This voluntary program, established in 1992, is supposed to ensure certain providers in our health care system have access to outpatient drugs at reduced prices. The intent was to extend the popular Medicaid drug discount to the most vulnerable people who go to Public Health Service clinics — helping those, as the enabling law says, who are “medically uninsured, on marginal incomes and have no other source to turn to for preventative and primary care services.”
The program requires drug manufacturers participating in Medicaid drug rebate programs to also offer discounts on oral drugs that are distributed through contract pharmacies as well as on physician-administered drugs such as those used to battle cancer and other diseases. Typical discounts range from 30 to 50 percent.
Eligibility for not-for-profit hospitals is determined by a formula based on the percentage of inpatient patients treated on Medicaid. As the Obamacare law Forces the expansion of state Medicaid rolls the number of hospitals who qualify for 340B will increase. So the 340B program as it stands now is a recipe for rising expenses and fraudulent activity by hospitals and contract pharmacies that are already been swarming to the 340B honeypot to garner extra profits.
An article in the May 15 Journal of the American Medical Association put it in perspective: “When insurers and patients pay for the treatments as if the hospital obtained the drugs at list price rather than at the 340B-based discount price, the hospital or treating physician practice can keep the profits generated. Likewise, contract pharmacies can retain the profits they obtain when they dispense discounted drugs to patients who are fully insured. A recent report suggests that a single practicing oncologist can generate about $1 million in profits for a hospital by obtaining drugs at 340B discounted prices and using them to treat well-insured patients.”
The authors note that for participating hospitals this windfall comes at a time when state Medicaid agencies have substantially reduced reimbursements and federal support for many hospitals is scheduled to decline beginning next year.
Pharmaceutical manufacturers have especially objected to the expansion of a program that generates windfall hospital profits but isn’t directly benefiting the poor. The issue, though under-reported, is also getting attention from members of Congress who are receiving constituent complaints.
U.S. Sen. Charles Grassley, R-Iowa, is targeting the role of the contract pharmacies. He emphasizes as more discounted drugs intended for indigent patients under the 340B program are resold at a markup to those insured through Medicare, the financial liability to the taxpayer increases. “It is not intended,” he recently wrote to Walgreens Pharmacy CEO Gregory Wasson, “to subsidize pharmacies that team up with covered entities to turn a profit.” In fact, Grassley points to a Feb. 12, 2012, slide representation where Walgreens openly promotes ways to “generate revenue from (its) 340B patients.” It is essentially a “gaming the system” presentation.
The Iowa lawmaker, the ranking member of the Senate Judiciary Committee and well known as a taxpayer “watchdog,” is asking Walgreens for a summary of its 340B profits, the top 100 340B drugs it dispenses, a breakdown of the financial arrangement and if it has a transparent process for reinvesting money back into underserved communities generated by being a contract pharmacy.
This inquiry is a welcome first step toward reform and there are pragmatic paths to follow. Others propose that hospitals and their affiliated contract pharmacies be limited to providing the drugs they obtain at 340B discount rates only to those patients who are poor and uninsured.
So if both political parties are really intent on reform healthcare, but can’t agree on Obamacare, here’s a great issue they could agree upon — and save money!
Phil Kent is co-host of “The Georgia Gang.”