The 340B Program Storm Has Arrived

Billy Wynne's May of 2014 prediction of "The Coming Storm Over the 340B Prescription Drug Discount Program" was certainly correct. Even if the challenges to the 340B Prescription Drug Discount Program have been slow growing, we are now in what may be the health care finance version of the meteorological "bomb cyclone" phenomenon. The Administration's decision to implement a plan involving a 28.5 percent cut in all reimbursement for prescription drugs under this program is certainly rocking hospital land, as well it should, as an estimated 45 percent of all  hospitals in the United States participate in this program.

Section 340B of the Public Health Service Act has been in place since 1992 as a way to help safety net providers with prescription drug acquisition costs.  A program designed to offer acute care hospitals that disproportionately serve Medicaid and low-income Medicare beneficiaries by offering a highly reduced acquisition price for certain prescription drugs used at these facilities has morphed somewhat since its 1992 introduction, however.  More and more hospitals and affiliated health care facilities came to participate — driven by both the changing nature of health care delivery from in-patient to out-patient settings and by the Affordable Care Act's expansive reading of eligible covered entities.  No wonder health care facilities, including  some of those serving more affluent communities,  have been seemingly magnetized to the program, the discounts could be very significant (sometimes bringing participating entity acquisition cost below the actual co-insurance amount the entity would charge the patient), enforcement was predominantly on a honor system, and the participating facility could acquire prescription drugs at the 340B discounted price but bill the patient/insurer at the non-discounted price or co-insurance amount, using the spread for any purpose the facility sought fit. It has been noted that the 340B program generates quite a subsidy for safety net providers but one that is not directly derived from taxpayer funds.

Any major shock to hospital finance is interesting but the 340B program is also an important illustration of the crudeness of cross-subsidization in American health care.  The subsidy inherent in the 340B program goes to the "covered entity" and does not attach to the patient, hence no requirement for the facilities to dedicate the funds pocketed from the spread to low income income populations. Even more sobering, as not every prescription drug is a 340B prescription drug, the program appears to have created incentives for participating facilities to steer pharmaceutical choices in treatment practices and clinics towards those prescription drugs that offer the highest spread or net gain for the facility.  Rena Conti's important research on how this works out for infusion therapies in cancer treatment is instructive.  340B participant facilities appear to treat  Medicare beneficiary patients with the same cancer diagnoses far more expensively and  considerably more intensively than non-340B participant facilities, for example.  

The reach of 340B prescription drug discounts in cancer treatment, in addition, appears to have provided a mechanism for hospital-based oncology programs using these heavily subsidized prescription drugs to drive community oncology practices from the marketplace. We are seeing the delivery of this kind of care being increasingly driven back to the hospital out-patient clinic or hospital affiliate, the higher priced venues for much of this treatment, as a result.  Those of us concerned about increasing hospital concentration of ownership over may different parts of the health care system and its implication for health care pricing should be concerned.

Seen from this perspective, the hospitals' challenge to the proposed plan was doomed to failure.  A few days ago, Judge Rudolph Contreras  declined to prevent the January 1, 2018 implementation of the new reimbursement rule. The dispute, of course, might still be decided differently on the merits but the Court acknowledged that it would be challenging to reverse the powerful forces of hospital and clinic finance that will re-align with the implementation of the Administration's plan. 

It is possible to see this decision as a blow for transparency and accountability. It is also possible to see it as a striking attack on a whole system of inter-connected subsidies and cross-subsidies that are the hallmark of our jury-rigged health care system where we so often use sleight of hand to subsidize those we would not like to be publicly identified as subsidizing. If the new plans works as projected, some important expensive prescription drugs could become less expensive (lower co-insurance) for the insured. And, it might make some important expensive prescription drugs less expensive for the uninsured by focusing the program on this population.  Whatever was cross-subsidized by the 340 spread, however, is quite likely to increase in cost and, in some cases, cease to be an offered service. You see, in hospital land, infusion-based therapies in oncology can be a real money maker but some other services in desperate under-supply for the low income — mental health services, infectious disease treatment, etc. — are notorious money losers. The great reckoning of the new plan will be to uncover where the 340B spread funds have been spent.


X-posted on PrawfsBlawg 



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s