P&T - October 15, 2017 the original can be found
HERE.
Potential Medicare Cut Underlines Need to Rein In Program
Drug manufacturers, and to a lesser extent hospitals, have complained
for years about the shortcomings of the 340B Drug Pricing Program, which
allows nearly 3,000 hospitals and approximately 10,000 health clinics
around the country to buy pharmaceuticals at a deep discount as a means
of generating revenue, ostensibly to help lower-income patients and
their communities. Complaints from both parties have been validated by
the Government Accountability Office (GAO)
1 and the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS)
2,3
and discussed at congressional hearings, where the program’s opaque
guidelines and barely visible program integrity efforts have been
thoroughly aired.
Yet since Congress established the 340B program in 1992, very little
has changed, except for the program opening to many more hospitals and
clinics thanks to the 2010 Patient Protection and Affordable Care Act
(PPACA). At the latest hearings on the program’s weaknesses, held in
July by the U.S. House of Representatives Committee on Energy and
Commerce (E&C) Subcommittee on Oversight and Investigations, U.S.
Representative Fred Barton (R-Michigan), who has a number of 340B
hospitals in his district, said, “I am just trying to educate the
subcommittee how screwed up this program is.”
4
Of course, Congress, having ignored the program’s multiple
deficiencies for years, has had a major role in the program’s
dysfunction. Congress’ record on legislating improvements for the 340B
program is somewhere between negligible and non existent. At the E&C
hearings, U.S. Representative Frank Pallone (D-New Jersey), the top
Democrat on the committee, said, “Last Congress, this committee worked
on a bipartisan basis to try to address the concerns from stakeholders
on all sides of this issue in a balanced and measured fashion.”
4
Nothing came of that effort. Pallone’s spokesman did not respond to an
email asking what the barriers were in the last Congress, and whether
they are surmountable in this Congress.
But it looks like Democrats and Republicans on the Hill are waking
up, and that has a lot to do with the Trump administration. The Centers
for Medicare and Medicaid Services (CMS) wants to exact a severe
reduction in Medicare reimbursement to hospitals for 340B drugs. That
will probably force the House and Senate to confront the program’s
problems and make some changes as the price for forcing the CMS to back
off either somewhat or fully from its plans to hit some hospitals with
revenue losses, a prospect that has hospital lobbyists crawling over
Capitol Hill arguing the sky is falling.
How 340B Works
The 340B program allows participating hospitals and clinics to buy
drugs at a discount, give them to eligible patients, and then bill the
insurers (private companies, Medicare, or Medicaid) for the full price
of the drug. That difference between the lower price hospitals pay for a
drug and the higher price at which they are reimbursed constitutes an
important revenue stream, especially for safety-net hospitals serving
large uninsured populations. Medicare currently pays all hospitals, 340B
or not, average sales price (ASP) plus 6% for drugs hospitals supply to
eligible
outpatients, such as oncology drugs provided in
outpatient clinics and reimbursed under Medicare’s Part B program. The
CMS wants to reduce its reimbursement to 340B hospitals to ASP minus
22.5%.
5
That proposal has outraged the hospital industry, although only 45%
of acute-care hospitals participate in 340B. “The CMS proposal to reduce
reimbursement of 340B-purchased drugs has the potential to be very
harmful to the sickest and most vulnerable patients by endangering their
access to essential health care services,” said Kasey K. Thompson,
PharmD, MS, MBA, Chief Operating Officer and Senior Vice President of
the American Society of Health–System Pharmacists, in a July press
release. “These changes run counter to the statutory intent of the
federal 340B program and will incur a steep cost to the people and the
organizations that can least afford it.”
6
The reduction in Part B reimbursement to 340B hospitals would amount
to an increase in the funds the CMS would be able to spend on other
hospital outpatient services. How that extra money would be distributed
has not been decided, and the CMS has asked for suggestions.
5
But in an attempt to assuage concerns about the impact on the most
vulnerable hospitals with the highest percentage of vulnerable patients,
the agency is considering targeting recouped funds “to hospitals that
treat a large share of indigent patients, especially those patients who
are uninsured.” Many 340B hospitals already have large populations of
uninsured patients; but some academic centers have smaller percentages
as measured by their disproportionate share (DSH) percentage, which is
an approximate measure of Medicaid patients.
