ceding full time responsibilities to a staff of about eight professionals, half accountants, half lawyers, who will remain in the current locations. They will not relocate to Ft. Worth. Prior to obtaining a law degree, Woodcock worked for four years at Ernst & Young and Price Waterhouse as an auditor, and received a CMA certification.   

Some have argued that the SEC has ignored financial reporting fraud over the past decade, possibly because the Sarbanes-Oxley reforms may have curbed those problems, or perhaps because the agency, especially since 2008, has been preoccupied by Wall Street and financial company excesses. But Francine McKenna, who has written about accounting fraud in Forbes magazine, published a story last October which stated that the SEC’s 2012 whistleblower program statistics show that the most common complaints are for corporate disclosures and financial fraud, 18.2 percent, "even though we know now that it’s the eleventh straight year of fewer enforcement cases filed for accounting fraud and disclosure violations."

Woodcock says he does not think the SEC has turned a blind eye to corporate reporting fraud. He admits, however, that he doesn't know the dimensions of problems in that area. He aims to find out, by "concentrating" the agency's resources which have been somewhat spread around, and by going outside the agency to academic experts and others who may have some useful technologies for analyzing and finding corporate financial peccadilloes. The task force will be looking at both small and large companies, paying particular attention to areas such as revenue recognition, underreporting of costs and expenses, long term contract accounting, reserves and allowances and non-GAAP measures.

DOE Takes Next Step on Energy Efficiency Standards for Industrial Pumps

Green Manufacturer
September/October 2013 - for the online version go HERE.

The Department of Energy (DOE) has taken the next step in establishing first-time energy efficiency standards for industrial and commercial pumps. The agency is in the process of putting together what is called a negotiated rulemaking committee composed of users, manufacturers, and environmentalists who ostensibly hammer out a standard which then flies through the rulemaking process, without any objections.

The DOE previously released a request for information in 2011 and then a framework document last February providing some direction on where it expects to go, in terms of the categories of pumps covered and the kind of metrics that could be used to set new efficiency standards. The pump manufacturers, represented by the Hydraulic Institute, are pressing for "an extended product approach" using an energy efficiency index (EEI) which would take into account the pump, motor, variable speed drive and control and feedback systems. The HI has been working with environmental groups such as the American Council for an Energy-Efficient Economy (ACEEE), the Alliance to Save Energy, and the Natural Resources Defense Council (NRDC) on consensus standards with those efforts focusing on clean water commodity-type pumps. 

However, environmentalists want to expand the types of clean water pumps to include double-suction and circulator pumps. The EU already has a Directive (547, 2012) on efficiency standards  for clean water pumps, and the DOE generally intends to follow it. Charles Llenza, project manager for the rulemaking, says, "We have sort of borrowed from their playbook a little until we get our footing with this rulemaking and  the stakeholders input in the U.S. industry."

The DOE estimates clean water pumps represents about 70 percent of sales by value and 90 percent of  pump energy use. Those pumps can be used for chemicals and other liquids, and the DOE is considering roping "chemical" pumps--to the extent any are used primarily for that end use--into the new standard. But wastewater, slurry, API 610 pumps are outside the purview of this rulemaking.

A major issue will be whether to include variable speed drives (VSDs) in the standard. Greg Towsley, Director, Regulatory and Technical Affairs, Grundfos Pumps Corporation, the Danish concern which claims to be the world's largest pump manufacturer, wants VSDs to be included.  

But Steve Rosenstock, Senior Manager, Energy Solutions, the Edison Electric Institute, which represents investor-owned utilities, says, "EEI does not support establishing standards or test procedures based on pump performance with a variable speed drive controller. Pumps are used in a variety of applications and not all are a good fit for VSD."

Senate to Consider Pipeline Permitting Reform, Too

Pipeline & Gas Journal
September 2013 - for the online version go HERE.

The Senate may consider some form of pipeline permitting reform but the bill may not look like the one the House was expected to pass. Sen. Ron Wyden (D-OR), chairman of the Energy and Natural Resources Committee, released a broad statement on natural gas issues July 25.

Fleshing out the details in a speech hosted by the Bipartisan Policy Center Wyden laid out four areas – infrastructure, transportation, exports and shale development – where he is working to find bipartisan agreement. With regard to infrastructure he said he wants to speed pipeline development while plugging methane leaks that threaten the climate advantage that natural gas provides. “I’m going to look for ways to not just build more pipelines, but to build better pipelines,” Wyden said.

