PhrMA: 340B Hospitals Reimbursed 3X the Amount Paid for Drugs

340B hospitals are getting reimbursed three times the amount they initially paid for brand medications under the drug pricing program, according to a new analysis conducted by Milliman and commissioned by the Pharmaceutical Research and Manufacturers of America (PhRMA).

The Milliman analysis found that, on average, hospitals participating in the 340B Drug Pricing Program paid $1,591 per claim for brand medications and were then reimbursed $4,673. The 340B hospitals were able to retain the difference of over $3,000, which was twice what the hospitals paid to purchase the physician-administered drugs.

The findings spell trouble for the healthcare industry because the 340B Drug Pricing Program has no requirement for hospitals to prove that the $3,082 in revenue was used for improved care to patients, PhRMA reported.

“In order to lower patients’ out-of-pocket costs, we must address misaligned incentives in the healthcare system, like the 340B program that enables hospitals and others in the supply chain to profit without any assurances that patients see any benefit,” said Stephen J. Ubl, president and CEO of PhRMA.

The 340B Drug Pricing Program was originally created to give drug discounts to safety-net facilities and other qualifying hospitals so patients could get access to prescription medications at affordable prices. While the program’s mission is to help hospitals stretch scarce resources, the program has recently been under debate.

PhRMA’s recent analysis, as well as reports from the New England Journal of Medicine and the Government Accountability Office, question if financial incentives are aligned to the program’s intent to support care provided to underserved patients.

“It is clear that far too many hospitals are taking advantage of a program meant to improve care provided to low-income, vulnerable patients,” explained Ubl. “This is fueling provider consolidation, incentivizing physicians to prescribe more expensive medicines and shifting care to more expensive settings – all of which impact costs for patients and the broader health care system. We must take steps to get this program back on track.”

The Trump Administration recently took a step to reform the 340B Drug Pricing Program. In 2018, policymakers implemented a new formula for how 340B hospitals are reimbursed for outpatient drugs obtained through the program. The policy would have enacted a nearly 30 percent reduction in reimbursement to the hospitals.

However, the American Hospital Association (AHA), America’s Essential Hospitals, and the Association of American Medical Colleges (AAMC) sued over the policy, arguing that the reimbursement cuts would harm safety-net hospitals that treat the most vulnerable patient populations.

A federal court agreed with AHA, ruling that CMS exceeded its authority by altering how Medicare pays 340B hospitals for drugs acquired under the program.

But the most recent analysis from PhRMA still calls the program’s policies into question, the pharmaceutical industry group stressed. Under the original method of reimbursement, payments to hospitals for brand medicines were about 247 percent of their acquisition costs even after accounting for 340B pricing. Non-340B hospitals received just 170 percent of their acquisition costs, the group reported.

At the same time, some 340B hospitals received reimbursements above 700 percent of their acquisition costs, although this group may represent hospitals that administrated a large portion of “penny-priced” medications, the report from PhRMA added.

In light of reports like the one from PhRMA, the federal government plans to investigate drug acquisition costs for medications covered under the program. Specifically, CMS has floated the idea of asking 340B hospitals for average acquisition cost data for more than 400 HCPCS codes and 1,100 national drug codes.

But hospitals are unhappy with CMS’ plan to survey 340B hospitals.

340B Health strongly urged CMS to withdraw its proposal to obtain drug information from 340B hospitals. AAMC also submitted similar comments expressing that CMS has “grossly underestimated the expenditure of time and resource hospitals will incur in order to collect and submit the required data.”