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No Solution in Sight Yet With the Federal 340B Program, Say Stakeholders

Evidence-Based OncologyAugust 2015
Volume 21
Issue SP12

A panel of healthcare experts invited by The American Journal of Managed Care participated in the Oncology Stakeholders Summit, Spring 2015 Peer Exchange, to discuss 340B and other issues in oncology care.

The federal 340B Drug Pricing Program, initiated in 1992, requires pharmaceutical manufacturers participating in the Medicaid Drug Rebate Program to negotiate a drug pricing agreement with HHS—the manufacturer will provide specified discounts on “covered outpatient drugs” to government-supported facilities. The program enables covered entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services. Per the Health Resources and Services Administration (HRSA) website, eligible healthcare organizations or covered entities are defined in statute and include HRSA-supported health centers and lookalikes such as the Ryan White clinics and state AIDS Drug Assistance Programs, Medicare/Medicaid Disproportionate Share Hospitals, children’s hospitals, and other safety net providers.1

Although this preferential pricing policy typically involves providers who work with vulnerable patient populations such as the uninsured or underinsured, there may be some misuse, with unintended repercussions on patients, payers, and physicians. At a summit hosted by the Alliance for Integrity and Reform of 340B last year, participants discussed the need for increased transparency requirements for hospital-based 340B-covered entities.2 Participants questioned whether the program had metrics in place to clearly identify hospitals that provide charitable care and highlighted the negative impact of this program on both community-based oncology practices and patients. A study by IMS Health found that shifting cancer care from a community clinic to a hospital increases treatment cost by a staggering 189%.3 This increased cost, when borne by patients through increased out-of-pocket spending, can result in adherence issues.

A panel of healthcare experts invited by The American Journal of Managed Care participated in the Oncology Stakeholders Summit, Spring 2015 Peer Exchange, to discuss 340B and other issues in oncology care. The discussion, moderated by Bruce Feinberg, DO, vice president and chief medical officer of Cardinal Health Specialty Solutions, saw participation by Scott Gottlieb, MD, resident fellow at the American Enterprise Institute; Brian Kiss, MD, vice president of Healthcare Transformation at Blue Cross Blue Shield of Florida; Michael Kolodziej, MD, national medical director for Oncology Strategy at Aetna; and Ted Okon, MBA, executive director of Community Oncology Alliance.

Feinberg started the discussion by asking the panelists to comment on whether and how 340B has changed the dynamic of the healthcare industry. According to Gottlieb, while several reasons factor into the consolidation across provider segments, he believes 340B is the biggest driver of the process. “This is a classic example of a government program born of good intentions gone awry,” he said. Gottlieb said that the program, originally conceived for hospitals that serve disadvantaged patients, was initiated in 90 hospitals and has now been adopted by over 1700. Hospitals, he said, are manipulating the program by securing a discounted rate from manufacturers while billing payers at a full rate. This practice, according to Gottlieb, is driving patients to the hospital to receive oncology care when it may not be the best place for them to receive care. In his opinion, the patient no longer gets priority in the system, and there might even be a step down in the quality of care rendered. The end result, in his opinion, is a higher cost to payers and to the entire healthcare system.

Gottlieb went on to add that the premise of the 340B program was very sound, but that the hospitals that are gaming the system have a completely different mission, distinct from the original purpose of the program. “I’d be worried about preserving this for the hospitals that really need it and be worried about the hospitals that are exploiting it,” he said, adding that it might result in lack of access to hospitals that really are in need of the program’s privileges.

Okon, a big proponent of retaining the integrity of the 340B program to save community oncology practices, said that the program gives anywhere from upwards of 50% discounts to 340B participants, which would mean 100% margins for the participating hospital. Okon added that 340B is a critical access program, not just historically, but even today clinics such as the Ryan White clinics, hemophilia clinics, or community health centers hugely benefit from it. The problem, he pointed out, are the disproportionate share hospitals that have increasingly enrolled in the program, a majority following the passage of the Medicare Modernization Act in 2003.

