340B drug program causing controversy

The Affordable Care Act (ACA) has thrown the 340B Drug Discount Program into the limelight. Many industry leaders agree that the advent of the healthcare law, which has added more eligible hospitals to the program, plays a large part in the current controversy over 340B.

Overseen by the Health Resources and Services Administration (HRSA), the program enables safety net healthcare organizations serving uninsured, vulnerable and indigent populations to purchase outpatient prescription drugs at a discount. The program generates 25% to 50% savings for participating hospitals.

To put the size of the program into perspective, the U.S. Department of Health and Human Services (HHS) reported that in 2012, 340B sales totaled $6.9 billion. Apexus, a nonprofit selected by HRSA to consolidate contracting and manage the distribution process for covered entities, estimated that 340B purchases in 2013 were $7.5 billion, or a 2.3% share of the U.S. prescription drug market.

A brief history

Introduced in 1992, the federal program has only been tweaked a few times, but now it faces a major overhaul if many in the healthcare industry have their way.

In 1996, HRSA made it possible for participating organizations to contract with outside pharmacies if they did not have their own. But the floodgates opened in 2010, when covered entities (participating safety net hospitals) were allowed to contract with multiple pharmacies.

In 2013, HRSA published a legislative rule prohibiting newly-eligible covered entities from purchasing orphan drugs at a discounted rate unless the drugs are being used for different conditions than those for which the orphan drugs received their status.

In October 2014, the Pharmaceutical Research and Manufacturers of America (PhRMA) reacted by filing a lawsuit in Washington D.C.’s District Court challenging HRSA’s interpretation and arguing that Congress never afforded HRSA the power to issue such a regulation.

Venson Wallin, managing director, BDO Center for Healthcare Excellence and Innovation, says the lawsuit puts PhRMA in a Catch 22 situation: On one hand, manufacturers want HRSA to provide specific guidance, yet it is suing the agency on the grounds that HRSA doesn’t have the authority to make decisions concerning orphan drugs.

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On November 13, 2014, HRSA withdrew its anticipated “mega-reg” that would have provided clarity on some of the issues raised by entities affected by the regulation-defining the patient population and hospital eligibility and outlining compliance for contract pharmacies. It intends to address these and other issues this summer.

NEXT: What's the gripe?

What’s the gripe?

WallinA November 2014 health policy brief from Health Affairs outlines some of the issues:

• Lack of sufficient oversight and management.

• Potential undue benefit for participating hospitals.

• Diversion, when a 340B drug is given to an ineligible patient or resold by a covered entity.

• Duplicate discounts when a covered entity receives a 340B discount and the state receives a Medicaid drug rebate from the same manufacturer for the same drug. Not enough oversight to prevent this unintentional practice.

• Changing patient definition guidance so that only uninsured patients receive 340B discounts.

• Insufficient scrutiny of multiple contract pharmacies.

• Scope of program beyond its original intention.

Covered entities are statutorily prohibited from both diversion and duplicate discounts. “Neither are a widespread practice and due to misinterpretation; they also are not fraud,” Wallin says.

Although some 340B issues under scrutiny have drawn battle lines among covered entities, insurers, pharmaceutical companies and pharmacies, for the most part, these constituencies agree the current regulation is filled with ambiguity. However, some of these entities are pointing fingers at each other.

NEXT: Who really benefits from 340B?

Who really benefits from 340B?

PipesWallin says that 340B provides a great benefit for hospitals serving safety net populations and enables them to use savings on services that otherwise might be unavailable because of a lack of funding.

On the other hand, he notes that pharmaceutical manufacturers and the government believe that larger health systems may be using funds for growing their businesses rather than for providing programs to low-income patients. While Wallin does not think the practice is intentional, it could happen because the regulation has opened itself up to interpretation.

Wallin also says that manufacturers do not trust covered entities’ record keeping to distinguish between their Medicaid patients and those eligible for 340B.

As for insurers, he says they do not want to see 340B disappear because it enables hospitals to negotiate lower drug prices costing payers less money to provide care to their members.

Sally Pipes, president and chief executive officer of Pacific Research Institute, a think-tank based in San Francisco, is not quite as optimistic about 340B as Wallin. She would like to see the program discontinued because it costs taxpayers money. She admits, however, that if revised, 340B could offer some benefit to those the program was designed to help.

She points a finger at hospitals, saying they are benefitting from the program by purchasing drugs at a discount but selling them at full cost to patients because they do not have to pass along discounts to vulnerable patients.

An investigation by the Raleigh, North Carolina-based News & Observer found that several large local hospitals sold chemotherapy drugs discounted by 20% to 50% at up to 10 times the cost, according to Pipes.

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She also believes that contract pharmacies are making money at the expense of the program. Walgreens, she says, is expected to make a quarter of a billion dollars off the program over the next five years due to a lack of oversight.

