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| DATE | 2022-12-20 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout - NYLXS] Drug Discounts for all
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wsj.com
Many Hospitals Get Big Drug Discounts. That Doesn’t Mean Markdowns for
Patients.
Anna Wilde Mathews, Paul Overberg, Joseph Walker and Tom McGinty
15–19 minutes
Dec. 20, 2022 11:33 am ET
A decades-old federal program that offered big drug discounts to a small
number of hospitals to help low-income patients now benefits some of the
most successful nonprofit health systems in the U.S.
Under the program, hospitals buy drugs at reduced prices and sell them
to patients and their insurers for much more, often at facilities in
affluent communities.
One participant is the Cleveland Clinic’s flagship hospital, which
reported $1.35 billion in net income last year. The hospital doesn’t
admit enough Medicaid and low-income Medicare patients to qualify for
low-cost drugs under the program’s original requirements. But a quirk in
federal law allowed the hospital to qualify as a “rural referral
center,” despite its location near the center of Cleveland.
Despite the benefits, the program hasn’t resulted in new drug discounts
for low-income Cleveland Clinic patients, nor has it caused the hospital
to increase the financial assistance it offers to those who can’t afford
care. The charity care the main hospital writes off represents less than
2% of its patient revenue, according to a Wall Street Journal analysis
of hospital Medicare filings.
Cleveland geriatrician Peter DeGolia said a new patient recently asked
him to rewrite a prescription originally provided by a specialist at the
Cleveland Clinic. The patient couldn’t afford the medication, so he
turned to MetroHealth, a county hospital system that uses the federal
discounts to offer lower prices on drugs its doctors prescribe to
uninsured and low-income patients.
Dr. DeGolia said he was surprised to learn the Cleveland Clinic’s main
hospital qualified for the federal program, and didn’t pass along drug
markdowns to patients. “That I find shocking,” he said.
A Cleveland Clinic Health System spokeswoman said in a written statement
that the flagship hospital hasn’t introduced specific drug discounts for
patients, but has a variety of programs that benefit the communities it
serves, including money-losing services that the federal drug-discount
program helps support. The main Cleveland hospital is one of the state’s
top providers of care to Medicaid patients, she said.
The hospital’s $1.35 billion net income figure for 2021, she said,
includes investment returns.
Cleveland Clinic’s adoption of the drug-discount program at its main
hospital in April 2020 produced about $136 million in savings on drugs
that year, the spokeswoman said.
The federal drug-discount program, known as 340B after the statutory
provision that created it, requires pharmaceutical companies to sell
drugs to participating hospitals at reduced prices. The program has
grown rapidly in recent years. It now includes about 2,600 nonprofit and
government hospitals, which spent at least $38 billion on discounted
drugs last year, according to the Health Resources and Services
Administration, the federal agency known as HRSA that oversees the
program.
What the hospitals do with their valuable discounts isn’t always clear.
The program doesn’t require participating hospitals to pass on drug
discounts to patients, insurers or Medicare. There is no rule limiting
how much they can charge for the drugs. They don’t have to report how
much they make from such sales, nor do they have to spend any profits to
benefit low-income patients.
Once a hospital gains 340B designation, it can extend the discounts to
an unlimited number of affiliated clinics and offices, as well as to
prescriptions its patients fill at outside pharmacies that it contracts
with. Those locations don’t have to qualify on their own by serving
low-income or rural communities.
The Journal used federal records to compile a database of the hospitals
enrolled in the program, and mapped the networks formed by nearly 29,000
affiliated clinics and departments, using census data to provide
socioeconomic context. The Journal also analyzed thousands of hospital
cost reports filed with Medicare.
The data show that hospitals often extend their 340B discounts to
clinics in well-off communities, where they can charge privately insured
patients more than those on Medicaid. Two-thirds of the sites outside
the hospitals’ own census tracts were in neighborhoods where the median
household income exceeded that in the hospitals’ own locations. Among
the upscale suburbs with hospital-linked facilities using the 340B
program were Lexington, Mass., and Encinitas, Calif. Both of those
hospital systems said they use the proceeds to help needy patients.
Hospitals that meet the definition of rural referral centers are ramping
up drug purchases under the program at a faster rate than any other type
of 340B hospital, by more than 700% over five years, according to a HRSA
report obtained through a Freedom of Information Act request. A Journal
analysis found that most aren’t in rural areas, including Chicago’s
Northwestern Memorial Hospital, Harvard-affiliated Brigham & Women’s
Hospital in Boston and the Cleveland Clinic’s main campus.
Cumulatively, 340B hospitals wrote off 2.7% of their patient revenue as
charity care, or assistance to needy patients, in their most recent
Medicare filings. The figure for the non-340B hospitals was almost
identical, at 2.6%. Some of the hospitals with the lowest charity-care
rates were 340B hospitals.
