340B Hospitals and Drugmakers Battle Over Transparency

March 16, 2018 2:34 pm

A growing number of bills have emerged that would force transparency from either hospitals or drugmakers.

March 16—Supporters and critics of the 340B discount drug program agree that more transparency is needed, but they remain sharply divided over who needs to be transparent and what such reporting should include.

The divide was on full display at a congressional hearing this week on the 340B program, with Republicans generally lining up to decry the lack of clarity over what hospitals are doing with the estimated $8 billion they garner annually from the drugs that pharmaceutical companies are required to sell them at a discount. Hospitals generate revenue by receiving full-price payment for the drugs from health plans and some public payers. 

Meanwhile, Democrats on the Senate Health, Education, Labor and Pensions (HELP) Committee decried the lack of transparency in the approaches that drugmakers use to set prices, which have dramatically increased in recent years.

“The place we most need transparency is in drug pricing,” said Sen. Maggie Hassan (D-N.H.). She said she wished pharmaceutical industry representatives “advocated as strongly for transparency in the pricing of their own members’ products as they have advocated for transparency in 340B. For example, the big drugmakers claim to set their prices to recoup research and development costs, but many think much of the money goes to things like marketing campaigns and profits.”

Bruce Siegel, MD, president and CEO of America’s Essential Hospitals, noted that hospital revenue garnered from the 340B program is a tiny share of the $100 billion in annual marketing that is spent by the 10 largest pharmaceutical companies.

Drugmaker opacity in relation to 340B, Siegel said, includes a lack of public information on how they set the average manufacturer’s price, which is used to set the ceiling price of a given drug.

“That information is not even revealed in the few audits done by HRSA,” Siegel said, referring to the Health Resources and Services Administration. “It’s a black box.”

Specifics Sought

The 340B transparency push was led at the March 15 hearing by Sen. Lamar Alexander (R-Tenn.), chairman of the HELP Committee.

Among the specific information sought by Alexander was the share of discounted-drug revenue that hospitals passed along to patients using those medications. He guessed about half of it was going directly to lowering drug costs for patients.

Siegel said he did not have an estimate and agreed that information would be good to know “along with many other things we should know about this program,” including price-setting practices by pharmaceutical companies.

Alexander also wanted to know how hospitals were spending any 340B savings that were not passed along to patients.

“Or categories of things is it paying for,” he said. “That could lead to the question of whether we should restrict that to some extent or another… but I would think one way to avoid the restrictions would be to help us know better what the money is going for.”

340B hospitals embrace transparency, Siegel said, but want to make sure the transparency is not used to restrict the program.

But Alexander had little sympathy for Siegel’s argument that drugmaker transparency also is needed.

“If you come up here and say, ‘We can’t tell you because we don’t know and we don’t really want to tell you until you ask everybody else a whole bunch of questions,’ that’s not a very good answer for me,” Alexander said. However, he did ask a representative from the Pharmaceutical Research and Manufacturers of America (PhRMA) to provide data on the share of total drugmaker revenue that the 340B discount comprised. Witnesses disagreed on whether the discount comprised 1.3 percent or up to 8 percent of pharmaceutical company revenues—a difference Alexander said could affect how appropriate he deems it.

Hospital leaders whom Alexander has spoken to have insisted the 340B savings are used to help many patients and that their hospitals lose much more in uncompensated care.

“If that’s true, that’s a good story to tell,” Alexander said about his transparency push.

Meanwhile, Lori Reilly, executive vice president of policy, research, and membership for PhRMA, said drugmakers would be satisfied with changes that would freeze the size of the drug discounts at their current dollar amount.

Proposed Changes

Although Alexander said he expects to have at least one more hearing on the 340B program before moving forward with legislation, others have already proposed changes.

Sen Bill Cassidy, MD, (R-La.) blasted some hospitals for allegedly not passing along the discounted drug price to low-income patients at their contracted pharmacies. He urged requiring that patients—possibly only the uninsured—at 340B hospitals receive the discounted price for pharmaceuticals.

Additionally, Cassidy introduced legislation in January to bar certain types of hospitals from the 340B program until HRSA issues rules requiring greater transparency and other steps.

Another healthcare policy leader in Congress, Sen. Charles Grassley (R-Iowa), introduced the Ensuring the Value of the 340B Program Act earlier this month. The billwould require participating hospitals to report total acquisition costs for drugs collected through 340B, as well as revenues received from all third-party payers for those drugs.

On the other side of the transparency debate, Sen. Tammy Baldwin (D-Wis.) pushed her Fair Accountability and Innovative Research (FAIR) Drug Pricing Act, which would require drug manufacturers to disclose and provide more information about planned drug price increases.

“It’s important to strengthen and improve this program to ensure it continues to fulfill its purpose, which is why I’m concerned with recent actions by the administration and proposals that unfairly single out and target hospitals for cuts,” Baldwin said.

Starting Jan. 1, the Centers for Medicare & Medicaid Services (CMS) cut Medicare drug payments for 340B hospitals from the average sales price (ASP) of a particular drug plus 6 percent 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, and hospitals have sued to stop the payment cut.

Siegel said the cut will cause some hospitals to lose millions of dollars a year that fund services. Despite the CMS rationale that the change was needed to save Medicare beneficiaries money, more than 80 percent of beneficiaries will not see savings because they have supplemental insurance, he told the senators.

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


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