Report claims 340B hospitals are leveraging discounts to increase profits from cancer drugs

September 16, 2021
Healthcare Finance
By Jeff Lagasse

The report received harsh criticism from advocacy group 340B Health, which called the methodology highly flawed.

Certain safety net hospitals are charging insurers an average of 3.8 times more than the acquisition costs for oncology drugs, although depending on the drug, the markup can be much higher – up to 11 times the purchase price, a new report has found.

Founded in 1992, 340B is a federal program that requires drug manufacturers to provide outpatient drugs at significantly reduced prices to eligible healthcare organizations that are supposed to treat high numbers of uninsured and low-income patients. Hospitals claim the savings are used to reduce the price of drugs for patients and expand health services, but the report claims the discounts are being captured by the hospitals as profits rather than being passed on.

According to the Community Oncology Alliance, which authored the report, 340B Disproportionate Share Hospitals are entitled to a 23.1% ceiling price discount off the Average Sales Price (ASP), but the discount can be higher if the drug price increases above the rate of inflation. Drug companies can provide further discounts to 340 hospitals beyond the ceiling price – a common practice in competitive markets.

The actual prices paid per drug are undisclosed, but in 2020, the Centers for Medicare and Medicaid Services estimated the average discount at 34.7% off the ASP.

WHAT’S THE IMPACT?

Researchers found that 340B hospitals overwhelmingly fail to fully comply with federal hospital transparency regulations that went into effect this year. Working from the entire list of 1,087 acute care, disproportionate share 340B hospitals, the researchers found that only 123 facilities – 11% of the total – published all the required data on drug prices, despite a U.S. Department of Health and Human Services regulation effective on January 1, 2021, requiring publishing price data to avoid a relatively minor $300 per day fine.

The others either failed to comply with the mandate or published data that was difficult to analyze or was incomplete.

The report highlights the infused multiple myeloma drug Darzalex as an example of how 340B hospitals profit from different patients and payers. Considering various discounts, a community oncology practice, for example, would pay $116,876 for a year’s treatment of Darzalex and be reimbursed by Medicare at $123,889, making $7,013 to cover costs for administering the drug.

A 340B hospital would buy the same amount of the same drug for $76,320 and be reimbursed by Medicare at $90,579, making $14,259 for administering the drug.

That same 340B hospital treating a patient with commercial insurance would also buy the same amount of Darzalex for $76,320. But the hospital will charge the insurer 3.8 times that, or $290,016, making a profit of $213,696 for a single patient – 15 times that of a Medicare patient.

COA calculated the median 340B hospital markup by comparing hospital negotiated prices for insured patients to the published ASP for the third quarter of 2021, discounted by 34.7%, and found the increase in price ranges from 2.4 times higher (for the drug Adcetris) to 11 times higher (for Epogen).

In examining the data, COA revealed that the highest markups were for drugs in competitive markets – mostly biosimilars and their reference drugs. In these markets, the purchase price hospitals pay is greatly discounted compared to the wholesale acquisition cost (WAC).

The report found that 340B hospitals often did not list a treatment’s biosimilar option, and charged nearly identical rates to cash-paying patients as they did to insurers.

Further, 340B hospitals are not reducing the prices they charge insurers or patients when their acquisition prices decline, which negates efforts to reduce prices at the manufacturer level. Such hospitals are also slow to adopt biosimilars, the report found.

There’s also pricing inconsistency between hospitals, with some pricing drugs 2 times more than the median – in effect, 7.6 times higher than their acquisition price or more. Even within hospitals charges can vary quite dramatically.

As for why insurers have not acted to reduce drug prices, COA has collated a number of hypotheses. For one, the balance in the negotiating position is often not on the insurer’s side. More moderate-size insurers are often not in a position to negotiate better prices, and so often accept the hospital price.

The second hypothesis is that insurers simply haven’t focused on drug costs, both for organizational reasons and because outpatient drugs were not a big cost center until relatively recently. The third hypothesis: Insurers are focusing on shifting drug usage to non-hospital settings, such as community clinics or specialty pharmacies, rather than attempting to negotiate prices with hospitals.

Ultimately, COA concluded that relying on the current market structure to curb costs has not been effective. Hospital price transparency may help to move the needle somewhat, and could potentially create some pressure on hospitals to control their prices.

THE LARGER TREND

Not surprisingly, the report elicited criticism, specifically from advocacy group 340B Health, which called Community Oncology Alliance an “anti-340B group” and said the report “is highly flawed and presents an inaccurate picture of the role 340B plays in America’s health care safety net.”

Noting that COA has long been a vocal critic of the 340B program and participating hospitals, 340B Health pointed to what it considered “numerous errors” that make the report inaccurate.

First, the group said, the report lacks understanding of how Congress structured 340B. Lawmakers created the 340B program to allow savings from lower drug costs to support a broad range of services for patients with low incomes. In other words, 340B is working as intended, the group argued.

Second, the organization felt the report overstates the value of the 340B discount as the difference between the acquisition cost of the drug and reimbursement. 340B Health instead said the value of the discount is the difference between what 340B providers would have paid absent the program (the group pricing organization or GPO price) and actual acquisition cost.

340B Health also said the report “fails to consider the many ways 340B hospitals are using the savings to provide uncompensated and unreimbursed care as well as vital services that cost more to deliver than the reimbursements they bring in, including trauma and burn care, HIV care, and inpatient mental healthcare.”

The organization also highlighted what it felt were several technical problems in the report’s methodology. The authors, said 340B Health, used a sample of only 123 DHS hospitals out of a total of more than 1,000 such hospitals in 340B, a sample size that’s inadequate to draw broad conclusions about an entire sector of the hospital industry.

“When these types of reports find their way into the public dialogue over the 340B program, they obscure the tremendous good the program does for the health care safety net and the patients it serves,” wrote 340B Health. “Policymakers who understand the benefits and intent of the program will recognize the holes in these arguments.”

Read more in Healthcare Finance