Despite opposition to the reductions, it appears that key House
members believe the price of averting some or all of that reduction will
be Congress finally addressing some of the many underlying weaknesses
of the 340B program. U.S. Representative Diana DeGette (D-Colorado) said
at the hearings, “We probably do need to get more controls and that is
why I said in my opening statement that we may need to have more—we need
to have more legislative reporting and more transparency because you
can’t have a program where nobody knows what’s going on.”
4
The lack of transparency probably leads to understatement of some of
the program’s substantive failings. The CMS argues that the program
encourages hospitals to supply more expensive drugs than are necessary
to too many patients. Some of the hospitals in the program that are
profitable and serve mostly well-off clienteles, such as academic
hospitals, earn substantial revenue from the program while providing
limited charity care, raising questions about whether they deserve the
discounts. Moreover, reports from the GAO establish that, on average,
beneficiaries at 340B DSH hospitals were either prescribed more drugs or
more expensive drugs than beneficiaries at the other non-340B DSH
hospitals. In fact, it is possible for 340B hospitals to supply any
billionaire with discount drugs. At the same time, it is perfectly legal
for a 340B hospital to charge an uninsured patient full price for a
340B drug. The program is run by the Office of Pharmacy Affairs (OPA)
within HHS’s Health Resources and Services Administration (HRSA). The
OPA, one of Washington’s backwater agencies, has struggled to administer
and enforce jumbled rules with just 16 staffers and a severely anemic
$10 million budget.
How a Medicare Reimbursement Reduction Would Affect Hospitals and Patients
Part of the rationale for the proposed Medicare reimbursement
reduction, according to Thomas E. Price, MD, Secretary of the HHS, is to
reduce the price of pharmaceuticals. Democrats have lampooned that
stance, and even some Republicans are skeptical of it. Theoretically,
Medicare beneficiaries could see lower prices since they are required to
pay a 20% copay for outpatient drugs they receive under Part B. That
copayment is based on the Medicare reimbursement rate, which is ASP plus
6%. If that dropped precipitously to ASP minus 22.5%, the “Medicare
price” would fall, reducing copayments for Medicare recipients, who are
currently paying whopping copayments in some instances.
In the
Federal Register
notice announcing the prospective change in Medicare outpatient
reimbursement in calendar year 2018, the CMS explained, citing an OIG
report from November 2015: “Based on an analysis of almost 500 drugs
billed in the hospital outpatient setting in 2013, the OIG found that,
for 35 drugs, the ‘difference between the Part B amount and the 340B
ceiling price was so large that, in a least one quarter of 2013, the
beneficiary’s coinsurance alone … was greater than the amount a covered
entity spent to acquire the drug.’ ”
5
Of course, to the extent a 340B hospital provides discounted drugs to
Medicaid patients and then bills Medicaid, that will not affect the
consumer prices those patients pay because the reduction to ASP minus
22.5% will not apply to Medicaid reimbursement. Medicaid patients do not
pay much, if at all, for their prescription drugs. In an email
response, Margaret Kemeny, MD, Director of NYC Health &
Hospitals/Queens Cancer Center, a 340B participant, says the majority of
her patients do not have insurance. “If they have cancer, we can put
them on emergency Medicaid. Very few patients have Medicare,” she
writes. “The hospital gets their drugs through 340B. All patients are
not charged for the drugs.”
The fact that a high percentage of 340B patients are either uninsured
or on Medicaid raises the question of how badly a reduction in Medicare
payment would hurt hospitals generally, and 340B hospitals
specifically. According to 340B Health, which lobbies for 340B “covered
entities,” total sales to 340B covered entities in 2015 were $4.2
billion, or 0.9% of total U.S. drug spending. So the program itself has a
minimal impact on drug pricing nationally. Tom Mirga, Editorial
Director for 340B Health, says there are no statistics that shed light
on the percentage of that $4.2 billion that went to Medicare patients,
so it is hard to estimate the impact a reduction of ASP minus 22.5%
would have on 340B providers.
One pharmacy manager for a chain of hospitals, who did not want to be
identified, said the cut would affect the local 340B hospitals and
nationally within his system in a big way, depending upon each site and
their percentage of Part B Medicare patients. That varies from hospital
to hospital. He guesses it averages perhaps 30%. Another worry is
whether commercial insurances will try to negotiate these types of
payment rates in the future.
