A looming proposed payment change could impact many hospitals in the program.


Oct. 11—Three hospital executives detailed their savings from a large federal drug discount program, and the initiatives funded by those savings. And members of Congress said such transparency is needed across the industry.

The House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations heard details on how two hospitals and a health system use their savings under the 340B program, which allows a discount of between 20 percent and 50 percent on the average manufacturer price of outpatient prescription drugs, and the opportunity to fund safety-net care via revenue generated from sales of 340B drugs to insured patients.

Some members of Congress used the hearing to ramp up calls for regular reporting of standardized details by hospitals in the 340B program. Such reporting could carry large costs.

Shannon Banna, director of finance and system controller at Northside Hospital, said her organization generated nearly $53 million in 340B savings but spent nearly $370 million on charity care in 2016. That figure does not include bad debt or “other elements of uncompensated care, which includes the care that is not covered that is provided to Medicare and Medicaid beneficiaries.”

The 340B savings “are not earmarked; they are tracked and monitored and then our [spending] growth is tracked and monitored, and then we do make sure that our growth far exceeds the savings,” Banna said.

Ronald Paulus, MD, president and CEO of not-for-profit Mission Health in North Carolina, said that in 2016 the health system saved $37.4 million through the 340B program, and this year expects to save a little more than $38 million.  

“These savings go directly into programs for our community,” Paulus testified.

He testified that there is not a “dollar-for-dollar tracking” of the savings, but the system closely tracks the savings and includes the amount in its charity care allocations when creating a budget.

Such savings fall far short of the system’s charity and subsidized care for those covered under Medicare and Medicaid, which totaled nearly $105 million in 2016, or its $183 million in 2016 spending on “total community investments.”

Charles Reuland, executive vice president and COO of Johns Hopkins Hospital, said the organization garnered $109 million in 340B savings in 2016 while providing nearly $220 million in charity care and other community benefits.

“The 340B program doesn’t seem to be some windfall that subsidizes bonuses for senior management,” Rep. Diana DeGette (D-Colo.) said. “You’re using this money to provide essential benefits to the community.”

Transparency Push

Members of Congress said the program needed such transparency from all of the 12,148 covered entities—including hospitals—that were participating as of October 2016.

“We are trying to figure out if the people who are supposed to be getting this help are actually getting that help,” said Rep. Greg Walden (R-Ore.).

Safety-net hospitals, particularly Disproportionate Share Hospitals (DSH), qualify for the 340B program by providing a specific amount of inpatient care to Medicaid and low-income Medicare beneficiaries.

Hospitals already are required to report financial and service metrics in their annual Medicare cost reports, and DSH hospitals are also required to report on their community benefit activities to the IRS to retain their tax-exempt status.

Members of Congress suggested adding requirements that hospitals report on 340B drug volume, revenues generated, and safety-net services funded by those revenues.

But hospital advocates said such requirements would add significant complexity and costs.

“We don’t think there is a need for additional requirements; we’d rather have the hospitals focus their time on taking care of patients,” said Ted Slafsky, president and CEO of 340B Health, an association of more than 1,300 hospitals in the program. “There’s a lot of time and energy put in by the hospitals to ensure that they are complying with all of the regulations that are already in place for this program, so we don’t believe that there is a need for more.”

Potential Cuts

In July, the Centers for Medicare & Medicaid Services (CMS) proposed cuts to physician reimbursements at 340B DSH hospitals for outpatient drugs covered under Medicare Part B. That followed the leak in June of a Trump administration executive order that suggested the program would start to tie a hospital’s quota of discounted drugs to indigent patient volume.

“It’s a clear and imminent danger to the program,” Slafsky said. “That is one that hospitals are very, very concerned about.”

Hospitals leaders testified that cuts to the 340B program will result in the reduction or elimination of specific services funded by their savings under the program. An example of such a service is a novel program at Mission Health that allows opioid-addicted newborns to go through detox at home.

“That costs us over $3 million a year to detox them at home, and that might be something [cut] but we sure as heck would be cutting some very needed programs,” Paulus said.

Although CMS’s decision on whether to move forward with the proposed payment cut is expected in a final rule this fall, political pushback on the proposal has emerged. Recently, 273 members of the House of Representatives and 57 senators wrote to CMS asking for withdrawal of the proposal.

“If it went through, it would cause real pain not just for hospitals but more importantly for their patients,” Slafsky said.


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

Publication Date: Wednesday, October 11, 2017