screenshot of PhRMA blog post September 15, 2022
Headline from recent blog post by PhRMA spokesperson Nicole Longo.

PhRMA, BIO, and Others Unleash a Torrent of 340B Hospital Criticism

340B disproportionate share hospitals (DSH) in 2020 spent 2.2 times more on outpatient drugs per commercially insured patient than non-340B DSH hospitals and 2.6 times more than other types of 340B hospitals, a new drug industry-funded study shows.

The Sept. 15 study commissioned by Pharmaceutical Research and Manufacturers of America (PhRMA) was just one of several punches that critics of 340B hospitals have thrown recently. Biotechnology Innovation Organization, Community Oncology Alliance, and American Action Forum also issued studies or published articles finding fault with 340B hospitals and calling for major changes to the drug discount program.

PhRMA commissioned consulting firm Milliman to do the study—an update of one that PhRMA had Milliman do in 2018. It is the latest round in the fight over whether hospitals’ ability to earn large margins billing for 340B drugs causes higher drug spending.

Round one was in 2015 when the U.S. Government Accountability Office (GAO) found that per beneficiary Medicare Part B drug spending was much higher at 340B DSH hospitals than at non-340B hospitals, and that the difference did not appear to be explained by the hospital characteristics or patients’ health status. The spending difference “indicates that, on average, beneficiaries at 340B DSH hospitals were either prescribed more drugs or more expensive drugs,” GAO said.

Hospital groups criticized GAO’s conclusions. They said the study did not sufficiently evaluate 340B DSH hospital patients’ health status or patient health outcomes. 340B Health, for example, commissioned research that found that 340B DSH hospitals treat proportionally more Black/African-American and Hispanic beneficiaries than did non-340B providers, and proportionally more low-income and disabled patients receiving cancer drugs.

MedPAC Study Gives Ammunition to 340B Hospital Arguments

In 2020, the Medicare Payment Advisory Commission found that drug spending at 340B hospitals was slightly higher for Medicare beneficiaries with lung and prostate cancer but not for those with breast cancer, colorectal cancer, or leukemia/lymphoma. For lung cancer, the modestly higher spending at 340B hospitals was driven partially by greater use of high-cost immune-oncology products. MedPAC, however, said it could not conclude “that the use of higher priced products for lung cancer was driven by 340B discounts because higher prices are not necessarily associated with higher 340B discounts.” For prostate cancer, higher spending appeared to be driven by 340B hospitals’ higher share of younger low-income patients and more aggressive treatment for such patients.

Like the 2015 GAO study, Milliman’s 2018 study and its new follow-up study examined whether 340B gave hospitals a financial incentive to favor more expensive medicines, except in this case for commercially insured patients, not Medicare beneficiaries.

Milliman’s 2018 study found that in 2015, average per-patient outpatient drug spending at 340B DSH hospitals was “almost three times the spend of non-340B hospitals” ($457 at 340B DSH hospitals versus $178 at non-340B DSH hospitals and $159 at other kinds of 340B hospitals).

This year’s follow-up study found that average per-patient outpatient drug spending at 340B DSH hospitals was $584 versus $255 at non-340B DSH hospitals and $219 at other kinds of 340B hospitals.

Milliman said “drugs with higher average allowed claim costs is the primary driver of the higher pharmacy spend at 340B DSH hospitals compared to non-340B DSH hospital hospitals.”

PhRMA recently issued a fact sheet entitled “340B: The Unintentional Profit Stream that Was Supposed to Help Patients.”

New BIO Article

Other critics of hospitals that participate in 340B recently issued studies or policy recommendations.

The 340B program has “morphed into a system that is proving anathema to its original intent” of “allowing hospitals and clinics that work with underserved communities to provide outpatient prescription drugs to patients at deep discounts,” Biotechnology Innovation Organization (BIO) said in an article Sept. 19 on its Bio.News website.

“At first, the program worked. There was negligible cost to taxpayers and manufacturers absorbed the cost of the program,” contributing writer Clary Estes wrote. “But the program’s expansion began to undermine its use.”

“Drug manufacturers, the federal government, hospitals, and the pharmacy industry are at odds as medical institutions find more ways to get their hands on heavily discounted prescription drugs—averaging around 50%, but sometimes discounted up to 99%—though many of them are not passing those savings to patients,” Estes wrote. “The program has become a revenue-generating scheme for hospitals and pharmacies that is ultimately not benefiting the patients it was created to serve.”

