Hospitals Might Not Get 340B Discounts on Drugs Being Investigated as COVID-19 Treatments

Your 340B Report for Thursday June 25, 2020

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A screen capture from today’s Health Affairs blog post about how some hospitals might be unable to get 340B pricing on existing drugs being investigated as possible treatments for COVID-19.

Hospitals Might Not Get 340B Discounts on Drugs Being Investigated as COVID-19 Treatments

Several re-purposed drugs being tested in outpatients in COVID-19 clinical trials have an orphan drug designation, making them exempt from 340B discounts for thousands of critical access hospitals, rural referral centers, sole community hospitals, and free-standing cancer hospitals, an article today in the Health Affairs blog points out.

“The lack of discount could particularly impede access among vulnerable patients, as many of these facilities are safety-net hospitals that were struggling financially even before the pandemic massively disrupted hospital revenue,” say the authors, pediatrician and health services researcher Dr. Kao-Ping Chua and health care economist Rena Conti.

Chua and Conti said Congress should consider revoking altogether the 2010 exemption on 340B discounts for orphan-designated drugs bought by hospitals that became eligible for 340B under the Affordable Care Act. Alternatively, they said Congress could adopt the approach advocated by U.S. Reps. David McKinley (R-W.Va.) and Peter Welch (D-Vt.) in H.R. 4538, which would limit the exemption to when orphan drugs are “transferred, prescribed, sold, or otherwise used for the rare condition or disease for which such drug is so designated.”

The 340B orphan drug exemption now applies to orphan drugs whether or not they are used for the indications for which the drug received orphan designations. The U.S. Health Resources and Services Administration (HRSA) published a final rule in 2013 implementing the exclusion the same way as McKinley and Welch now propose, but the trade group PhRMA sued and a federal district court struck down the rule, saying HRSA lacked authority to issue it. HRSA next published an interpretive rule in 2014 seeking the same result and it, too, was struck down by the same court in 2015.

Chua and Conti identified 17 drugs with orphan designations in COVID-19 clinical trials manufactured only by the sponsor to which designations were granted. “The prices of these 17 orphan drugs can be very high,” they said. “Several orphan-designated drugs in COVID-19 clinical trials are being tested in outpatients,” they said. Also, “some orphan-designated drugs currently being tested for inpatients may ultimately be used for outpatients,” including Gilead Science’s remdesivir, Chua and Conti noted.

“Orphan drug policy for rare diseases was never intended to intersect with widespread pandemics,”  Chua and Conti concluded. “Policy makers must ensure that sponsors are fairly compensated for the costs of re-purposing their drugs, while also ensuring that orphan drug policy does not unintentionally impede access to life-saving COVID-19 treatments.”


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Study Shows Why 340B Duplicate Discounts Are Increasingly a Medicaid Managed Care Issue

New research commissioned by the health insurance industry sheds more light on why 340B duplicate discounts increasingly are a Medicaid managed care matter and decreasingly an issue in Medicaid fee for service. While the study doesn’t look at 340B, its findings help put 340B duplicate discount trends in context.

The report released June 23 by America’s Health Insurance Plans (AHIP) found that Medicaid is now mainly a managed care program. Nationally, “Medicaid managed care plan enrollment more than doubled (increased by 121 percent) between fiscal years 2010 and 2018—from approximately 26 million to over 56 million,” AHIP said. “As of 2018, more than 75 percent of all Medicaid enrollees were enrolled in a Medicaid managed care plan, up from about 50 percent in 2010.”

2010 was the year Congress and the Obama administration, in the Affordable Care Act, required drug manufacturers for the first time to provide rebates for drugs dispensed to individuals enrolled in a Medicaid MCO. Until then, rebates were owed on Medicaid FFS drugs only. The 340B statute, enacted in 1992, forbids providers enrolled in 340B from requesting 340B discounts on drugs subject to Medicaid rebates. The U.S. Health Resources and Services Administration (HRSA) requires providers upon enrolling to tell it whether they will use 340B drugs for Medicaid beneficiaries (carve in) or not (carve out).

