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Cancer Drugs Driving 340B Growth Even More Than Understood, Report Finds

Mary K. Caffrey
The report, commissioned by the Community Oncology Alliance, finds that Medicare Part B cancer drug spending rose 123% in 340B hospitals from 2010 to 2013, but only 31% in non-340B hospitals; it fell 5% in community practices in the same period.
The discount drug program intended for safety-net hospitals and special AIDS clinics has mushroomed even more than earlier reports have suggested, with oncology drugs fueling much of the growth, according to a new report commissioned by community oncology providers.

An examination of Medicare Part B hospital outpatient spending shows that 340B institutions accounted for 58% of all spending on drug payments in 2013, with oncology drugs making up 40% of the Medicare fee-for-service costs. The study, by Aaron Vandervelde of the Berkeley Research Group of Washington, DC, was sponsored by the Community Oncology Alliance (COA), which has sounded the alarm about unrestrained 340B growth in recent years.

Figures from 2010 through 2013 reveal explosive growth in cancer drug spending in the 340B sector: Medicare Part B reimbursement rose 123% for oncology drugs in this period, compared with 31% for non-340B hospitals and a 5% decrease for community oncology practices. Medicaid expansion may only exacerbate these trends if there are no changes to the program, according to the report.

Cancer drugs have become “the pot of gold at the end of the rainbow,” for 340B hospitals, said Ted Okon, executive director of COA. Okon said the report underscores 2 key problems: it’s too easy for hospitals to qualify for the program, and hospitals have powerful financial incentives to buy up oncology practices, so these financial strategies can proliferative at sites beyond the hospital walls.

The original purpose of 340B was noble: hospitals caring for patients who may be uninsured or underinsured can buy drugs at discounts of 20% to 50% but charge full price to those able to pay, or to their insurer, which can include Medicare or Medicaid. But if this practice extends to oncology practices owned by the hospital, the ability to buy discounted drugs and charge insurers a higher price does many things at once:
  • First, it forces independent oncology practices to compete with hospital-owned providers when they lack access to similar discounts; many are compelled to either join with the hospital or go out of business.
  • Second, Okon explained, the ever-increasing pool of providers buying “discounted” drugs means those rebates have to be built into the overall price, which has contributed to trends in oncology costs seen today.

“Already, 340B expansion has had unintended consequences,” Okon said. “Anyone who doesn’t think all these rebates are not fueling drug prices is not paying attention.”

While a July report by the Government Accounting Office (GAO) found that the 340B program had created perverse incentives for hospitals to prescribe more drugs and more expensive drugs, its finding that 40% of hospitals were enrolled did not fully capture the scope of recent growth. By looking at actual spending on prescriptions instead comparing 340B and non-340B hospitals, Okon said, the report shows that “the big growth is on the hospital side, not the grantee side”; the latter group includes federally qualified health centers, Ryan White HIV/AIDS Centers, and other specialized clinics.

What’s more, spending on cancer drugs appears to be a business strategy among the 340B hospitals; left unchecked, this will only encourage more program growth, with consequences for all payers, Medicare and Medicaid, and patients who will face a combination of higher copayments and fewer care options in their communities.

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