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From Health Law Daily, October 8, 2014

Are hospitals making a buck on the 340B program?

By Jay Nawrocki, MA

Participation of hospitals in the 340B reduced pricing for prescription drug program has expanded greatly in recent years, and this expansion has led many to wonder if hospitals are taking advantage of these discounts to increase their revenue margins. A recent study in Health Affairs magazine concluded that more hospitals in wealthy areas of the country are joining the 340B program, which is fueling the speculation that hospitals are taking advantage of this program. The American Hospital Association (AHA) responded to the study by saying that participation in the 340B program by all hospitals meets the goal of providing more and better care to patients with low incomes who may not be able to afford these drugs.

340B program. Under the 340B program, participating hospitals roughly pay the Medicaid rate for certain prescription drugs from drug manufacturers. Section 340B of the Public Health Service Act requires these manufacturers to sell drugs at these prices to eligible providers if they want Medicaid to purchase their drugs. The program was created in 1992 and is named after the section of the Public Health Service Act, section 340B, that authorized it.

Currently, about a third of the hospitals in the U.S. participate in the 340B program with the number of participating hospitals increasing from 591 in 2005 to 1,673 in 2011, according to a Government Accountability Office (GAO) report. Hospitals that receive a certain amount of disproportionate share payments have always been eligible to participate in the 340B program. The Medicare Modernization Act of 2004 (MMA) (P.L. 108-173) expanded eligibility to rural and small urban hospitals and the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) authorized children’s hospitals and cancer hospitals that are excluded from Medicare prospective payment systems, as well as critical access hospitals, sole community hospitals, and rural referral centers to participate in the program. Currently, less than two percent or about $6.5 billion of the $325 billion of annual drug purchases made in the U.S. are made under the 340B program, according to the AHA.

Health Affairs study. The authors of the study in Health Affairs concluded, “our findings are consistent with recent complaints by stakeholders and media reports suggesting that the 340B program is being converted from one that serves vulnerable communities to one that enriches participating hospitals and the clinics affiliated with them.” The study examined the location of the 960 hospitals and the 3,964 affiliated clinics participating in the 340B program in 2012 and found that the hospitals that joined the program since 2004 were in communities that were wealthier and had high rates of insurance. The study found that prior to 2004, the median income of the communities served by hospitals in the 340B program was under $40,000, but the median income for hospitals that joined the program since 2004 ranged between $41,000 and $45,000. The GAO in its report stated that under the 340B program it is permissible for a hospital to pay the manufacturer the reduced price for the drug, but bill a patient’s insurer the going rate for the medication and thereby generate revenue.

AHA’s response. The AHA noted that hospitals that participated in the 340B program provided $28.4 billion in uncompensated care in 2012, which is roughly 4.5 times greater than the amount spent purchasing drugs under the 340B program. The Health Resource and Services Administration’s (HRSA) stated purpose of the 340B program is to “enable covered entities to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services,” and the AHA states that “for more than 20 years, the 340B program has provided financial relief from high prescription drug costs” to accomplish the HRSA’s stated goal for the program.

MainStory: TopStory ReimbursementNews DrugNews DrugBiologicalNews IPPSNews OPPSNews BillingNews SpecialtyHospNews

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