Sen. Lisa Murkowski (R-AL), the top Republican on the committee, is also interested in moving forward with pipeline legislation, but apparently is less interested in some broader natural gas bill. "We are doing our due diligence and seeing whether legislation is needed or whether the Federal Energy Regulatory Commission (FERC) can improve the permitting process administratively," says Robert Dillon, spokesman for Murkowski. "Sometimes legislation leads to unintended consequences."

Keith Chu, a spokesman for the Senate Energy Committee, says there isn’t a hearing scheduled for H.R. 1900. He adds, "Chairman Wyden is interested in talking to colleagues about whether there is interest in speeding up permitting while also addressing methane emissions, but it’s too soon to say whether there would be legislation."

Any Senate bill may contain some of the provisions in the Natural Gas Pipeline Permitting Reform Act (H.R. 1900) passed by the House Energy & Commerce Committee 28-14 on July 17. But there wasn't much Democratic support for that bill in the House. That means Wyden is likely to either modify many of H.R. 1900's provisions and add new ones, especially given his interest in seeing pipelines reduce methane emissions.

Wyden may accept some elements of H.R. 1900 since its sponsor, Rep. Mike Pompeo (R-KS), agreed to changes in the bill to appease the FERC. Those changes clarified that the expedited approval process endorsed by the bill would only be available to pipeline sponsors who put projects through the pre-filing process. That 12-month limit on how long FERC could take to either approve or reject a project after completion of a final environmental impact statement would begin after the commission received a completed application from the sponsor. Even after those changes were made, 14 Democrats voted against the bill and only two voted for it, meaning the legislation has a GOP stamp on it, clouding prospects in the Democratic-controlled Senate.

EPA Balks at Updating Aftermarket Catalytic Converter Standard

Key Senator Turns Up Heat on Pharmacy 340B Purchases

P&T Journal...July 2013

Federal Office in Charge of Drug Discounts Begins to Feel the Heat



      The federally-run 340B drug discount program many safety-net hospitals use to keep their financial heads above water has become a bobbing target for congressional critics and the agency which supervises the program, the Health Resources and Services Administration (HRSA). The program requires brand-name drug companies to sell their medicines at deep discounts to nearly 20,000 hospitals and clinics in the U.S. as the price of selling those same drugs at higher prices to state Medicaid programs. The program has been around since 1992. Congress created it as a way to help hospitals with high uninsured populations generate revenue, allowing them to swim rather than sink. The program has operated in calm waters for two decades. 

     Hospitals eligible for the 340B program include certain disproportionate share (DSH) hospitals, children’s hospitals, freestanding cancer hospitals, rural referral centers, sole community hospitals, and critical access hospitals. While DSH hospitals have been eligible for the program since its inception, children’s hospitals became eligible in 2006, and the remaining hospital types became eligible through the Affordable Care Act (ACA). In 2010 the federal Office of Pharmacy Affairs (OPA), which is located within HRSA and has prime responsibility for the program, opened the door to a major expansion of the program by allowing hospitals to sell 340B drugs from area pharmacies, not just from out-patient pharmacies attached to the hospital, as had been the rule since the program began.