The data raise questions about the program’s growth and purpose. In some
cases, the program appears to be bolstering profits in well-off areas
more than it is underwriting services in less-privileged neighborhoods.
Gail Wilensky, a former federal health official who oversaw the Medicare
and Medicaid programs in the early 1990s but wasn’t involved in shaping
the 340B program, characterized the original version as “a limited
program to go to inner-city hospitals to help them survive.” Today, she
said, “not only is the growth astronomical, we have no clue how this
money is used, because there has never been any accountability demanded
on how it was used.”
Hospitals say that financial assistance to needy patients is only a
limited portion of the community benefit they provide. Many hospitals
said they use the proceeds from 340B to support a variety of services,
including free vaccinations, mental-health care, medical services that
are money-losing and subsidizing care for Medicaid beneficiaries. The
locations of 340B sites remote from their main hospitals, they said,
aren’t a good measure of what hospitals provide to low-income
communities.
Maureen Testoni, chief executive of 340B Health, a group that represents
340B hospitals, said the savings the facilities receive, whether from
the main hospital or an off-site location, all contribute to funding
safety-net hospitals and subsidizing care to low-income or rural
patients. She said 340B hospitals provided the majority of uncompensated
and Medicaid hospital care.
The Biden administration has asked Congress to require 340B participants
to report drug savings and how they use the proceeds. “We recognize we
could enhance accountability and transparency,” said an official with
the federal Department of Health and Human Services, adding that the
department sees 340B as an essential safety-net program.
When Congress created the 340B program in 1992, lawmakers expected it to
include around 90 hospitals, according to a congressional report on the
legislative history of the bill. The hospitals could qualify as
“disproportionate share hospitals,” where a significant share of
inpatient admissions were low-income Medicare and Medicaid patients,
though the discounts aren’t for inpatient drugs. The hospitals had to be
nonprofit or owned by a state or local government. The program also
included certain clinics, particularly the federally funded ones that
serve largely low-income patients, which remain eligible today.
The 2010 Affordable Care Act brought a big expansion of 340B, adding new
categories including critical access hospitals, which are small,
typically rural facilities, and rural referral centers, which are
supposed to be rural hospitals that treat a large volume of patients,
including many complicated cases.
Under the federal definition of rural referral centers, hospitals that
aren’t in rural locations could still qualify if they meet other
criteria—minimally, having at least 275 beds. There is no requirement to
serve rural patients.
A Journal analysis of HRSA data found that 88 out of the 111 rural
referral centers in the 340B program weren’t located in areas deemed
rural by HRSA.
More than four-fifths weren’t admitting enough low-income Medicare and
Medicaid beneficiaries to qualify for 340B as a disproportionate share
hospital, according to a Journal analysis of data from hospitals’ cost
reports filed with Medicare. Among them were Northwestern Memorial
Hospital, Brigham & Women’s Hospital and the Cleveland Clinic flagship.
“We were trying to help rural hospitals,” said Robert Kocher, an Obama
White House health adviser involved in crafting the ACA who is now at
venture-capital firm Venrock. “It would not be our intention to have a
medical center in Cleveland, Boston or Chicago be included.”
A spokesman for Northwestern Memorial HealthCare, the parent system of
Northwestern Memorial Hospital, said the Medicare regulator determined
it could qualify as a rural referral center in 2020. A spokeswoman for
Brigham & Women’s Hospital, part of the Mass General Brigham system,
declined to comment.
Partly because of the growing number of eligible hospitals, annual
spending by hospitals on drug purchases through the program quintupled
between 2015 and 2021, to at least $38 billion, according to HRSA,
though those numbers don’t represent all sales.
The prices hospitals pay for the drugs are confidential, and their
proceeds from any markups aren’t broken out in financial disclosures.
The margins can be enormous.
Hospitals can acquire certain drugs that have had significant price
increases for nearly free, allowing them to pocket almost the entire
cost reimbursed by insurers. Under Medicaid rules that also apply to the
340B program, drug companies have to rebate any annual price increases
that exceed the overall rate of inflation. For older drugs with big
increases over the years, the rebate can exceed the product’s original
launch price.
The cost of these drugs, known as “penny priced” medicines, is set at
$0.01. They include the anti-inflammatory medication Humira, which has a
list price of $6,410 a month, and the gout drug Krystexxa, which has an
average net price of nearly $54,500 a month.
AbbVie Inc., maker of Humira, and Krystexxa-maker Horizon Therapeutics
PLC declined to comment.
After surveying 340B hospitals, the Medicare agency estimated their
typical discounts on drugs administered in outpatient settings at around
35% off what is known as ASP—the federally reported average sales prices
hospitals otherwise pay for drugs.
