Featured in Health Business Daily, April 23, 2014, and featured in Health Business Daily, April 22, 2014, and featured Health Business Daily Story, April 16, 2014

340B Program Shirks Charitable Care, Undermines Formularies, Argue PBMs

DRUG BENEFIT NEWS provides biweekly news and proven cost management strategies for health plans, PBMs, pharma companies and employers.

By Lauren Flynn Kelly, Managing Editor
April 4, 2014Volume 15Issue 7

A new report from a coalition of stakeholders suggests that a considerable portion of hospitals enrolled in the 340B Drug Pricing Program provides a negligible amount of free or reduced-price care to indigent, uninsured patients. This report, which was partly funded by PBMs, adds to the growing body of analysis questioning whether hospitals that qualify for special drug pricing under the federal program are actually using the savings for their intended purpose. While pharmaceutical manufacturers are the primary stakeholders on the drug side of the program, experts contend that PBMs, Medicare and commercial payers are indirectly losing out as well, and fear that a forthcoming “mega-reg” and other proposed rules will not solve their woes.

In Unfulfilled Expectations: An Analysis of Charity Care Provided by 340B Hospitals, a study conducted by Avalere Health LLC shows that charity care represents 1% or less of patient costs at approximately one-fourth of 340B hospitals, while 22% of hospitals provide 80% of all charity care delivered by 340B hospitals. The analysis included only disproportionate share hospitals (i.e., hospitals that receive HHS funds to offset losses stemming from serving a large number of low-income patients) because the greatest amount of data was available on those entities. The paper was authored and sponsored by the Alliance for Integrity and Reform of 340B (AIR 340B), which includes the Pharmaceutical Care Management Association, Pharmaceutical Research and Manufacturers of America, and Express Scripts Holding Co. as members in addition to patient advocacy groups and clinical care providers. The report concluded that Congress should reconsider the eligibility criteria for hospitals.

Express Scripts says the company is concerned that the program is distorting the market for purchasing prescription drugs. “If a commercially insured patient goes to a 340B entity — a hospital pharmacy or one of its contract pharmacies — the payer doesn’t receive the PBM-negotiated rebate from the manufacturer, and this results in higher overall drug spend,” asserts spokesperson David Whitrap. “Furthermore, since 340B discounts only really apply to brand drugs, the incentives are such that 340B entities may be nudging patients and doctors toward brand drugs when clinically equivalent, lower cost alternatives are available.”

Amanda Bartelme, a director in Avalere’s reimbursement and product commercialization group, explains that how PBMs lose out on the program is “a bit of a nuanced thing.” While PBMs negotiate rebates with manufacturers for preferred placement on plan sponsors’ formularies, there’s the potential for 340B covered entities to “ignore” patients’ insurance coverage, she asserts. “Theoretically, the potential for the covered entity to make a margin on the drug can drive behaviors versus relying on the payer’s formulary,” suggests Bartelme, who did not contribute to Avalere’s analysis for AIR 340B. “So it undermines the PBMs’ ability to be effective in those places because hypothetically a covered entity could be getting a nonpreferred drug for such a deep discount that it could dispense [the drug] to a patient and charge the same copay that it would have for the preferred product or waive the copay and still be made whole or make a profit off the insurer’s payment alone.”

The 340B Drug Pricing Program, established in 1992, allows qualifying nonprofit entities such as DSH providers, critical access hospitals and specialized clinics to purchase covered outpatient drugs at deeply discounted rates. The program is administered by HHS’s Health Resources and Services Administration (HRSA), which indicated that it intends to issue a proposed regulation by June to clarify certain program elements, such as its patient definition and contract pharmacy arrangements. Congress’s original intent was that covered entities use the savings from 340B-purchased drugs to “stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” Manufacturers must offer the discounts in order to get their drugs covered by Medicaid.

340B Purchases Have Exploded

The program has seen rapid growth in recent years, due in large part to revised eligibility criteria included in the Affordable Care Act, as well as subregulatory guidance that allowed for a covered entity to provide 340B drugs through an unlimited number of outside pharmacies. Analysis conducted by Pembroke Consulting, Inc. shows that during the past decade, purchases under the 340B drug discount program have grown by 800%, from $0.8 billion in 2004 to $7.2 billion in 2013. Moreover, hospitals in 2013 received 340B discounts on at least 25% of their drug purchases, compared with only 3% of 2004 purchases.