Drug manufacturers have been the loudest complainants about the
program. Discounts to 340B hospitals and clinics are mandatory if
manufacturers want to sell drugs to state Medicaid programs. They are
required to set discounts at whatever level they chose as long as it is
below the ceiling price established by HRSA. Would the 600 or so drug
manufacturers who participate in the program lower their prices to 340B
hospitals if the CMS reduces reimbursement? Nicole Longo, Senior Manager
of Public Affairs for the Pharmaceutical Research and Manufacturers of
America (PhRMA), declines to answer the question about how reform of the
program would affect the prices drug manufacturers charge 340B
hospitals. “PhRMA cannot speak to how individual companies might react
and whether any companies would adjust drug prices,” she says. For
companies to increase their prices to 340B participants, Congress would
either have to change the calculation HRSA is required to make to
establish ceiling prices for each drug or drug companies now selling
below the ceiling price could theoretically raise their price.
“The 340B program is in need of fundamental change that is beyond the
scope of the Medicare proposed payment reduction,” Longo says, “and the
congressional hearing held in July was an important first step toward
modifying the 340B program to ensure it returns to serving the
vulnerable or uninsured patients it was intended to help.”
If Congress finally makes an effort to reform the program, it will
find a willing partner in the Trump administration beyond Medicare
officials determined to slash reimbursement. Krista Pedley, PharmD, MS,
CDR, USPHS, Director of the OPA, says, “In the fiscal year [FY] 2018
president’s budget, we did propose to intend to work with Congress on a
legislative proposal to ensure the benefit of the program does benefit
the low-income uninsured populations.”
340B Expansion Since PPACA
Reducing Medicare reimbursement would save the agency about $900
million a year based on the agency’s preliminary estimates, which could
change going forward. Medicare’s proposal in July to severely reduce
what it reimburses hospitals is the result of its soaring 340B costs,
which are in part the result of Congress’s decision in the PPACA to
greatly increase the number of health facilities, including types of
hospitals, eligible to participate in the 340B program.
To be
eligible for the 340B program, a hospital must be: 1)
owned by a state or local government, 2) a public or nonprofit hospital
that is formally delegated governmental powers by a state or local
government, or 3) a nonprofit hospital under contract with a state or
local government to provide services to low-income patients who are not
eligible for Medicare or Medicaid. A 2015 report from the Medicare
Payment Advisory Commission (MedPac) said regarding the third option for
eligibility, for example, that HRSA has not specified criteria for
contracts between nonprofit hospitals and state or local governments,
such as the amount of care that a hospital must provide to low-income
patients under such a contract.
7
Thus, hospitals with contracts to provide a relatively small amount of
care to low-income individuals could be eligible for 340B discounts,
which may not have been what HRSA intended.
Several types of hospitals as well as clinics that receive certain
federal grants from HHS (e.g., federally qualified health centers and
Ryan White grantees) may enroll in the program as covered entities. In
addition to DSH hospitals, which were always the key participant in the
program since its creation, the PPACA greatly expanded the covered
entities eligible to purchase 340B drugs to critical-access hospitals,
rural referral centers, sole community hospitals, children’s hospitals,
and freestanding cancer hospitals. The number of unique participating
covered entities has grown from 3,200 in 2011 to 11,180 in February 2015
to 12,148 in October 2016. The number of hospitals in particular has
grown significantly from 591 in 2005 to 1,673 in 2011 to 2,871 as of
July 2017.
In addition, the number of contract pharmacies has grown greatly
since HRSA issued its 2010 guidance on contract pharmacies.
Contract
pharmacies are retail pharmacies in the community that allow a 340B
hospital to expand the number of its patients, if properly qualified,
who have access to discount drugs. The more patients getting 340B drugs,
the more revenue the hospital gets. Prior to 2010, hospitals could only
supply 340B drugs from one outpatient pharmacy, typically located in
the hospital. In 2011, the GAO reported that while HRSA did not track
individual contract pharmacies in use, there were more than 7,000
contract pharmacy arrangements through the program. In its 2018 Budget
Justification, HRSA reported that 27% of covered-entity sites have
contract pharmacy arrangements, resulting in approximately 18,078 unique
pharmacy locations. The OIG found that contract pharmacy arrangements
created difficulties for covered entities in preventing the diversion of
drugs and duplicate discounts.