      Those significant expansions of the program have led in part to the sharks now circling it. Some of the criticisms are both on target and at the same time unfair.  The program allows safety net hospitals with a "DSH percentage" above a certain rate--essentially a stand-in for high uninsured population--to purchase brand-name drugs at discounts of 25-40 percent. Hospitals pass those discounts on to their uninsured patients, but bill patients with private insurance or Medicare for what would otherwise be the full price of the drug, pocketing the difference between the discounted price the hospital pays and the higher price the insurance company or Medicare reimburses.
     Some hospitals add millions of dollars of revenue to their bottom lines by selling large percentages of their 340B drugs to private pay patients. Sen. Charles Grassley (R-Iowa) calls the practice "upselling." There is nothing illegal about that. In an interview, a Grassley staffer acknowledges that upselling isn't a violation of the program's legal basis. But she says the senator believes "that it is not appropriate." He is particularly rankled by situations where hospitals use 340B profits to build, for example, oncology clinics which serve very high percentages of private pay and Medicare patients.
     In a letter published on April 11, 2013 in the Charlotte, North Carolina Observer, responding to a critical editorial in that paper, Ted Slafsky and Lisa Scholz, representing Safety Net Hospitals for Pharmaceutical Access (SNHPA), wrote: "The purpose of 340B, from day one, has been to enable safety-net health care providers to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services." Slafsky is the executive director of SNHPA and  Scholz is chief pharmacy officer, chief operating officer.      They were responding to an earlier editorial in the paper lauding questions raised about the program by Grassley.
     Grassley has spotlighted three North Carolina hospitals for upselling; they include Duke University Hospital, UNC Hospital and Carolinas Medical Center. Duke University Hospital reportedly made $69.7 million in profit last year by selling the discounted drugs to patients. Sara Avery, a Duke spokeswoman, declined to comment for this story.
      In an April 18, 2013 press release Grassley wrote: “When I looked at three North Carolina hospitals’ use of this program, the numbers showed the hospitals were reaping sizeable 340B discounts on drugs and then upselling them to fully insured patients to maximize their spread.  If ‘non-profit’ hospitals are essentially profiting from the 340B program without passing those savings to their patients, then the 340B program is not functioning as intended.  Our inquiry into the Georgia hospital will help us continue to examine hospitals’ use of the 340B program.”
    The reference to the "Georgia hospital" is to Columbus (Ga.) Regional Healthcare System. On April 18, 2013, Grassley and Rep. Bill Cassidy (R-La.) wrote to the Columbus hospital after a hospital executive said during a public interview that the hospital does not receive a “windfall of profits” from participating in the program and puts the proceeds into the hospital.  Cassidy says, "I recognize the value and importance of the 340B drug discount program. Given this importance, we must be sure that its good work is not threatened by those who misuse. Our common goal must be better care for those who are less fortunate.”
      The three North Carolina hospitals do serve a high percentage of the less fortunate. Duke University Hospital's Medicare DSH adjustment percentage is 18.9 percent in its most recently filed cost report, as compared to the threshold requirement of 11.75 percent for its participation on the 340B program. However, it is true that a high percentage of Duke patients who receive 340B drugs are not uninsured. The hospital's 340B drugs are distributed in these percentages: Medicare patients 19 percent, North Carolina Medicaid patients 9 percent, private pay patients 67 percent, self-pay patients 5 percent. Those statistics are according to Duke's response to an inquiry from Grassley.
        Carolinas Medical Center (CMC) has a much smaller private pay percentage, although the hospital, in its response to Grassley inquiries, breaks down its 340B distribution into two distinct segments: out-patient pharmacies on one hand,  and its four in-house pharmacies attached to its four community clinics. In the first instance, based on 2011 numbers, the private pay percentage is 41.9 percent and uninsured was 11.3 percent. That is reversed for the four community in-house pharmacies: uninsured 73.9 percent, private pay 0 percent. The CMC charges an amount ranging from $0 to $10 per prescription to uninsured patients, based on individual patient financial resources. These negligible patient payments and low Medicaid reimbursements (12.7 percent...Medicare Part D is the remaining 13.4 percent for the four clinic pharmacies) do not cover the total direct and indirect costs of operating the outpatient community clinic in-house pharmacies; in fact, the CMC operates the outpatient community clinic in-house pharmacies at a $9.8 million average annual deficit to the hospital.

     What is not clear from the North Carolina response is the volume in 340B distribution outpatient pharmacy v. community clinic in-house pharmacy. Given the fact that the CMC reported to Grassley that it "saved" (a synonym here for "profits") $21 million in 2011 one would gather that the out-patient pharmacies served much greater numbers than the four pharmacies at the community clinics, and hence its total private pay percentage is considerably higher than 41.9 percent. A CNC spokeswoman did not respond to repeated e-mail requests for clarification.

      But the CMC put those profits to good use, particularly in the area of pharmacy services. At its cost, the CMC has dedicated multiple clinical pharmacists to the community clinics to provide intensive management of diabetes, asthma, HIV, anticoagulation and heart failure. For example, since an intensive shared decision-making asthma pilot program has been put in place in the CMC outpatient community clinics, hospitalizations and emergency visits for asthma patients dropped from 14.5 percent to 9.3 percent. In this same asthma pilot program, emergency department visits and hospitalizations reduced Medicaid average cost by an estimated 11 percent over usual care. Patients with asthma make up a significant portion of the North Carolina Medicaid population; therefore, any reduction in hospitalizations or additional care ultimately benefits the state Medicaid program.   