“If anyone thinks these hospitals are taking advantage of the discounts, then where is the money?” asks Randy Barrett, vice president, communications for Safety Net Hospitals for Pharmaceutical Access, a trade association of 1,000 hospitals in the 340B program. “Many of the hospitals in the program are running on thin margins with even thinner ones for rural hospitals.”

Barrett says Congress developed the program with the intent of helping safety net providers stretch scarce resources to meet their missions. “It would be disastrous for communities if they could not take advantage of the lower pricing and could cause clinics to close and a panoply of services to vanish,” he says.

The gray areas in the regulation bother Barrett and the members of his organization. He looks forward to clarification from HRSA this summer.

NEXT: PhRMA takes a stand

PhRMA takes a stand

Although PhRMA cannot comment on the ongoing litigation in the orphan drug lawsuit, in a statement last October it confirmed its support of the 340B program while emphasizing that the ACA “expressly exempts manufacturers from having to provide these discounts on orphan drugs to newly eligible providers.”

“Unfortunately, over time the 340B program has steadily slipped away from its core mission and while some providers rely on the program to improve access for needy patients, others do not,” says Allyson Funk, director, communications, PhRMA.

PhRMA believes that the following areas of the program require reform to bring it back in line with its original intent and ensure uninsured and vulnerable patients are the ones benefitting:

• Covered entities not always passing 340B discounts onto needy, uninsured patients.

• Clearer definition of eligibility criteria for covered entities because program is not always targeting hospitals that serve large number of uninsured and vulnerable populations.

• Patient definition dictating whether 340B healthcare providers can receive significant discounts for covered outpatient drugs. HRSA guidance, however, does not currently require that patients receive discounts on these drugs.

• Too many multiple pharmacies to properly oversee issues of diversion and duplicate discounts. According to the Berkeley Research Group, there were nearly 30,000 contract pharmacy arrangements at the beginning of 2014.

• 340B hospitals buying up physician-based oncology practices, driving up Medicare costs and narrowing patient access to community treatment centers.

According to the Berkeley Research Group, acquisitions have bumped up the volume of chemotherapy claims billed to Medicare--excluding oral chemotherapy drugs--resulting in $196.55 million in additional payments by the Medicare program and Medicare beneficiaries to 86 340B hospitals that acquired private oncology practices.

NEXT: Concerns grow

Concerns grow

The Alliance for Integrity and Reform of 340B (AIR 340B), an ad hoc organization of patient advocacy groups, clinical care providers and biopharmaceutical innovators and distributors, has a desire to preserve 340B and return it to its original intent, says its spokesperson, Stephanie Silverman, “but it came off the rail.”

SilvermanThe organization is particularly concerned about the growth in the number of qualifying hospitals in the 340B program and the increases in contract pharmacies.

According to HHS’ Office of Inspector General, the contract pharmacy program grew by more than 1,000% in three years.

Silverman points to the disproportionate share hospital (DSH) criteria--especially for hospital eligibility--as one of the culprits in the rise in covered entities. It has allowed many hospitals to qualify for the program even though they may not serve a significant number of vulnerable and uninsured patients.

DSH, which is related to the number of inpatient Medicaid and low-income Medicare patients treated at a hospital, can be used as a proxy for identifying hospitals that serve enough indigent patients. It targets large urban hospitals that can demonstrate that more than 30% of their total net inpatient care revenues come from state and local governments for indigent care (other than Medicare or Medicaid).

Although 340B hospitals are expected to provide a certain amount of charity care to qualify, Silverman does not think that hospitals are aligned with Congress’ expectations.

According to Avalere Health, charity care provided by about 25% of 340B hospitals represents 1% or less of patient costs, and more than two-thirds of 340B hospitals provide charity care at a rate below the national average of 3.3% for all hospitals.

With the explosion in the number of hospitals and expansion of contract pharmacies, Silverman says oversight has not kept pace.

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There also is no indication that vulnerable patients are actually benefitting from the multiple pharmacy rule or receiving improved access to drugs, she says.

“Instead, allowing multiple pharmacies creates disproportionate benefits for the largest retail pharmacies and could lead to more diversion and duplicate Medicaid and 340B discounts for the same drug,” Silverman says.

She notes that some of these pharmacies are in mid- and high-income neighborhoods so that they can charge higher prices, a price arbitrage between covered entities and pharmacies.

NEXT: More to say

More to say

The House Energy and Commerce Committee was due to conduct a hearing on 340B on Thursday, March 5, but it was postponed due to a snowstorm.

According to Congressional Quarterly, the Medicare Payment Advisory Commission (MedPAC) plans to discuss the program in its June report to Congress.

HRSA also expressed its intention to address the growing concerns with 340B this summer. PhRMA is optimistic that the planned guidance from HRSA will address some of its concerns, but believes it will take congressional action to truly reform the program.

AIR 340B also has big hopes for changes in the program anticipated this summer: definition of patient eligibility to correspond with the original intent of the rule; more clarity around rules with contract pharmacies; and stricter rules about which covered entities can participate.

Mari Edlin is a freelance writer based in Sonoma, California.