Once a hospital has determined it is eligible and has been accepted
by HRSA for participation, it supplies discounted drugs to “eligible
patients,” a term that has been murky from the start. The definition of
“patient” was established in 1996 and includes three criteria:
- The covered entity must have a relationship with the individual,
which HRSA defines as maintaining the individual’s health care records;
- The individual receives health care services from a health care
professional who is employed by the entity or who provides care under
contractual or other arrangements (e.g., referral for consultation),
such that responsibility for the individual’s care remains with the
entity; and
- The individual receives a service or range of services from the
covered entity that is consistent with the service or services for which
grant funding or federally qualified health center look–alike status
has been provided (this criterion does not apply to hospitals).
HRSA
audits from FY 2012 to FY 2016 demonstrate that noncomplying entities
violate program requirements in at least one of three ways: duplicate
discounts, diversion to ineligible patients and facilities, and
incorrect database reporting. In FYs 2012, 2015, and 2016, close to half
of HRSA’s audited entities diverted benefits to ineligible patients:
31% of covered entities in FY 2012, 47% of covered entities in FY 2015,
and 44% of covered entities in FY 2016 were found to have diverted
drugs. Diversion violations reached a 54% high in FY 2014 and FY 2015,
when more than 50 audited entities offered drug-pricing benefits to
ineligible patients.
8
HRSA has issued guidance on the definition of “patient.” According to
part of the guidance, the individual must receive health care services
from a health care professional who is employed by the entity or who
provides care under contractual or other arrangements, such that
responsibility for the individual’s care remains with the entity.
9
But the MedPac report of 2015 stated HRSA has not clarified the meaning
of “other arrangements” or “responsibility for the individual’s care.”
7
The lack of specificity in the guidelines for who is an eligible
patient makes it possible for covered entities to interpret this term
either too broadly or too narrowly, according to the GAO. For example,
HRSA has expressed concern that some covered entities may consider
individuals to be eligible patients even when the entity does not have
actual responsibility for their care.
Drug Pricing
Drug manufacturers have been vocal critics of the elasticity of the
340B program definitions, such as who are eligible patients and whether
hospitals are providing adequate charity care. The hospitals, in turn,
have criticized drug pricing within the program. HRSA establishes the
ceiling price as the difference between the drug’s average manufacturer
price and its unit rebate amount (URA). HRSA calculates URAs using a
statutory formula that is based on the formula used to calculate
Medicaid drug rebates. The statutory formula for the URA varies based on
whether the drug is a single-source or innovator drug, a
multiple-source drug (e.g., a brand-name drug), a noninnovator
multiple-source drug (e.g., a generic drug), or a clotting factor or
exclusively pediatric drug. According to statute, HRSA is allowed to
disclose ceiling prices to covered entities but not to the general
public.
Hospitals buy their drugs either directly from the manufacturer or
from a company called Apexus, which manages the 340B Prime Vendor
Program (PVP). By pooling the purchasing power of covered entities,
Apexus negotiates subceiling prices on many 340B drugs with
manufacturers, which allows covered entities to pay less than the
ceiling price. By the end of FY 2013, Apexus had more than 7,000 drugs
under contract, with an estimated average savings of 10% below the
ceiling price. Apexus also negotiates discounts on other pharmacy
products and services not eligible for 340B pricing, such as vaccines,
billing software, and contract pharmacy vendors. As of April 2014, about
82% of covered entities participated in the PVP and accounted for $5
billion in 340B drug purchases, according to Apexus.
7
DSH hospitals, children’s hospitals, and freestanding cancer hospitals
that participate in 340B are prohibited from purchasing covered
outpatient drugs through a group purchasing organization.
What the Hospitals Do With 340B Revenue
The premise of the 340B program is that the covered entities will use
the revenue they earn to improve health care for low-income individuals
and families in their communities. Mirga of 340B Health says nearly
three-quarters (71%) of 340B Health members report that savings from
participation in 340B increase their ability to provide free or
discounted drugs to low-income patients. But it is not clear what levels
of discounts are passed on to whom. No statistics on that exist. There
is no denying that poor cancer patients at venues such as Dr. Kemeny’s
Queens Cancer Center are able to obtain treatment at rock-bottom prices
or for free. But the serious shortcomings of the program are starting to
overshadow the “good” the program does.
Author bio:
Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.
