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Does the 340B Drug Discount Program Miss the Mark?


Julie Gould

The intention of 340B Drug Pricing Program is to allow qualifying hospitals to purchase outpatient drugs at a discounted then dispense them to patients while receiving standard insurer reimbursement—allowing the hospital to invest the extra income in safety-net programs for low-income patients. However, according to a recent study in The New England Journal of Medicine, the program may not be working as intended.

  • To isolate the effects of the program on hospital-physician consolidation and on outpatient administration of parenteral drugs by hospital-owned facilities, researchers used Medicare claims and a regression-discontinuity design. Further, researchers assessed the effects of the program on the provision of care by hospitals and on mortality for low-income patients.
  • Hospital eligibility for the program was associated with 2.3 more hematologist-oncologists practicing in facilities owned by hospitals. This translates to 230% more hematologist-oncologists than expected in the absence of the program with 0.9 more ophthalmologists per hospital and 0.1 more rheumatologists per hospital. 
  • A significantly higher number of parenteral drug claims billed by hospitals for Medicare patients in hematology-oncology and ophthalmology were reported for program eligibility, but it was not reported for rheumatology.
  • Researchers found that there were lower proportions of low-income patients in hematology-oncology and ophthalmology. They reported that there were no significant differences in hospital provision of safety-net or inpatient care for low-income groups or in mortality among low-income residents.
Lead study author, Sunita Desai, PhD, assistant professor in the department of population health at the NYU School of Medicine and the department of health care policy at the Harvard Medical School, recently spoke with First Report Managed Care and explained that hospitals may not be using surplus revenue to expand care for low-income populations as the program intends.

Insight from the Author

What kinds of impacts has the 340B program had on hospital systems?

Our findings suggest that by increasing profitability of drug administration, the 340B Program is inducing hospitals to acquire practices or employ physicians, particularly in hematology-oncology, as a means to expand capacity in drug administration.

We don't find that hospitals are using surplus revenue generated to expand care for low-income populations as the Program intends. 

Has the 340B program translated to improved outcomes for patients?

We don't find evidence that the 340B Program has led hospitals to invest in safety net clinics, expand access to care for low-income Medicare beneficiaries, or improve mortality among Medicare beneficiaries residing in hospitals' local service areas. We didn't examine other outcomes or populations though.

Based on your research, will the current Administration’s new rule reducing 340B reimbursement have an impact on patient outcomes or care delivery?

The new rule reducing 340B reimbursement will attenuate the incentive for hospitals to consolidate with practices in drug-intensive specialties like hematology-oncology. And given that the program hasn't been associated with greater provision of care to safety net populations anyway, we expect that it would not adversely affect care for these populations.

Is there anything else you’d like to add?

The 340B Program is well-intentioned and addresses a critical policy goal—improving and expanding care for low-income populations. However, our research suggests that the program's current design of relying on hospitals to cross-subsidize care for low-income populations via profits generated due to drug discounts without any oversight is not achieving the ultimate goal.

Policies aimed at supporting safety net providers should use more targeted mechanisms and subsidies to ensure the resources are getting to the populations in need. 

For similar articles by First Report Managed Care, click here

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