Drug Industry Says 340B Discount Program Is Being Abused

What they did not emphasize was that the deal would also create a windfall for them worth millions of dollars a year, courtesy of an obscure federally mandated drug discount program.

The program, known as 340B, requires most drug companies to provide hefty discounts — typically 20 to 50 percent — to hospitals and clinics that treat low-income and uninsured patients.

But despite the seemingly admirable goal, the program is now under siege, the focus of a fierce battle between powerful forces — the pharmaceutical industry, which wants to rein in the discounts, and the hospitals, which say they might have to cut services without them.

One issue is that the program allows hospitals to use the discounted drugs to treat not only poor patients but also those covered by Medicare or private insurance. In those cases, the hospital pockets the difference between the reduced price it pays for the drug and the amount it is reimbursed.

That is what happened in Memphis. When the West Clinic teamed with Methodist Healthcare, the huge volume of chemotherapy drugs used by the clinic suddenly qualified for the hospital’s discount, while reimbursement remained the same.

In a report issued on Tuesday, pharmaceutical industry trade groups say that some hospitals have gone overboard in using the program to generate revenue, straying from the original intent of helping needy patients. The report, which was supported by groups representing pharmacies, pharmacy benefit managers and oncology practices, called for the discounts to be more narrowly focused.

Some senior Republicans in the House and Senate are investigating the program, which they say has suffered from murky rules and lax enforcement.

“If ‘nonprofit’ hospitals are essentially profiting from the 340B program without passing those savings to its patients, then the 340B program is not functioning as intended,” Senator Charles E. Grassley, Republican of Iowa, said in letters sent to three medical centers last October.

One reason for the scrutiny is that the program — named after the section in the law that created it in 1992 — now includes one-third of the nation’s hospitals, triple the number in 2005. About $6.9 billion worth of drugs, or about 2 percent of the nation’s total, are sold through the program annually, reducing revenue for the pharmaceutical companies by hundreds of millions of dollars a year.

The industry report says sales could grow to $12 billion by 2016. That is in part because the nation’s new health care law will make more hospitals eligible for the discounts by increasing the number of Medicaid patients they treat, even as the need for the discounts should arguably diminish because fewer people will be uninsured.

Hospitals say 340B was never meant to merely provide cheap medicines to poor people. Rather, it was meant to help the hospitals that treat such patients, and to stretch federal resources. Making money from the spread helps keep the hospitals operating, which in turn helps needy patients, they say.

“If we didn’t have our 340B program, I seriously doubt we could have our outpatient cancer center,” said Burnis D. Breland, director of pharmacy at the Columbus Regional Healthcare System in western Georgia.

Nevertheless, with the program under scrutiny, the organization representing 340B hospitals, Safety Net Hospitals for Pharmaceutical Access, has warned its members to avoid using terms like “increasing profits” and “revenue enhancement.”

A 2011 report by the Government Accountability Office, the investigative arm of Congress, said that federal oversight of the program was insufficient to ensure that hospitals and drug companies were adhering to the rules.

In response, the Health Resources and Services Administration, which oversees the program using an annual budget of only $4.4 million, audited 51 hospitals last year, its first audits since the program began. It also made all hospitals recertify themselves as eligible for the program.

As a result, some 271 treatment sites belonging to 85 hospitals were ejected from the program, said Krista Pedley, the federal official in charge of the 340B program. She said that three hospitals acknowledged receiving discounts for which they were ineligible and were repaying manufacturers.

Some drug companies — Genentech is the only one that has publicly identified itself — are also auditing hospitals or considering doing so.

Previous studies have shown drug companies do not always offer the full discount, though no drug companies are being audited.

Article source: http://www.nytimes.com/2013/02/13/business/dispute-develops-over-340b-discount-drug-program.html?partner=rss&emc=rss