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340B Pricing—Who Wins, Who Loses?

TOP - May 2014, Vol 7, No 2

“The 340B pricing program will continue to be modified to improve oversight and compliance, but it is here to stay,” according to Ron Schleif, MBA, BSPharm, cofounder and president of Oncology Reimbursement Management, a consulting firm.

Speaking at the Hematology/Oncology Pharmacy Association 10th Annual Conference in New Orleans, Louisiana, Schleif explained that 340B is intended to stretch limited federal resources for certain entities, and it has garnered near-universal legislative support. In fact, in 2013 both the US House and Senate took steps to broaden the program.

“The reason is fairly obvious,” he said. “This is a program that is offered by the government, but it doesn’t cost the government a dime.”

The 340B drug discount program, which is for outpatient (not inpatient) drugs, has grown substantially over the past 5 to 10 years within the disproportionate share hospitals (DSHs) and contract pharmacies, dramatically impacting the cost of expensive products, such as oncology drugs. This, in turn, is impacting the site of care, as more oncology care shifts to the hospital setting as a result, Schleif said.

340B Background
The Public Health Service Act of 1992 created 340B to help put limits on prices of outpatient drugs. The program applies to 6 types of hospitals, but primarily DSHs: nonprofit entities with government contracts and a large percentage of low-income patients. DSHs are determined by the percentage of underprivileged inpatients they treat, although the discount applies only to outpatient prescribing. A DSH-adjusted percentage above 11.75% qualifies an entity for a 340B contract.

The program is also available to critical access hospitals, freestanding cancer and children’s hospitals, rural referral centers, and sole community hospitals with government contracts.

Who Benefits?
A number of stakeholders are strongly impacted by the growth of 340B. Those who benefit most include the DSHs (pharmacy and outpatient clinic), Medicaid, the drug wholesaler or distributor, and the benefits administrator. A negative impact is felt, however, by group purchasing organizations (GPOs; 340B hospitals cannot use a GPO), community practices (which are on the outside looking in), and pharmaceutical manufacturers (who fund the program).

The 340B price is calculated by taking the average manufacturer’s price (AMP) and automatically applying a 23.1% discount. This discount is further compounded by the degree the manufacturer has raised the drug price above the consumer price index (CPI). “If, for example, the price is 10% higher than the CPI, that 10% gets added to the 23.1%, and that is the discount that the pharmaceutical company takes,” Schleif explained.

“340B pricing is very attractive to providers when compared to other drug acquisition costs,” he said. The Congressional Budget Office analyzed pricing for 130 brand-name products and found the AMP is 30% greater than 340B pricing.

“The only thing better than 340B pricing is the price that is given to Veterans Administration hospitals and the Department of Defense’s military treatment facilities,” he noted.

The Growth of DSH and 340B Programs
As DSHs have grown exponentially, so has the impact on outpatient cancer drug purchases. Today, about one-third of all hospitals participate in 340B pricing, representing 62% of the outpatient drugs dispensed in hospitals today. “This makes for a significant impact for the hospitals, and for the pharmaceutical companies who are funding this,” he noted.

An increase in 340B programs can be expected as a result of Medicaid expansion through the Affordable Care Act.

More Contract Pharmacy Arrangements
Another area of growth is that of contract pharmacy arrangements within 340B. Drugs (prescription and nonprescription) are dispensed out of the main outpatient or satellite pharmacy, and this can include contract pharmacies that have arrangements with the DSH.
In 2010, contract pharmacies numbered about 2500. This rose to 8400 in 2012 and to more than 12,000 in 2014.

This growth has occurred because entities that were once allowed to have only 1 contract pharmacy for its 340B pricing can now engage an unlimited number “to serve its 340B population,” he said. Contract pharmacies give entities a high likelihood of capturing oral prescriptions; therefore, the 340B impact on Medicare Part D drugs will be much greater (and grow faster) than for Part B.

“There are now entities with more than 100 contracts with pharmacies, and there are pharmacies with more than 300 contracts,” he indicated. “This growth has dramatically affected the way 340B discounting is being realized. Most of it is happening on the oral side. These pharmacies are dispensing oral drugs to patients who are being treated as outpatients, and hospitals are capturing discounts that they would otherwise forgo.”

Pharma Seeking More Control
According to Schleif, the pharmaceutical industry has for years sought legislation that focuses on the indigent patient, but 340B benefits all patients seen in the outpatient setting. “This bothers pharma…it’s not what was intended,” he said, “so their focus is to better define these patients and to gain better control of things that lead to the broader diversion of products.”

Schleif R. 340B price discounts—current and future impact on cancer care delivery. Presented at: 10th Annual Conference of the Hematology/Oncology Pharmacy Association; March 26-29, 2014; New Orleans, LA.

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