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Average Profit Margin on Oncology Drugs for 340B Hospitals Nears 50%

Jaime Rosenberg
"The Oncology Drug Marketplace: Trends in Discounting and Site of Care," commissioned by the Community Onoclogy Alliance and conducted by Berkley Research Group, found that 340B hospitals have a clear financial incentive to expand oncology services; 340B hospitals receive over one-third of all Part B oncology drug reimbursement; a disproportionate share of the shift in site of care is attributable to 340B hospitals; and between 2010 and 2015, statutory discounts and rebates paid by manufacturers have almost tripled and put upward pricing pressure on drugs.
The average profit margin on oncology drugs purchased by hospitals through the 340B program increased to 49% in 2015, subsequently leading to price pressure on cancer drugs, according to new study findings.

“The Oncology Drug Marketplace: Trends in Discounting and Site of Care,” commissioned by the Community Oncology Alliance (COA) and conducted by Berkeley Research Group, expanded upon previous research on the 340B program and assessed the impact the program had on the shift to more expensive hospital outpatient settings for cancer care; the scale of statutory discounts on oncology drugs, specifically 340B drugs; and the part these discounts play in drug pricing.

Currently, nearly half of all cancer patients are treated in hospital outpatient facilities, up from 23% in 2008. While limited research exists on the impact that this shift in site of care has on quality of care and patient outcomes, there is significant evidence of its role in overall healthcare cost increases, according to the authors of the study.

“The continued shift of oncology care to the hospital outpatient setting, combined with increased rates of cancer and rising drug prices, is setting the stage for higher overall costs of oncology care,” wrote the authors.

The authors developed an analysis by utilizing 2 sets of oncology drugs and Medicare fee-for-service claims from 2008 to 2016. Using a combination of IMS wholesale acquisition cost (WAC) sales data from 2010 to 2015 and publicly available pricing data, the authors conducted a financial analysis of sales, discounts, rebates, and 340B margins on a subset of the separately payable oncology drugs that accounted for 85% of total Medicare Part B oncology drug reimbursement in 2015.

The study had 4 main findings:

1. 340B hospitals have a clear financial incentive to expand oncology services. From 2011 to 2016, the average discount of a drug’s list price for Medicaid increased from 44% to 51%. The authors estimate that the average 340B discount from WAC increased from 54% in 2010 to 63% in 2015, which is responsible for keeping the 340B price consistent over that time period. Medicare reimbursement for physician-administered drugs equals 106% of a drug’s average sales price (ASP).

2. 340B hospitals receive over one-third of all Part B oncology drug reimbursement. Between 2008 and 2016, the percentage of oncology drug reimbursement to 340B hospitals has more than tripled. According to the authors, there are multiple factors that contributed to the growth: new entity enrollment, growth in contract pharmacy, and expansion of oncology services by 340B hospitals. During the same period, the percentage of oncology drug reimbursement to community oncology practices has declined from 72% to 49%.

3. A disproportionate share of the shift in site of care is attributable to 340B hospitals. The authors analyzed enrollments of 2 cohorts between 2008 and 2016: hospitals that were continuously enrolled in 340B and hospitals that were not enrolled. By 2016, the 340B cohort accounted for over 920,000 oncology claims, a 38% greater growth than the non-340B cohort. “What we saw was that the majority of the growth has come out of existing hospitals through internal growth or acquiring practices,” said Ted Okon, executive director of COA.

4. Between 2010 and 2015, statutory discounts and rebates paid by manufacturers have almost tripled and put upward pricing pressure on drugs. In 2010, the statutory discounts and rebates on oncology drugs included in the analysis were approximately $1 billion and accounted for 7.4% of total gross sales for these drugs. By 2015, statutory discounts and rebates on the same set of drugs surpassed $3 billion and accounted for 14.4% of total gross sales for these drugs. The primary driver of this was the 340B program.

There is a lot that needs to be done, explained Okon, and CMS’ final rule is a step in the right direction. Last month, CMS finalized reform that will adjust payments for the 340B program: the Hospital Outpatient Prospective Payment System (OPPS). The program will adjust payment for drugs purchased through the 340B program to the ASP minus 22.5%, a change from the current rate of plus 6%.

CMS said that the rule will help lower the cost of the prescription drugs and the savings from this will be redistributed equally to hospitals covered by OPPS. In an attempt to create more transparency, 2 modifiers will be put in place in order to identify whether a drug has been purchased under the 340B program. These changes will go into effect on January 1, 2018.

“What you need next is Congress to shine the light on transparency,” said Okon. “340B is a black hole right now; we have no idea what goes on. Hospitals should be held to the same level of accountability that these federal grantees are.”

The 340B program, which was initiated 25 years ago, requires drug manufacturers participating in the Medicaid Drug Rebate Program to provide a discount to covered safety-net health providers. The program enables these entities to stretch scarce federal resources as far as possible to reach more low-income patients who are uninsured and provide more comprehensive resources.

 
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