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January 24, 2018

New Study Reinforces Call to Reform 340B Drug Pricing Program

The Intent Is for Hospitals to Use the Profits to Provide Care or Services for Low-Income Patients

New Study Reinforces Call to Reform 340B Drug Pricing Program

Source: Tero Vesalainen/Getty Images

  • A study published in the New England Journal of Medicine on January 24, 2018, reinforces concerns that the 340B Drug Pricing Program is not functioning as intended and reform efforts are warranted.

    Created in 1992, the 340B Drug Pricing Program allows eligible nonprofit hospitals and other entities to purchase prescription drugs in the outpatient setting at deep discounts, typically 20–50%. 340B hospitals are permitted to then charge patients and payers the full price, generating profit from the difference. The intent of the 340B program is for hospitals to use the profits to provide care or services for low-income patients.

    However, the program has grown dramatically since eligibility was expanded in 2003, suggesting the program may have evolved beyond its intended scope. Also, the 340B program has be cited by experts as one factor contributing to higher prescription drug prices and an incentive for 340B hospitals to acquire private practices.

    “There are many policies that have good intentions, but then their design is often kind of flawed, and that can lead to unintended consequences. I think the 340B program is a good example of this,” coauthor Sunita Desai, Ph.D., tells GEN. Dr. Desai is an assistant professor of health policy at NYU School of Medicine. The other coauthor was Michael McWilliams, M.D., Ph.D, a professor of healthcare policy at Harvard Medical School.

    The 340B program is currently a target for reform, with the Centers for Medicare & Medicaid Services taking the first step last fall when it cut reimbursement to certain 340B entities for Medicare Part B drugs.

    “There’s two concerns about the 340B program that we wanted to examine with a rigorous, empirical design,” says Dr. Desai. First, she says, “There’s this concern that the design of the 340B program is leading the hospitals to buy up practices, particularly in hematology-oncology specialties, and while there’s anecdotal evidence of this, and some descriptive evidence, there haven’t been any rigorous studies to see if this is, in fact, the case.”

    The second concern, she says, is “whether the 340B program is achieving its goals; is it actually leading to hospitals expanding and improving care for low-income populations?”

    To answer these questions, the researchers used a regression-discontinuity design and extracted data from several sources, including Medicare claims and the Centers for Medicare & Medicaid Services Hospital Cost Report Information System. Only nonprofit acute care hospitals that had 50 or more beds were included, and they were grouped by the Disproportionate Share Hospital (DSH) adjustment percentage. The DSH percentage is a proxy for the proportion of low-income patients a hospital treats and used to determine 340B hospital eligibilty; acute care hospitals with a DSH percentage above the eligibility threshold of 11.75% are 340B eligible and those below are not.

    “What we did is exploit that eligibility threshold,” says Dr. Desai. “Basically, the idea is that these hospitals that are close to the threshold are similar to each other in every way except for their 340B eligibility.” She explains that by testing for discontinuities in the outcomes at the eligibility threshold, they could determine the “causal effect” of the 340B program.

    Only acute-care hospitals with a DSH percentage within 10 percentage points of the eligibility threshold were included: 1.75% to 21.75%. Analyses were adjusted for several covariates, including hospital teaching status, urban versus rural hospitals, Census region, and patient demographics.

    To explore whether hospital–physician consolidation was occurring, the researchers looked at hospital employment of three specialties that generate the highest proportion of Medicare revenue from parenteral outpatient drugs: hematology-oncology, ophthalmology, and rheumatology.

    “That’s where we would expect the 340B program to have the most impact in terms of consolidation,” says Dr. Desai.

    “One of the first novel findings of our work is that the incentives of the 340B program are leading hospitals to buy up physician practices, particularly in hematology-oncology,” says Dr. Desai. “From previous work, we know that such consolidation can lead to higher spending and higher prices in commercial markets without evidence of improved quality.”

    Specifically, 340B-eligible hospitals were associated with employing 230% more hematologist-oncologists and 900% more ophthalmologists than hospitals not eligible for the program; both findings were statistically significant. Also, 340B-eligible hospitals had a 90% higher number of parenteral drug claims for Medicare patients in hematology-oncology and a 199% higher number for ophthalmology than ineligible hospitals. A statistically significant difference was not found in either analysis for rheumatology.

    She added, “The first finding points to this unintended consequence of this well-intended policy.”

    In an accompanying perspective, health policy experts from the University of Pittsburgh, Walid Gellad, M.D., and Everette James, J.D., write that this study “supports” the contention that hospitals have purchased community practices to profit from the 340B program.  

    As for the secondary analysis, she says, “We didn’t find evidence that the 340B program is causing hospitals to expand care for low-income populations.”

    340B program eligibilty was not associated with mortality differences for Medicare patients overall or low-income groups, suggesting the 340B program is not achieving its goal of serving vulnerable patients.

    She notes a limitation. “We focused on general acute care hospitals, and our study design inherently focuses on hospitals that have lower DSH percentages, so we can’t really speak very definitively to what hospitals that have even higher DSH percentages or, for example, critical access hospitals are doing with the resources from the 340B program.”

    Drs. Desai and McWilliams conclude, writing, “Our findings suggest that the recent decision by the Department of Health and Human Services to lower drug reimbursements to hospitals participating in the 340B Program could slow hospital–physician consolidation while not adversely affecting care for low-income patients served by general acute hospitals.”

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