In a March 27 Drug Channels post responding to the AIR 340B paper, Pembroke President Adam Fein, Ph.D., lamented that hospitals’ overall share of uncompensated care has not materially increased along with the rise in 340B purchases.

“Some legitimate entities truly require additional financial support. However, there are also many large, profitable, well-funded health systems that appear to be taking advantage of the program by using 340B revenues in ways that can’t be linked to the drug discount program’s initial purpose,” he wrote. “Congress should require that hospitals fully disclose how they use their 340B profits. Let’s hope that HRSA’s promised ‘mega-rule’ starts to focus the program on truly deserving hospitals and the neediest patients.”

In a February study report, the HHS Office of Inspector General (OIG) suggested that the expansion of covered entities’ contract pharmacy arrangements has led to diversion and duplicate discounts through Medicaid, which are prohibited in the program. Some of the issues identified in OIG’s examination include:

  • Contract pharmacy arrangements “create complications” in preventing diversion of 340B-purchased drugs to ineligible patients (e.g., those who do not have an established relationship with a qualifying covered entity), and covered entities are not consistently categorizing 340B-eligible prescriptions in those arrangements.

  • Contract pharmacy arrangements also create problems in preventing duplicate discounts, which occurs when a drug maker pays the state Medicaid agency a rebate on a drug sold at the already-discounted 340B price. Most covered entities in the OIG study prevent duplicate discounts simply by not dispensing 340B-purchased drugs to Medicaid beneficiaries through their contract pharmacies, while some that do dispense 340B-purchased drugs to Medicaid members did not report a method to avoid duplicate discounts.

  • Most of the covered entities in the study do not conduct the oversight activities recommended by HRSA, although almost all reported monitoring those arrangements to some degree.

“The onus is on the covered entity to contract with the external pharmacy and to put all of the program integrity pieces in place to make sure that…they’re not dispensing 340B covered drugs to Medicaid beneficiaries and then the state’s also collecting the rebate on it,” explains Bartelme. At the same time, covered entities are responsible for ensuring that their pharmacies are dispensing only to patients who meet all applicable components of HRSA’s patient definition. “And the OIG report was really critical [that] covered entities are having a hard time structuring those arrangements given the very limited guidance that’s come from HRSA to help covered entities figure out how to do this in a way that’s effective.”

Some of these issues may be resolved by HRSA’s mega-reg and three other anticipated regulations from the agency. But the mega-reg won’t likely address some of the more nuanced issues faced by PBMs and payers, such as hospitals circumventing patients’ commercial formularies to dispense 340B drugs, suggests Bartelme. “I think it would be too far in the weeds for them to address those indirect consequences of the system, at least this first go-round,” she says.

Bartelme adds that some of the industry confusion around 340B often centers on whether the discounted drugs are being dispensed to the appropriate patients, but she explains that there’s no such thing as a “340B-eligible patient,” only a 340B covered entity. “There’s never been a prohibition against dispensing drugs purchased at the 340B price to someone with commercial insurance and receiving the full payment from the commercial insurance for that drug,” she explains. “That’s the underpinning of how the system works. But I think manufacturers and commercial insurers are realizing more and more that the funding of this entire program is on their backs, for the most part. So I think that’s where the concern is growing, particularly on the manufacturer side, as more and more of their products are exposed to these discounts.”

In many ways, drug companies are the biggest losers in the 340B program, observes Bartelme. Just as they risk losing money twice if they pay state Medicaid agencies rebates on drugs that were sold at the already discounted 340B prices, the same happens on the commercial side when a 340B drug is dispensed for which the manufacturer has already negotiated a discounted rate with an insurer. The difference is that duplicate discounts through Medicaid are prohibited by law, while it’s within the bounds of the program when it happens on the commercial side, she explains. Manufacturers are allowed to audit covered entities to prevent duplicate discounts to Medicaid and diversion — with HRSA’s permission — and are doing so with increasing frequency.

While not a significant part of the PBM business model, many companies provide various 340B support services to their hospital and health system clients (DBN 3/15/13, p. 1). “Express Scripts does offer tools for 340B eligible entities — hospital systems — who happen to be clients of ours,” Whitrap tells DBN. “These offerings, which are a very small part of what we do, help ensure that our clients are running their program in a compliant way.”

View the OIG report at http://tinyurl.com/krfrjr5 and the AIR 340B paper at http://tinyurl.com/mslzmxd.

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