     Grassley would probably say that most of the CNC's 340B profits are plowed back to help the uninsured. The trouble is the 20,000 sites in the program do not have to report those details on how they use 340B profits to the OPA. So the program lacks transparency, according to the senator, and the small agency has done very little in the past two decades to either require transparency or even audit hospitals to see whether they are adhering to program rules.

      A September 2011 Government Accountability Office (GAO) report helped seed Grassley's unhappiness. That report basically said the OPA was a watchdog without either a bark or a bite. The GAO concluded: "HRSA’s oversight of the 340B program is inadequate to provide reasonable assurance that covered entities (i.e. hospitals) and drug manufacturers are in compliance with program requirements—such as, entities’ transfer of drugs purchased at 340B prices only to eligible patients, and manufacturers’ sale of drugs to covered entities at or below the 340B price. HRSA primarily relies on participant self-policing to ensure program compliance. However, its guidance on program requirements often lacks the necessary level of specificity to provide clear direction, making participants’ ability to self-police difficult and raising concerns that the guidance may be interpreted in ways inconsistent with the agency’s intent."

     That GAO report, coming on the heels of the ACA expansion of the program, forced the OPA to get off its duff. As a result, the agency announced it would be doing its first-ever audits of hospitals starting in fiscal 2012.  As of February 2013, the OPA had completed audits of 18 of the targeted 51 health systems. Sixteen passed with flying colors. Two had violations related to inaccurate database entry and were required to submit corrective action plans. There have been six audits performed by drug manufacturers, three of them finalized. But David Bowman, a HRSA spokesman, says those results have not been made available. The HRSA has done no audits of drug manufacturers, who, hospitals have alleged, sometimes charge higher prices for medicines than allowed.

     It is hard to blame the OPA, which has a miniscule budget of $4.4 million. The Grassley staffer says her boss is "really pleased" with some of the steps the OPA has taken in the past year, but that the agency "has a long way to go." In addition to the first-time audits, the OPA also did its first-time "recertification" of  the program's participants, and in March of 2013 announced it had kicked out 598 of the 20,000 covered entities. "We were really pleased with that," notes the Grassley staffer. "But even with that decertification process, HRSA is not perfect." She argues that those 598 covered entities, probably mostly hospitals, which were using 340B when they were no longer eligible should have been penalized in some shape or form. They were not. "That is very frustrating for us," the Grassley aide says.

      She also argues that HRSA, the OPA parent agency, has the authority to issue a regulation requiring hospitals to release data on how they use 340B profits. She also says the agency needs to narrow its definition of "patient" so that fewer private pay patients qualify. The agency tried to do that back in 1997 but the rulemaking never became final because of opposition from SNHPA.

     David Bowman, a HRSA spokesman, says, "HRSA is committed to continuous improvement in all its programs, including 340B. The program is currently engaged in drafting regulations to clarify and refine our implementation of the statute. We welcome input from all stakeholders, including Congress, on ways to improve the program."

     The HRSA's tame approach to oversight has been a function not just of inadequate funding, but also a constant political tug of war between hospitals who want more leeway and drug manufacturers who would rather see the program narrowed.


     Both sides have pressed the OPA to alter program rules. But, for example, a HRSA effort in the late 1990s to redefine which patients are eligible for 340B faltered. Congress finally got up the nerve to make some changes in the ACA. Those changes mostly benefitted the hospitals, however.
     The OPA has tried since to balance the equation somewhat. Earlier this year, the OPA issued new guidance relating to whether 340B hospitals could use group purchasing organizations (GPOs) to buy 340B drugs. That has been prohibited from the start, but some hospitals have danced around the prohibition by purchasing covered outpatient drugs through a GPO and subsequently either (1) “replenishing” through accounting by “replacing” the GPO purchased drug with a drug purchased under 340B; or (2) otherwise reclassifying the method of purchase after dispensing.

    Rick Pollack, Executive Vice President, American Hospital Association, stated numerous concerns about the GPO policy in a letter he wrote on April 3, 2013 to the OPA's Pedley. "As we discussed with you at our March 14 meeting, we remain very concerned that the policy changes outlined in the February 7 notice could threaten hospitals’ access to this crucial program," Pollack wrote. "We have heard from many 340B hospitals affected by the notice that they face numerous challenges in modifying existing inventory management practices by April 7 to comply with HRSA’s new GPO guidance. Such challenges include working with vendors to adapt or change current inventory management systems, working with wholesalers to establish new accounts, and working to ensure sufficient time to train staff and audit their internal processes." The OPA subsequently moved the compliance date back to August 7, 2013 from April 7, 2013.