“Ultimately, the unchecked expansion of the 340B program beyond its intended scope is setting up a system where hospitals and pharmacies make big profits, leave patients without discounts, and make drug manufacturers and insurers foot the bill,” Estes concluded. “When it comes to problems in systems like 340B, politicians and federal regulators need to start asking, who is really profiting?”

New Community Oncology Alliance Study

Physician group Community Oncology Alliance (COA) released a report Sept. 12 stating that a group of 49 340B DSH hospitals in 2021 charged insurers and patients a median of 4.9 times their 340B acquisition costs for a list of 27 top oncology treatment and supportive drugs. The 49 hospitals account for roughly 23% of the total estimated 340B discounts received by all DSH hospitals in 2021, COA said.

A similar COA study released in September 2021 found that in 2020 a group of 123 340B DSH hospitals on average charged 3.8 times their 340B acquisition costs for a list of 59 oncology and supportive drugs.

Neither the hospitals nor the drugs studied are nationally representative samples of all 340B DSH hospitals or of all 340B-purchased oncology drugs that hospitals administer or dispense. COA said the 27 drugs in the new study “were selected primarily based on being the highest dollar expenditure for Medicare Part B cancer drugs in 2019 augmented with lower expenditure drugs sharing the same active ingredient, either generic or biosimilar.” The hospital charges used for the study came from those reported to the federal government under new federal hospital price transparency requirements.

COA, whose members are private-practice oncologists and drug companies, said its analysis also found that:

  • The price that 340B hospitals charge insurers relative to their purchase price is substantially higher for commercial insurance compared with Medicare.
  • 340B hospitals are slow to adopt lower cost biosimilar drugs.
  • 340B hospitals charge cash-paying or uninsured patients similar amounts as they charge commercial insurers.

“As concerns about the growth of the 340B program increase, calls for pricing transparency on the margins that hospitals make on 340B products increase,” COA said. “While hospital reporting has improved slightly since our previous report, there are still challenges in gathering and analyzing the data published by the top 340B hospitals. Moreover, transparency may not be sufficient to remediate mark-ups among 340B hospitals and further legislative or regulatory changes may be needed.” 

340B hospitals point out the private practice oncologists serve far fewer low-income and uninsured cancer patients than 340B hospitals.  They also point out that COA’s perspective is skewed due to its significant financial support from the pharmaceutical industry.

American Action Forum Recommendations

The center-right think tank American Action Forum (AAF) criticized the 340B program in a Sept. 12 research note on its website, saying 340B “lacks purpose, transparency, and accountability, and these factors — combined with its increased growth — have led to more costs for the taxpayer, beneficiaries, insurers, and pharmaceutical manufacturers.”

“Any serious reform to 340B will require congressional action,” AAF health care policy analyst Jackson Hammond wrote.

AAF- Influential Group Funded by PhRMA

AAF, which is highly respected by Congressional Republicans, receives drug industry funding. According to PhRMA’s federal tax returns for 2019 (the most recent year publicly available), PhRMA donated $200,000 to AAF and $4.5 million to AAF’s affiliated issue advocacy group American Action Network.

According to a 2019 study by the watchdog group, Project for Government Oversight (POGO), AAF and its political arm American Action Network have consistently received significant funding from PhRMA. 

“According to IRS tax forms, a sister organization, the American Action Network, has received millions of dollars from PhRMA and has also given money to the American Action Forum. In 2016 alone, PhRMA gave over $6 million to American Action Network. Over a 12-month period starting July 2016, American Action Network gave AAF $945,000, the report says.

The report shows that AAF also received significant contributions from PhRMA in 2014 and 2015.

AAF proposed a number of potential fixes, including:

  • Define the program’s goals, patient population and how 340B savings can be used.
  • More transparency by requiring hospitals to disclose how they use 340B savings, with non-compliance penalties enhanced beyond the current temporary ineligibility. 
  • Strengthen the definition of a 340B-eligible patient to ensure covered entities are serving targeted beneficiaries, the uninsured versus outpatient Medicare/Medicaid recipients.
  • Enhance HRSA’s authority to require hospitals to report the amount of 340B funds they receive and how the funds are spent, and to share ceiling prices with Medicaid programs to avoid duplicate discounts, possibly through the use of a 340B claim identifier.

AAF is headed by former Director of the Congressional Budget Office Douglas Holtz-Eakin, who also served as domestic policy advisor on the late Republican Sen. John McCain’s 2008 presidential campaign. In an accompanying blog post promoting the AAF piece, Holtz-Eakin calls on Congress to take action to rein in the program.

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