Section 340B of the Public Health Service Act (created under Section 602 of the Veterans Health Care Act of 1992) was enacted in November 1992. Under 340B, eligible hospitals are allowed to buy drugs from drug companies at forced discounts of 25% to 50%. The hospitals can then bill government and private insurers for the full cost of the drugs, pocketing the spread. 340B-qualified hospitals have a big incentive to search for patients and prescribe lots of drugs. The costlier the drugs, the bigger the spread. Expensive cancer drugs are especially appealing. The original legislation creating 340B envisioned that only about 90 hospitals that care for a "disproportionate share" of indigent patients would qualify. But free money was being made available in a very difficult and uncertain field. By 2011, 1,675 hospitals, or a third of all hospitals in the country, were 340B-qualified.
Take the Duke University Health System. In 2011, Duke bought $54.8 million in drugs from the discount program and sold them to patients for $131.8 million, for a profit of $76.9 million. That profit was a substantial portion of the health system's 2011 operating profit of $190 million. (Only one in 20 patients served by Duke's 340B pharmacy is uninsured.)
In the process, treatment of the doctor's patients is moved from an office setting to a hospital outpatient department. Hospital care is considerably more expensive. As a result, between 2005 and 2011 the amount of chemotherapy infused in doctors' offices fell to 67%, from 87%, according to a new analysis of Medicare billing data done for community oncology groups. The share of Medicare payments for chemotherapy administered in hospitals (as opposed to outpatient oncology practices) increased to 41% in 2011, from 16.2% in 2005. Because the overhead for a hospital is higher than for a doctor's office, a patient treated in a hospital clinic incurs $6,500 more in costs than the same person treated in a private medical office, according to data from the Community Oncology Alliance. Patients who get chemotherapy at a hospital also face an additional $650 in co-pays and other out-of-pocket expenses. The price for infusing the drugs alone rises by 55%, according to an analysis of Medicare data. These inflated prices for cancer treatment inevitably drive up the cost of health insurance.
The new health-care law, The Affordable Care Act, expands 340B to cover cancer centers, new categories of hospitals and rural health centers. Since one of the ways that hospitals qualify for 340B turns on how many Medicaid patients they serve, ObamaCare's Medicaid expansion will also increase the number of 340B-eligible entities. More than 400 oncology practices have been acquired by hospitals since ObamaCare passed. Acquiring a single oncologist and moving the doctor's drug prescriptions under a hospital's 340B program can generate an additional profit of more than $1 million for a hospital.
The administration has used informal "subregulatory guidance" to expand the 340B program still further. One big change came in March 2010 "guidance" that allows hospitals to contract with an unlimited number of neighborhood pharmacies to dispense drugs through them. There is no requirement that these "satellite" pharmacies have any geographic tie to the hospital. This has created an industry of middlemen who build vast networks of pharmacies, all to expand the number of 340B prescriptions that a hospital can capture. There are now more than 25,000 arrangements between such satellite pharmacies and 340B-qualified treatment sites, according to the Health Resources and Services Administration. More, the definition of a "covered patient" for 340B purposes is so murky that hospitals are able to buy and bill discounted drugs for patients when the hospital merely serves as a conduit and doesn't give direct patient care.
Take the Duke University Health System. In 2011, Duke bought $54.8 million in drugs from the discount program and sold them to patients for $131.8 million, for a profit of $76.9 million. That profit was a substantial portion of the health system's 2011 operating profit of $190 million. (Only one in 20 patients served by Duke's 340B pharmacy is uninsured.)
In the process, treatment of the doctor's patients is moved from an office setting to a hospital outpatient department. Hospital care is considerably more expensive. As a result, between 2005 and 2011 the amount of chemotherapy infused in doctors' offices fell to 67%, from 87%, according to a new analysis of Medicare billing data done for community oncology groups. The share of Medicare payments for chemotherapy administered in hospitals (as opposed to outpatient oncology practices) increased to 41% in 2011, from 16.2% in 2005. Because the overhead for a hospital is higher than for a doctor's office, a patient treated in a hospital clinic incurs $6,500 more in costs than the same person treated in a private medical office, according to data from the Community Oncology Alliance. Patients who get chemotherapy at a hospital also face an additional $650 in co-pays and other out-of-pocket expenses. The price for infusing the drugs alone rises by 55%, according to an analysis of Medicare data. These inflated prices for cancer treatment inevitably drive up the cost of health insurance.
The new health-care law, The Affordable Care Act, expands 340B to cover cancer centers, new categories of hospitals and rural health centers. Since one of the ways that hospitals qualify for 340B turns on how many Medicaid patients they serve, ObamaCare's Medicaid expansion will also increase the number of 340B-eligible entities. More than 400 oncology practices have been acquired by hospitals since ObamaCare passed. Acquiring a single oncologist and moving the doctor's drug prescriptions under a hospital's 340B program can generate an additional profit of more than $1 million for a hospital.
The administration has used informal "subregulatory guidance" to expand the 340B program still further. One big change came in March 2010 "guidance" that allows hospitals to contract with an unlimited number of neighborhood pharmacies to dispense drugs through them. There is no requirement that these "satellite" pharmacies have any geographic tie to the hospital. This has created an industry of middlemen who build vast networks of pharmacies, all to expand the number of 340B prescriptions that a hospital can capture. There are now more than 25,000 arrangements between such satellite pharmacies and 340B-qualified treatment sites, according to the Health Resources and Services Administration. More, the definition of a "covered patient" for 340B purposes is so murky that hospitals are able to buy and bill discounted drugs for patients when the hospital merely serves as a conduit and doesn't give direct patient care.
Costs rising, private practices contracting, hospitals making egocentric business --not community health--decisions--these are not healthy signs. Influence peddling and graft are certainly factors here and unintended consequences of a gigantic program like this are to be explained. The problem is they do not seem to be anticipated.
(Much of this is from Dr. Scott Gottlieb's article in the WSJ.)
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