Life Science Compliance Update

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April 02, 2018

Higher Outpatient Drug Spending At 340B Hospitals, According to New Analysis

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A new analysis finds that hospitals which participate in the 340B Drug Discount Program have higher per patient outpatient pharmacy costs than their non-340B counterparts – meaning patients at 340B hospitals are prescribed more medicines and/or more expensive medicines.

“There is a growing body of research showing that the 340B program is driving up costs for patients and the health care system,” said Stephen J. Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA). “The biopharmaceutical industry has long supported the 340B program, but perverse incentives have steered it away from its original intent. It’s time to get 340B back on track for patients.”

These prescribing patterns help highlight important effects, such as increased patient cost sharing, which undermines 340B’s goal of helping safety-net providers access discounts on outpatient medicines for uninsured or otherwise vulnerable patients. These outpatient medicines include medicines that are administered or dispensed at a hospital’s offsite facility, such as infusion medicines, or medicines prescribed at a hospital and picked up at a contract pharmacy. There is currently no requirement that hospitals pass 340B program savings along to patients and there is growing evidence suggesting that these discounts may actually contribute to higher out-of-pocket costs for patients.

The analysis, which was prepared by Milliman and commissioned by PhRMA, compares outpatient drug spending for commercially insured patients among 340B disproportionate share (DSH) hospitals, non-340B DSH hospitals, and other non-340B hospitals, as well as a subset of these hospitals that are teaching hospitals. The authors analyzed data from Milliman’s 2015 Consolidated Health Cost Guidelines database and found 340B hospitals have higher per patient outpatient pharmacy costs than non-340B hospitals despite controlling for patient health status.

Specifically, the analysis found that the average annual per patient outpatient drug spending at 340B DSH hospitals was nearly three times spending at non-340B DSH hospitals ($457 and $159, respectively). Further, the average annual per patient outpatient drug spending at major teaching hospitals that are 340B DSH hospitals was more than two and a half times that at major teaching hospitals that are non-340B DSH hospitals ($539 and $213, respectively).

The analysis indicates that 340B hospitals tend to have higher per patient outpatient pharmacy spend when compared to non-340B hospitals. Because deductibles and coinsurance typically expose patients to higher cost sharing when the total cost of prescriptions they are prescribed increases, the prescribing patterns identified in the analysis may result in higher cost sharing (depending on a patient’s plan design) and higher premiums if the hospital does not pass the 340B discounts through to the patient or the payer.

This analysis also falls in line with the 2015 Government Accountability Office (GAO) report that analyzed treatment costs for Medicare Part B beneficiaries at 340B DSH hospitals. The GAO report concludes that the 340B program incentivizes participating hospitals to prescribe more medicines and/or more expensive medicines to increase their profits by taking advantage of the spread between the 340B discounted acquisition cost and the reimbursement they receive from patients and payers.

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