GAO Report: Congress Must End Incentives to Prescribe Expensive Cancer Drugs in 340B Program

July 7, 2015

The report found that Medicare Part B spending per beneficiary in 340B hospitals was more than twice that of hospitals outside the program. Groups such as the Community Oncology Alliance have long warned that the 340B program, while essential, has grown beyond its original intent.

A report from the Government Accountability Office (GAO) finds that a program for hospitals that serve high numbers of poor and uninsured patients has created perverse incentives to prescribe more drugs and more expensive drugs, particularly in the area of cancer care.

Congress must curb these incentives, the GAO recommends, not only to hold down Medicare spending but also to benefit patients, who face larger co-payments under the current setup.

The report, released yesterday, examined practices in the 340B Drug Pricing Program and compared spending in 2008 and 2012. The program lets participating hospitals gain access to discounts for outpatient drugs, including expensive oncology therapies. According to GAO, 40% of all US hospitals take part in the program, and most discounted 340B drugs are sold to hospitals. Among the findings:

· Medicare Part B spending per beneficiary in 340B hospitals is more than twice that of other hospitals. For 2012, per-beneficiary spending was $144 in the 340B hospitals, compared with approximately $60 in other hospitals.

· Higher spending was not due to different hospital characteristics or patients’ health status. Both HHS and the 340B Health program questioned this, but the GAO report outlines how it controlled for these factors.

· While the 340B program was created to assist hospitals with higher rates of uncompensated and charity care, the GAO found that it has evolved. Most hospitals in the program have high rates of these services, but 12% of the 340B participants had small amounts of charity care, and 14% had low amounts of uncompensated care.

During the Oncology Stakeholder's Summit hosted by The American Journal of Managed Care earlier this year, Scott Gottlieb, MD, of the American Enterprise Institute said, “A program that was meant to service hospitals that really did have diverse missions and really did service a lot of underprivileged patients has been exploited by hospitals that don’t necessarily have the same mission.”

Overall, Medicare Part B spending in hospitals has exploded since 2008, with costs per beneficiary more than doubling between 2008 and 2012. However, in every comparison the GAO reported, 340B participants outspent their non-340B counterparts. Of note, the per-beneficiary Part B cost in major teaching hospitals that do not take part in 340B was $105; that amount was less than the $107 per beneficiary cost for non-teaching hospitals enrolled in 340B.

While it is not unlawful for hospitals to benefit financially from the drug discount program, the report said, such practices are “not consistent with the legislative intent of the 340B program.” Both taxpayers generally and patients individually suffer harm, since Medicare Part B beneficiaries are responsible for 20% copayment. The report also asks whether all healthcare provided in 340B hospitals is appropriate, and states, “Absent a change in financial incentives, potentially inappropriate spending on drugs may continue.”

In response, HHS said that while the report compares spending by hospital type, it does not compare patient outcomes or quality. It is possible, HHS said, that prescribing more drugs has produced better clinical outcomes. GAO responded that it did not attempt to measure patient outcomes, but added, “We have no evidence” that hospitals outside the 340B program had incentives to provide fewer drugs to achieve good outcomes.

Yesterday’s findings are no surprise to those who have raised red flags about the 340B program, including the Community Oncology Alliance (COA).

The group, which represents community oncology providers, sounded the alarm on this issue a year ago when it released a study from the Berkeley Research Group, which documented both a shift in cancer care from community practices to hospital outpatient centers, as well as the acquisition of community practices by 340B hospitals. Both trends, the study found, are driving up the cost of cancer care.

"The impact financially is not just to Medicare, but also the patient, and GAO notes that," said Ted Okon, executive director of COA. "It’s devastating to the patient because of the co-payment responsibility."