Drug Discount Program Drives up Costs, Discounts the Poor – Pacific Research Institute

Drug Discount Program Drives up Costs, Discounts the Poor

American cancer patients have never had a better chance of beating the disease than they do today. In the last quarter-century, cancer death rates have declined by more than one-fifth.

But these gains in the fight against cancer haven’t come cheaply. Cancer drug prices have doubled in the past decade. Overall health spending is now at $2.8 trillion, or $8,915 per person. That’s $500 more per person than just four years ago — and nearly $3,700 more than in 2001.

One reason for these rising health costs? Ironically enough, it’s the growth of a federal program called 340B that requires drug makers to sell their wares to hospitals at steep discounts.

Created in 1992, 340B allows hospitals that treat disproportionately underserved populations — like those with low incomes and the uninsured — to purchase drugs at discounts of between 20 and 50 percent. The intent is to provide the disadvantaged with affordable access to cutting-edge care.

But instead of passing along 340B’s savings to patients, hospitals and pharmacies are using them to line their pockets.

Two major loopholes in 340B have yielded unintended consequences that are raising health costs.

First, the program uses arbitrary requirements to decide which hospitals are eligible.

Providers can purchase discounted drugs if they have high ratios of Medicare and Medicaid inpatient days.

But those two populations are not the program’s intended beneficiaries. The uninsured are. Yet 340B doesn’t take stock of a hospital’s load of uninsured patients when defining eligibility.

As a result, some hospitals and pharmacies get drug discounts even when they don’t provide meaningful levels of charity care. At more than a quarter of hospitals that receive 340B discounts, charity care accounts for 1 percent or less of total patient costs.

In fact, hospitals that participate in 340B tend to be less charitable than their peers that do not take part in the program. More than two-thirds of 340B hospitals provide less charity care as a percentage of patient costs than the national average for all hospitals.

Drug makers have to recover the costs of 340B’s discounts somehow. One way is by raising prices for those outside the program.

Second, and perhaps even more head-scratchingly, hospitals are not bound to pass their 340B savings on to patients. They can purchase drugs at steep discounts, charge patients full price, and pocket the difference.

A joint investigation by The News & Observer and The Charlotte Observer, two North Carolina newspapers, found that hospitals often mark cancer drug prices up two to 10 times beyond their cost. Duke University Hospital booked nearly $50 million in additional profits by employing this strategy.

Now, hospitals are looking to acquire smaller providers in order to further exploit 340B. In the past several years, hospitals have bought more than 400 private oncology practices. Acquiring just a single oncologist and his or her 340B prescriptions can increase a hospital’s profits by over a million dollars.

This shift from physician care to hospital care hurts patients because hospitals charge more for treatments than do smaller practices. In order to cover their high overhead costs, hospitals charge more than twice what the typical doctor’s office does for a chemotherapy infusion.

Patients pay an additional $134 per dose, on average, for ten of the most commonly prescribed chemotherapies if they receive them in a hospital rather than in an oncologist’s office. That’s a 189 percent premium.

Many cancer patients are responsible for a percentage of their total medical bill. Rising out-of-pocket costs can push them to drop out of treatment. When copays for hormonal breast cancer treatment exceed $30, 10 percent fewer patients complete therapy relative to when copays are $30 or less.

The failure to adhere to a treatment plan can actually drive up health costs. Combined patient and insurer costs for those who stop and then later resume therapy can grow by 50 percent.

Despite all the abuse within 340B, the federal government has aggressively expanded the program. In 2010, regulators allowed hospitals to distribute 340B drugs through contract pharmacies. Today, more than one-third of all hospitals nationally participate in the program, and approximately 22 percent of these hospitals use contract pharmacies. The number of 340B contract pharmacies grew by 700 percent from 2010 to 2013.

Thanks to Obamacare, 340B will only get bigger. The entities newly eligible for the program include children’s hospitals, sole community hospitals, rural referral centers, free-standing cancer hospitals, and critical access hospitals.

Even President Obama’s former Health and Human Services Secretary Kathleen Sebelius has admitted that the 340B program had “expanded beyond its bounds.”

The federal Health Resources and Services Administration may release a proposal this month that would tighten 340B. It’s about time. Federal officials must ensure that 340B serves not to shore up hospitals’ balance sheets — but to deliver affordable care to needy patients.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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