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340B Spotlight: 340B hospitals continue to benefit from consolidation at expense of patients

Rebecca Davison   |     April 27, 2017   |   SHARE THIS

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As we’ve noted before, incentives to profit under the 340B program are leading to an uneven playing field for providers and may be shifting care to more expensive and less convenient settings in some cases. Roughly 45 percent of Medicare acute care hospitals participate in 340B. Many of these hospitals have expanded their reach by buying community-based physician practices and then obtaining 340B discounts for prescriptions written by those physicians. 

Studies
have shown that these hospital-acquired practices are often in wealthier areas than the 340B hospitals that purchase them and are not required to treat uninsured or vulnerable patients even though they are benefiting from 340B discounts intended for safety-net providers. Instead, these providers can bill privately insured patients at the usual rates and pocket any difference between the private insurance reimbursement for medicines and the discounted 340B price. These hospital-acquired practices then compete with community-based independent physicians who are not participating as part of a 340B hospital and, therefore, do not have access to 340B discounts. 

Recently, Magellan Rx Management published their 2016 Medical Pharmacy Trend report. The report shows, yet again, how much 340B hospitals are benefitting from buying up community doctors’ offices and bringing them under the 340B umbrella, all at the expense of community physician practices and patients. As Debra Patt, MD, of Texas Oncology and Jeff Vacirca, MD, of the Community Oncology Alliance explain, “It is not just a few oncologists sounding the alarm on the 340B program – it’s those of us in community oncology that treat the majority (56 percent) of American’s [sic] with cancer. This important program has been abusively [sic] by hospitals with little direct patient benefit. The result over the last decade has been a shift of cancer care from the lower cost setting in community practices into the much more expensive hospital setting.”

Adam Fein of Drug Channels recently reviewed the Magellan report. His analysis shows the role 340B is playing in driving these hospital acquisitions, thereby creating market distortions that have negative impacts on the health care system. The shift in site of care from community-based physician practices to hospital-owned outpatient sites is leading to large revenue gains for the hospital and higher costs to the system. In a specific example, Fein points out the profit an independent physician office earns by administering one particular drug is equal to a 16 percent margin, compared to a 68 percent margin earned by the hospital for administering the exact same drug. This markup becomes even more egregious, 79 percent, if the hospital was able to acquire the drug at the 340B discounted price. With math like this, it’s no secret why hospitals are looking to buy up community-based physician practices.
Rebecca Davison

Rebecca Davison Becca is a Director in the Policy and Research Department at PhRMA focusing on Medicaid, the Affordable Care Act and 340B. Prior to getting her Masters of Public Policy at the McCourt School of Public Policy at Georgetown University, she worked for the American Academy of Pediatrics and for Senator Christopher J. Dodd of Connecticut. In her spare time, Becca enjoys traveling and cooking and is a die-hard New York Yankees fan.

Topics: 340B, hospitals, 340B Spotlight, Policy Solutions, Market Distortions

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