Okon drew attention to the fact that both cancer patients and smaller practices come out on the losing end of the bargain. He explained that when a clinic consolidates with a hospital because they can no longer foot the bills and have to decide between closing shop and joining a bigger health system, the patient who is midtreatment continues to receive care at the same site and from the same group of providers. But suddenly the patient’s bills are significantly higher. And the patients, he said, are thinking, “‘Wait a minute, why did my bill go up?’ in some cases by 50%. They’re not getting the benefit of that drug.” Rather, he said, it’s the facility that retains the profits and the patients end up actually paying more.

Okon then elucidated some of the tactics used by covered entities to maximize on profits. Citing an example of a multiple myeloma patient on the R-CHOP regimen who needed to be administered a cocktail of brand-name and generic medications, he said a facility that was not 340B covered wanted a patient to split the treatment—to get the generic drugs at the clinic and then drive to the hospital, which was 340B covered and would make $6300 per dose of the brand-name drug being administered. “It’s crazy patient care and when it blows up, who’s going to get hurt? Patients.” Okon added that while clinics will always need to partner with hospitals, they need to identify the right hospitals—the ones that are following the principles that make up 340B.

Gottlieb believes that policies that will constrain the burgeoning growth rate of the program will soon be rolled out and will prevent the program from dialing back to its current state.

Feinberg then turned to the payers at the table and asked their opinions on the program and its influence on healthcare costs. He was curious whether payers thought consolidation would hand them better control, albeit at an increased cost.

Kiss responded that payers are acutely aware of the tremendous costs associated with consolidation, adding that this is not restricted to oncology care. The overheads with physicians working in a hospital are 20% to 25% higher than an independent physician’s, whether he’s at a patient-centered medical home, is a primary care doctor, or is an oncologist.

Feinberg pointed out that while hints of this happening were obvious a decade ago, payers did not act to improve private practice physician reimbursement, which could have prevented physician migration. The situation became worse after the Medicare Modernization Act, he said.

Agreeing that Medicare largely controls physician reimbursement, Gottlieb said policy makers are partial to consolidation and believe it is the ideal model of healthcare delivery. “I think if some folks who are deciding policy had their druthers, they’d try to recreate Kaiser Permanente or the Mayo Clinic in every market and even squeeze out health insurers and just have the consolidated institutions take over the provision of health insurance as well.”

Okon agreed with Gottlieb that while several in the Obama administration are partial to a single-payer system, it contradicts what the Affordable Care Act purports to achieve. He said that instead of reducing the cost of healthcare, consolidation is actually increasing costs.

“They’re creating local healthcare monopolies and we’re getting into a bigger issue now, and that’s going to ultimately drive up cost,” said Gottlieb. He thinks that while integrated delivery systems like Geisinger, Mayo Clinic, and Intermountain Healthcare have been successful, they may not translate equally well in every single market. “Healthcare is local. Markets are very local,” and local markets will have different dynamics and specific needs that need to be recognized. Gottlieb predicts that a lot of healthcare institutions being created may not sustain for long. “If I was going to choose a business to be in right now, it would be in the business of helping distressed and bankrupt hospitals because I think that’s going to be a growth industry going forward.”

New models are emerging according to Kiss, where community oncologists may be working for regional hospitals on a contractual basis. This has resulted in novel referral networks, he said, which could drive up costs because hospitals are getting increasing referrals. The result is a clinically integrated network model.

Watch the discussion online at http://bit.ly/1CSWzlw.


1. 340B Drug Pricing Program. Health Resources and Services Administration website. http://www.hrsa.gov/opa/. Accessed July 21, 2015.

2. At national summit, experts across key sectors discuss needed reforms of 340B Drug Discount Program [press release]. http://www.prnewswire.com/news-releases/at-national-summit-experts-across-key-sectors-discuss-needed-reforms-of-340b-drug-discount-program-262799991.html. Washington, DC: Alliance for Integrity and Reform of 340B; June 11, 2014.

3. Rabin RC. Chemo costs in U.S. driven higher by shift to hospital outpatient facilities. Kaiser Health News website. http://khn.org/news/chemo-costs-in-u-s-driven-higher-by-shift-to-hospital-outpatient-facilities/. Published May 6, 2014. Accessed July 22, 2015.

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