The 340B payment cuts actually could increase Medicare beneficiary costs, hospitals contend.


March 5—Hospitals are concerned that new transparency legislation will leave the wrong impression about a federal discount drug program that’s come under fire from pharmaceutical companies.

Sen. Charles Grassley (R-Iowa) introduced the Ensuring the Value of the 340B Program Act, which would require participating hospitals to report total acquisition costs for drugs collected through the 340B program, as well as revenues received from all third-party payers for those drugs.

“By understanding the difference in those two amounts, Congress will be able to assess whether the program is working as intended,” a release from Grassley stated.

But reporting only those two amounts would provide a skewed picture of the program, hospital advocates say. A full picture would require data on both savings and benefits provided by the program.

“It was not the full picture of the kind of information that transparency reporting should include,” said Richard Sorian, a spokesman for 340B Health, which represents participating hospitals.

The legislation, Grassley said, stemmed from concerns raised by a 2015 report from the Government Accountability Office, which found that in both 2008 and 2012, per beneficiary Medicare Part B drug spending was substantially higher at 340B hospitals than at non-340B hospitals.

However, a 340B Health study of disproportionate share hospitals (DSH)—which comprise the large majority of 340B hospitals—found that those hospitals serve a sicker group of patients, including a much higher percentage of dual-eligible patients. They also found that 340B-eligible DSH institutions provide about 60 percent of uncompensated care, despite representing only 35 percent of hospitals.

“So there is evidence on that,” Sorian said.

The hospital group supports transparency, he said, and is talking to other members of Congress about legislation that could aggregate total savings and benefits. Individual hospitals have volunteered to use a tool developed by 340BHealth to quantify both hospitals’ savings from the 340B discounts and their spending on services for low-income patients.

Although an insufficient number of hospitals have chronicled their savings and spending to develop a national projection, the American Hospital Association (AHA) recently issued an analysis that found the program provided $51.7 billion in total benefits to the communities of recipient hospitals in 2015.

The community benefits identified by the analysis included $25 billion to cover financial assistance and unpaid costs for those in means-tested government programs; $17 billion for education, research, and contributions to community groups; $319 million for “community building activities”; $6.9 billion to cover Medicare shortfalls; and $2.1 billion to cover bad debt from financial assistance.

Recent Cuts

The Grassley bill comes as hospitals are reeling under cuts implemented Jan. 1 by the Centers for Medicare & Medicaid Services (CMS). Before, Medicare payments for 340B hospitals were the average sales price (ASP) of a particular drug plus 6 percent. The policy change cut the payment to ASP minus 22.5 percent, or nearly 30 percent less. CMS projected that the change will translate to $1.6 billion in reduced Medicare funding to hospitals for such drugs.

Thirty-five state and regional hospital associations filed an amicus brief in February as part of the ongoing legal challenge to the 340B cuts.

The amicus brief spelled out some of the programmatic cuts that hospitals have implemented since the payment reduction began in January.

For instance, a New Mexico cancer center has suspended all hiring and plans to fire four physicians and 37 staff members by July 1, according to the court filing. The facility expects to lose $9.6 million annually from the policy change, and other planned cuts include clinical programs and outreach programs to communities for cancer prevention, screening, and training for cancer healthcare providers.

Similarly, a rural hospital in southern Georgia plans to terminate its chemotherapy program in the wake of the cuts. The program serves at least 30 indigent patients who will now have to travel 45 to 60 miles to get their routine chemotherapy.

Such cuts may illustrate the stretched finances of many 340B hospitals. More than a quarter of 340B hospitals affected by the new rule already had negative operating margins before the cuts took effect, suggested data from a 2016 AHA annual survey.

As the cuts continue, 40 percent of respondents to a 340B Health survey expected to close one or more of their clinics entirely, and 37 percent predicted they would have to close one or more of their outpatient pharmacies.

Do Beneficiaries Gain?

The amicus brief also took aim at a central pillar supporting the CMS cut—the contention that Medicare beneficiaries will benefit from reduced drug copayments under the cuts.

The brief called the claim “misleading.” Even though lower Medicare payments for Part B drugs would reduce associated copayments for beneficiaries, most Medicare beneficiaries will not benefit because 86 percent of them have supplemental coverage that covers the cost of the copayments, an analysis by the Medicare Payment Advisory Commission indicated. And 30 percent of those individuals have their copayments paid for by a public program such as Medicaid.

“Moreover, because the redistributions that result from budget neutrality would increase reimbursement for other services, Medicare beneficiaries who pay their own copayments may actually see increases in out of pocket costs for other nondrug outpatient prospective patient payment system services,” the amicus brief stated.

An AHA analysis of the new rule found that only 3 percent of beneficiaries being treated at 340B hospitals would see their copayments cut, while 97 percent would see their copayment increase.

“CMS has never directly addressed, let alone refuted, these compelling facts,” the brief stated.

Supporters of the recent cuts cite a December analysis by Avalere, a healthcare consultancy, which projected statewide Medicare patient savings in every state.

The outlook for the legislation is uncertain. Although Grassley, a member of the Senate Finance Committee, is an influential voice on healthcare policy, the 340B program is widely popular among members of Congress. And legislation that could further undermine the program will have to address concerns, such as those raised by 228 members of the House of Representatives who wrote an unusual letter CMS to oppose the recently started cuts.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare.

Publication Date: Monday, March 05, 2018