      Congress has also considered additional, post-ACA changes to the program. At the end of the last congressional session, in late 2012, Rep. Cassidy, who signed the letter to Columbus (Ga.) Regional Healthcare System with Grassley, introduced legislation called the Patient Access to Drugs in Shortage Act of 2012 (H.R. 6611) which would have allowed Medicare and Medicaid to reimburse 340B hospitals at the discounted price the hospitals pay, not the higher prices the two federal health care programs have been reimbursing at. That would diminish hospital profits considerably in some cases.
      Rep. Cathy McMorris Rodgers (R-Wa.) also introduced a bill in 2012 called the Rural Hospital and Provider Equity and 340B Improvement Act of 2012 (H.R. 5624). It went in the opposite direction from Cassidy's bill. It expanded the program to make in-patient drugs eligible for 340B pricing, but also required hospitals enrolled in the 340B program to provide to each state a credit on the estimated annual purchases by such hospitals of covered drugs provided to Medicaid recipients for inpatient use.
     Both Cassidy and McMorris are on the House Energy & Commerce Committees, and are Republicans, so they are in the majority. They have the weight to get these bills through the House at least, if they reintroduce them in 2013. But neither has, and neither office responded to e-mails asking whether reintroduction was likely.
     President Obama included in his fiscal 2014 budget request, released in early April, a new fee that hospitals in the 340B program would have to pay. The fee amounts to about one cent for each $10 of 340B drugs purchased by the hospital. That could add up to real money for some hospitals. The proposal was offered, too, in the last Congress. The Senate passed it, the House did not. 
     The heat from the Grassley investigations and OPA audits plus the elimination of access to GPOs come at an inopportune time for many 340B hospitals, about one-third of all hospitals in the U.S. They had been expecting that many of their uninsured patients would suddenly have Medicaid insurance come January 1, 2014, thanks to the ACA. But many states have rejected a Medicaid expansion. The AHA's Pollack, citing the Congressional Budget Office, says about five million fewer people are likely to be covered by Medicaid than originally expected because of state refusals.
     Because of the once-expected flood of new-paying Medicaid patients to hospitals, the ACA greatly reduced what are called "DSH payments" starting January 1 to those very same hospitals. DSH payments go to safety net hospitals from both Medicare and Medicaid. The rational, of course, was that the hospitals no longer needed so much federal aid because many of their uninsured patients, on whom they were losing money, would now be covered by Medicaid.
     John Haupert, president of Grady Health System, told the Washington Post that his Atlanta-based hospital system estimates that 30 percent of its patients lack insurance coverage and an additional 30 percent receive Medicaid, which tends to pay lower rates than private health plans.
      When Grady ran the numbers, it found that it would lose $45 million annually under the health law’s Medicaid cuts to DSH payments. That works out to be about 7 percent of the hospital’s $670 million budget. If those cuts go through, Haupert said, he has thought about cutting back on some of the clinical services the hospital system provides. Georgia has rejected the ACA Medicaid expansion.
     Hospitals, of course, are already losing Medicare reimbursement to the tune of two percent owing to the sequestration in fiscal 2013, the current fiscal year, where all agency and department budgets have been cut as a result of Congress failing to come up with a long-term deficit reduction plan. For hospital pharmacies, though, this is a bit of a good news/bad news. The bad news is that in-patient pharmacy reimbursement is down from ASP+6 percent to ASP+4.3 percent. The good news--and partly in a jaundiced sense--is that physicians who provide chemotherapy administration in their office are beginning to turn patients away because the two percent reduction makes their oncology infusion unprofitable. Those patients in some instances are turning to oncology clinics affiliated with 340B hospitals, who also are losing some Medicare reimbursement, but are better positions to slough off that loss and take new patients because they are getting very expensive oncology drugs at big discounts.
     Of course if Grassley attempts to rein in the 340B program, he is likely to try to cap the percentage of private pay, and maybe even Medicare, patients eligible for discount drugs. If so, and if he is successful, hospitals themselves may have to start turning away desperate oncology patients wanting infusion.