In this corner we have the drug industry, a ten billion pound gorilla with its tentacles (sorry for the mixed animal metaphor) into the pockets of every Congressperson and with a rapacious history of product pricing that impoverishes needy patients. And in this corner we have the hospital industry, a ten billion pound rhino on a rampage, also with a long history of accumulating and abusing market power to rip-off payers and consumers while enriching executives of supposedly non-profit entities, and which has enormous lobbying power at the federal, state and local level. So don’t feel sorry for either one of them in the 340B program fight. 340B, you might recall, was designed to allow hospitals to purchase drugs very cheaply for use on poor patients, many of whom couldn’t pay for care. Like most supposedly well-intentioned federal health programs, this one was poorly designed and of course hospitals figured out how to turn it into a big money-maker that just adds costs to the system. In the midst of Congressional investigations and public outcry, an intense war has broken out between the hospitals, who want to preserve this cash cow, and the drug industry, which doesn’t want to sell its products cheap to anyone, over potential reform of the program. And both sides have brought in the big guns to produce “research” to support their positions. The most recent salvo comes from Milliman, which actually is an excellent actuarial firm, paid for by the drug industry lobbying arm. (Milliman Brief)
The brief’s focus is on the impact of 340B abuses on what commercial payers reimburse drugs for, which in turns flows into premiums and eventually out of the consumer pocketbook. Basically, the 340B scam is that hospitals get a reduced purchase price on the outpatient drugs covered by the program and in turn seek reimbursement from payers that is often much higher. They keep the difference. You see the incentive for expanding and abusing the program. The Government Accountability Office did a study showing that hospitals participating in the 340B program had much higher drug costs per Medicare beneficiary. Milliman extends that study to a commercial population. Using 2015 data they ascertained per member drug costs in a manner similar, but not identical to that used by the GAO in its study. On a non-risk adjusted basis, which may or may not make a difference, the disproportionate share hospitals participating in the 340B program had an annual outpatient drug spend per member of $457, compared to $159 for disproportionate share hospitals who aren’t 340B participants, and $178 for non-340B hospitals. Teaching hospital status and other factors did not appear to account for the difference. It is unlikely that risk adjustment would make much of a difference. Who knows how this heavyweight lobbying fight will come out, what is apparent is that the program is not being used in manner consistent with the original intent and it is raising overall costs.