Data-Driven Insights

GAO 340B Report: The Debate on Whether 340B Financial Incentives Create “Big Hospitals”

July 9, 2015   |   Dave Weiss

For those of us who monitor the 340B Drug Pricing Program, a fascinating report and industry debate erupted this week over the June 2015 US Government Accountability Office (GAO) Report to Congress entitled “Medicare Part B Drugs: Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals.”

The report shows that while charitable and unreimbursed care are in fact higher at 340B hospitals, especially at those with higher Disproportionate Share Hospital (DSH) adjustments, some notable facts and trends in the program have emerged:

  • Per-beneficiary spending on Medicare Part B outpatient drugs among DSH hospitals whose eligibility status didn’t change during the period 2008-2012 more than doubled in inflation adjusted dollars.
  • Per-beneficiary spending at 340B-eligible major teaching hospitals was more than twice that at non-340B eligible major teaching hospitals. Notably, it was more than four times that of non-340B, non-teaching hospitals.
  • 12% of 340B DSH hospitals provide the lowest amounts of charitable care across all hospitals.

While the study did not investigate patient outcomes or quality of care, it did adjust for the site of care (urban, rural) and risk scored by total healthcare spending on patients and found that there were not substantial differences that would account for the additional spending. In other words, the 340B DSH hospitals were not seeing substantially more challenging cases. Additionally the study evaluated whether 340B patients tended to receive care more heavily in hospitals as opposed to physician offices. Once again they found no direct correlation.

GAO finally concluded the difference between 340B discount price and the hospital’s fixed reimbursements for Part B drugs have created a financial incentive for hospitals to prescribe more and more expensive treatments to Medicare Part B patients. GAO contends that this might also partially explain why hospitals have been acquiring oncology practices. In the report, GAO proposes that because oncology practices cannot buy at the lower 340B price, 340B hospitals can generate much higher margins on Medicare patients than a physician-office patient could. Additionally, because hospital-based care is more expensive, both the Medicare program and Medicare patients pay more for care.

Predictably, the American Hospital Association (AHA) and 340B Health responded that the report is flawed due to inaccurate Centers for Medicare and Medicaid Services (CMS) hospital cost reports, and because it did not consider patient outcomes as noted by the US Department of Health and Human Services (HHS) in its review.
But for those critics of 340B, it’s just another example of a well-intentioned federal program that lacks accountability and oversight, and could benefit more low income patients if it was reformed.

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