The health plan of a large New York-based union known as 32BJ, an
affiliate of the Service Employees International Union, analyzed claims
for outpatient-administered drugs. It found that 340B hospitals were
charging the union’s health plan as much as 25 times ASP.
The profit from 340B discounts “shouldn’t just go to the providers,”
said Cora Opsahl, director of the 32BJ Health Fund. The union’s health
plan, she said, is entitled to rebates on certain medications, but those
are blocked if the drug is subject to 340B discounts.
After deductibles and coinsurance are taken into account, patients with
health insurance can end up paying more out of pocket than the hospital
spends to purchase a drug. This can happen to Medicare beneficiaries
whose drugs are administered outpatient, according to a 2015 report from
the Department of Health and Human Services’ Office of Inspector
General.
In its fiscal year ended June 30, 2021, University of Michigan Health
had an estimated margin of $482 million on 340B drugs, up from about
$399 million in the year-earlier period, according to an internal
document obtained through a public-records request.
The 340B proceeds were larger than the net income of the hospital system
in 2021, said Dana Habers, chief operating officer for pharmacy services
at University of Michigan Health. “It’s critical for us,” she said, and
it underwrites services including discounts on drugs for low-income
patients.
The discount program’s economics add to the ample incentives hospitals
already have to serve patients with private insurance that pays more.
The analysis of HRSA data showed that as hospitals expand their use of
340B beyond their main locations, they often apply the program’s
discounts in places where more people have private coverage, and incomes
are higher.
Among 340B hospitals with at least 10 sites registered outside their own
census tracts, more than 60 placed all of the sites in neighborhoods
with higher rates of private insurance coverage than the hospitals’ own
neighborhoods. Under HRSA’s definition, the registered sites can
represent a clinic, an office or a category of clinical service offered
within a bigger center, so a hospital can list several, and in some
cases more than a dozen, 340B sites at a single address.
Overall, 61% of the remote sites of private nonprofit 340B hospitals
were in areas with higher rates of private insurance than the parent
hospital.
Not every 340B hospital favored better-insured neighborhoods.
Government-owned ones had less than half of remote sites in such
areas—and had a higher charity-care rate than the private nonprofits. A
spokesman for Parkland Health, a county-owned system in Dallas, said it
aims to place remote clinics near low-income residents who face
challenges accessing care.
The Journal’s analysis focused on 340B acute-care hospitals that serve
the general population, excluding children’s hospitals, cancer centers
and a few others.
Among those hospitals, the one with the most 340B sites was Detroit’s
Henry Ford Hospital. The nonprofit, part of Henry Ford Health, has 467
sites registered for 340B drug discounts located outside its home
neighborhood, 92% of them in census tracts with higher rates of private
insurance than the parent hospital. The hospital is located in central
Detroit, in a census tract where 37% of residents have private health
insurance, according to census data. The average rate in its remote
sites’ tracts is 74%.
In some areas, Henry Ford Health owns hospitals that don’t qualify for
340B, such as a campus in affluent West Bloomfield that includes
resort-style amenities, according to its website. Yet 11 sites in
adjacent and nearby locations in West Bloomfield do get the 340B
discounts because they are affiliated with the parent hospital in
downtown Detroit, which isn’t in the same county as West Bloomfield.
The analysis found several other hospital systems using a similar
approach.
West Bloomfield, a northwestern suburb that has private insurance rates
of 80% or higher and median household income of around $121,000—more
than three times the median income for the city of Detroit—has 14
registered 340B hospital sites. A similar-size region on the eastern
side of Detroit, which includes three federally designated medically
underserved areas, has none.
In Grosse Pointe, right over the Detroit city line from that underserved
area, there is a 340B hospital owned by the nonprofit Beaumont Health
system, now part of Corewell Health. Beaumont, which owns a half-dozen
340B hospitals in the Detroit area with 55 remote sites signed up for
the drug discounts, has none registered in the city of Detroit.
Henry Ford, for its part, has 340B sites registered in upscale Grosse
Pointe Farms.
Henry Ford Health, the parent system of Henry Ford Hospital, said in a
written statement that the locations of the 340B sites don’t reflect who
benefits from the program. It said it uses the savings to provide
healthcare to vulnerable patients throughout its service area, including
more than $700 million in uncompensated care and community benefit in
2021. A Corewell spokesman said the system’s sites are compliant with
HRSA rules, and 340B helps it improve access for underserved
communities.
Write to Anna Wilde Mathews at anna.mathews-at-wsj.com, Paul Overberg at
Paul.Overberg-at-wsj.com, Joseph Walker at joseph.walker-at-wsj.com and Tom
McGinty at tom.mcginty-at-wsj.com
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