While it has always been clear that providers are responsible for preventing 340B duplicate discounts in Medicaid FFS, it is less clear who ultimately is responsible for preventing them in Medicaid MCO. The Affordable Care Act said only that drugs covered by a Medicaid MCO are not subject to a Medicaid rebate if also subject to a 340B discount. Some 340B stakeholders said that clearly meant that it was the states’ responsibility. Others said states and providers both had roles.

Lack of agreement over responsibility helped create a policy vacuum. In 2014, HRSA said in 340B program guidance that its Medicaid Exclusion File, its list of providers that carve-out Medicaid, was intended to prevent duplicate discounts in Medicaid FFS only. The guidance “encourage[d]” providers to work with states “to develop strategies to prevent duplicate discounts on drugs reimbursed through MCOs.”

In 2016, the U.S. Health and Human Services (HHS) Department Office of Inspector General recommended that the Centers for Medicare & Medicaid Services (CMS) require states to use claim-level methods, rather than provider-level methods, to identify and exclude 340B claims from Medicaid rebate requests. CMS rejected the recommendation on the grounds that the Medicaid statute does not contemplate such a requirement for states.

Last January, CMS published best practices for states for avoiding 340B duplicate discounts—including the controversial observation that states could solve their 340B duplicate discount problems by partially or entirely taking away providers’ ability to use 340B drugs for Medicaid beneficiaries. CMS also discussed the pros and cons of states using claims modifiers to flag 340B claims; including 340B duplicate discount provisions in Medicaid MCO contracts; providing claims level data to manufacturers; and requiring Medicaid MCOs to use specific using bank identification number (BIN) and process control number (PCN) combinations unique to their Medicaid lines of business.

That same month, the U.S. Government Accountability Office (GAO) criticized the U.S. Department of Health and Human Services’ (HHS) policing of 340B duplicate discounts.

It recommended that CMS ensure that state Medicaid programs have written policies and procedures to prevent duplicate discounts and forgone rebates; that HRSA should incorporate 340B providers’ compliance with those state policies into its audits; and that HRSA should require providers to work with manufacturers on repaying 340B duplicate discounts in managed care. CMS agreed with the recommendations that pertained to it, HRSA largely disagreed with those that pertained to it.


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ACA Enhancement Bill Excludes Language from Drug Pricing Bills that Worries 340B Providers

U.S. House Democrats yesterday introduced legislation to “enhance” the Affordable Care Act that includes part of the bill to lower drug prices that the House passed last December.

The House is scheduled to vote on the new bill on Monday, June 29. The Republican-controlled Senate is expected to largely ignore it.

According to a section-by-section summary of the House Democrats’ new Patient Protection and Affordable Care Enhancement Act, only the first part of the eight-part drug pricing bill, H.R. 3, is reflected in the new legislation. That part would require the U.S. Health and Human Services (HHS) secretary to begin negotiating with drug manufacturers what Medicare Part D will pay for certain high-priced, limited-source drugs, starting with no fewer than 25 drugs in the program’s first year to no fewer than 50 beginning in 2024. Fair Price Negotiation Program price reductions would be included in the calculation of a drug’s average manufacturer price (AMP) and best price (BP), according to the bill text. While the U.S. Veterans Affairs (VA) Department could opt to buy covered drugs at the negotiated prices, it is unclear whether manufacturers would have to offer negotiated prices to group health plans and group and individual health insurance plans, as would be the case under H.R. 3.

