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CAPITOL PERSPECTIVES column LIFESCIENCELEADER.COM JULY 2014 10 By J. McManus NEW MEDICARE DATA AND LITIGATION PROVIDE FRESH REASONS FOR CONGRESS TO REFORM 340B J O H N M c M A N U S The McManus Group New Medicare Data And Litigation Provide Fresh Reasons For Congress To Reform 340B edicare continues to release unfiltered infor- mation on provider utili- zation, which gives some illuminating information, particularly when that data is cross-walked to other sources. A case in point is the publica- tion of the top Medicare hospital billers in the country: 21 of the top 25 are 340B hospitals and therefore access the sub- stantial pharmaceutical discounts under that program. (See Figure 2.) All of the top 10 hospitals are 340B hospi- tals, and many have far-flung subdivisions and contract pharmacies that enjoy access to the program. New York-Presbyterian Hospital, the number one Medicare biller, has 96 subdivisions; Cedars-Sinai Medical Hospital has 31 subdivisions; and Norton Hospitals in Kentucky has 109 subdivi- sions and 53 contract pharmacies. Under the statute, these hospitals are entitled to discounts ranging from 23 percent of the average manufacturer's price to 50 percent and often more for every outpatient drug provided to every patient, regardless of whether they have insurance or Medicare coverage. Nothing requires 340B hospitals to pass these dis- counts on to the patients — they are simply a vast revenue source, and most of these hospitals continue to charge M market rates to Medicare, commercially insured patients, and even the uninsured. The Affordable Care Act (ACA) expanded the 340B program in several important ways: 1 It increased the size of the minimum discount from 15 percent to 23 percent because it is tied to the identical higher Medicaid rebate that PhRMA negotiated with then-Finance Committee Chairman Max Baucus. 2 It increased the number of hospitals eligible for the program by substantially expanding the Medicaid program, a key component in the formula for determin- ing 340B eligibility. 3 It explicitly increased the number of 340B hospitals by designating certain rural hospitals and other entities as eligible. Just as important as these statutory expansions is the growing trend of hos- pital acquisition of physician practices, which studies now show to have substan- tial distortionary effects on the market. A June study published by the Berkeley Research Group found that at least 120 340B hospitals had acquired physician- based oncology practices between 2008 and 2012, which resulted in a shift of 11.6 percent of the overall chemotherapy claims volume from physician offices to hospital outpatient departments. For 86 of the hospitals, the acquisition led to a 20 percent or greater increase in the volume of chemotherapy claims billed to Medicare. How can free-standing, physician-led practices compete with 340B-eligible hospital-based systems that are acquir- ing oncology practices at such a rapid rate when a major cost component is the acquisition of chemotherapy drugs? The Berkeley study notes that, "By acquir- ing physician-based oncology practices, 340B hospitals are able to increase vol- ume of oncology claims that use chemo- therapy drugs and thereby increase the margins realized on the reimbursement of those drugs." In Figure 1 (below) is an example of this pricing differential. The public policy concern is that Medicare and commercial insurers pay substantially more for care delivered at hospitals than care delivered in phy- sician offices. Berkeley estimates this cost Medicare and Medicaid nearly $200 million from 2008 to 2012. There was some hope that the Health Resources and Services Administration (HRSA) would finally release a mega- regulation clarifying certain aspects of the 340B program and possibly address the more abusive aspects of the program that have emerged over the last several years. In the 22 years of the program, almost all policy was executed through subregulatory guidance and outside the normal transparent rulemaking process. For example, the policy change to allow 340B hospitals to contract with multiple pharmacies was executed through "sub- regulatory guidance" — that is, outside the transparent notice and comment rulemaking process. HRSA announced earlier this year that it would issue a reg- ulation addressing the following areas: 1 definition of the patient 2 compliance requirements for contract Drug A 340B Hospital Non-340B Hospital* Reimbursement $2,000 $2,000 GPO Purchase Amount ($1,900) 340B Purchase Amount ($1,200) Margin $800 $100 Figure1 *or Physician Practice 0 7 1 4 _ C P . i n d d 1 0714_CP.indd 1 6 / 2 3 / 2 0 1 4 2 : 5 4 : 2 0 P M 6/23/2014 2:54:20 PM