House Democrats apparently did not insert into their new bill language from H.R. 3 that has 340B provider groups concerned. That language, in a section on preventing “abusive spread pricing and related practices in Medicaid,” would require payments made by Medicaid managed care organizations or their pharmacy benefit managers for drugs dispensed to Medicaid beneficiaries to be limited to ingredient cost plus a dispensing fee, passed entirely to the pharmacy that dispenses the drug. Most states reimburse 340B-acquired drugs dispensed to Medicaid fee-for-service beneficiaries at acquisition cost. Reimbursement for 340B drugs given to Medicaid MCO beneficiaries usually is set above cost at a negotiated rate, and is an important source of revenue for covered entities.

The same language that worries 340B providers is also in the lead drug pricing bill in the Senate. That bill, S. 2543, co-sponsored by  Sens. Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.), has gained a significant number of sponsors but Majority Leader Mitch McConnell (R-Ky.) has not given his blessing to vote on it.


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Hospital Group Updates Study on Cancer Care at 340B DSH Hospitals

A hospital group says an analysis of 2018 Medicare claims shows that 340B disproportionate share hospitals “treat larger percentages of cancer patients who are living with low incomes, are disabled, or are members of racial/ethnic minority populations than non-340B hospitals or physician offices.”

340B Health hired health economics firm Dobson Davanzo & Associates to conduct the analysis, which updates prior Dobson research for the group on the same subject. 340B Health released the new results yesterday.

Dobson found that patients receiving oncology drugs at 340B DSH hospitals are:

  • 57 percent more likely to be dually eligible for both Medicare and Medicaid—a group largely made up of people with low incomes—than cancer patients receiving care at non-340B hospitals. They were 44 percent more likely to be dually eligible than cancer patients treated at physician offices.

  • 36 percent more likely to be eligible for Medicare due to having a disability than non-340B hospital cancer patients, and 67 percent more likely to be a person with a disability than physician office cancer patients

  • 78 percent more likely to be Black or African American than non-340B hospital cancer patients, and 46 percent more likely to be Black or African American than physician office cancer patients. The percentage of Hispanic cancer patients at 340B hospitals also was higher.

Dobson said its new findings are consistent with the Medicare Payment Advisory Commission’s (MedPAC) findings last March that 340B hospitals treat a higher proportion of low-income (30 percent vs. 20 percent) and disabled (24 percent vs. 18 percent) beneficiaries than non-340B hospitals.

Court Upholds CMS Rule Requiring Hospitals to Post their Charges

A federal district court in Washington, D.C. ruled this week that the Trump administration’s rule requiring hospitals to publish their gross and payer-specific negotiated charges for services—including for outpatient prescriptions drugs—did not exceed the U.S. Centers for Medicare & Medicaid Services’ (CMS) statutory authority and was not arbitrary and capricious. The rule is set to take effect January 2021.

U.S. Health and Human Services (HHS) Secretary Alex Azar praised the decision. “Especially when patients are seeking needed care during a public health emergency, it is more important than ever that they have ready access to the actual prices of health care services.”

The American Hospital Association (AHA), which sued to have the rule declared illegal, said it will appeal the ruling and seek an expedited review. “We are disappointed in today’s decision in favor of the administration’s flawed proposal to mandate disclosure of privately negotiated rates,” AHA General Counsel Melinda Hatton said. “The proposal does nothing to help patients understand their out-of-pocket costs. It also imposes significant burdens on hospitals at a time when resources are stretched thin and need to be devoted to patient care. Hospitals and health systems have consistently supported efforts to provide patients with information about the costs of their medical care. This is not the right way to achieve this important goal.”

The rule will require hospitals to publicize and update at least annually information about services including:

  • Gross charge for outpatient prescription drugs

  • Payer-specific negotiated charge for outpatient prescription drugs

  • De-identified minimum and maximum negotiated charges for outpatient prescription drugs

  • Discounted cash price for outpatient prescription drugs.

Safety-net providers worry that critics of the 340B program might use the data to argue that 340B hospitals charge too much for outpatient drugs and do not pass along 340B discounts to patients. They say the data selected for public release does not reflect the entirety of 340B hospitals’ commitment to making outpatient drugs and other important health care services more accessible and affordable.

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