Given its name, you’d expect the federal 340B Drug Discount Program to save money for the American health system. When it comes to cancer, though, it’s actually a major driver increasing costs, according to a report from the Community Oncology Alliance.
The program was created in 1992 to financially support so-called safety net hospitals that provide charity care to poor and underserved patients. It was designed to deliver that support not through already scarce federal resources but through mandatory manufacturer discounts on outpatient drugs. The intent of the program was to help these providers increase the charity care they provide with the money they saved from the program.
But “creative uses” of 340B have contributed to increasing the cost of cancer care, boosted revenues for hospitals (which charge more for cancer care than community oncology practices), and expanded the use of hospital outpatient cancer services. Because this program has been so profitable for so many hospital systems, outpatient hospital-based cancer services have grown dramatically. Pharmaceutical companies have naturally tried to offset giving so many discounts to hospital systems by increasing the prices of their drugs.
Meanwhile, community oncology clinics that provide the same cancer care at lower costs aren’t eligible for these discounts, and some are closing their doors or affiliating with hospital systems. This increases the price of care by increasing drug costs and by shifting the site of service to the more expensive hospital outpatient departments.
In 2004, the proportion of outpatient chemotherapy administered in hospital outpatient departments was relatively small, sitting at just 16 percent. By 2014, however, the administration of chemotherapy had shifted away from independent community practices and was being given in hospital outpatient facilities nearly half the time. Just by itself, this shift in the site of service has added $2 billion in costs to Medicare in 2014.
In a connected trend, there has been a dramatic increase in hospitals gobbling up independent oncology practices and changing their cost structures. Since 2008, 544 such practices were acquired by hospitals, while another 313 closed. The decline of community oncology practices boosts the cost of cancer care because equal treatment is more expensive in hospital-based outpatient clinics.
When cancer care moves from the community to the hospital setting, new facility fees and chemotherapy charges can more than double for both patients and insurers. Patients treated at community clinics that were recently acquired by hospitals are often shocked when they get their bills and discover their out-of-pocket costs have skyrocketed for the same care that they previously received.
Nearly half of hospitals with Medicare patients are now part of 340B. This designation lets hospitals buy medications at substantial discounts that were expressly intended to help offset the costs of charity care to poor or uninsured communities. At the same time, hospitals are able to negotiate higher contract rates for reimbursement with commercial payers than community oncology practices can. In other words, 340B hospitals are paying less and charging more for cancer drugs, substantially boosting their profit margins.
The intent of the 340B program is good. In practice, though, it lacks adequate oversight to ensure that hospitals with this designation actually provide charity care to poor and underserved populations. The 340B designation is frequently granted to institutions in which improving access to charity care is not the primary objective. In fact, most 340B hospitals today are not providing much charity care at all. A recent study found that 64 percent of hospitals participating in the 340B program provide less charity care than the national average, and that rather than passing the savings onto needy patients, they’ve increased their net revenue.
Hospital accountants aren’t fools. The 340B savings on chemotherapy drugs represent a tremendous opportunity for hospitals to make more money. Simply put, the more outpatient chemotherapy they can bill, the more profits they can reap without having to offset any unreimbursed charity care. This creates an enormous financial incentive to acquire community oncology practices that provide such care.
During the current election cycle, drug prices have been on the hot seat. Although they are the most visible dollar figure to patients, and so make for a popular rallying cry, unless we look at the big picture, we will lose the battle to contain costs. Our leaders must work to reform the system as a whole.
Transforming the 340B program is an obvious place to start. It has grown far beyond its original intent and is costing Medicare and seniors more for cancer care, not less. Congress needs to pass legislation that increases the transparency of the 340B program and modifies it to truly serve as a critical access program with appropriate oversight.
We also need to take action against rising drug prices. The pharmaceutical industry should follow the lead of the rest of the health care community and move toward value-based pricing. Under this approach, an insurance company could offer incentives to use lower-cost drugs when therapeutically equivalent alternatives are available.
The cost of cancer care won’t get better after the election, and will almost certainly get worse. As baby boomers age, we will have more older Americans, meaning more older Americans affected by cancer. And though cancer diagnostics and therapeutics continue to improve survival and quality of life after a cancer diagnosis, the cost of treating cancer will continue to rise.
For the millions of patients who are struggling with bloated hospital bills, and the more than 6,500 community oncologists who are struggling to provide quality, affordable care, fixing 340B and other programs that contribute to the high cost of cancer treatment cannot come soon enough.
Debra Patt, MD, is a practicing oncologist and breast cancer specialist in Austin, Texas, vice president of Texas Oncology, an independent, physician-led oncology practice, and a board member of the Community Oncology Alliance. She has received payments from Pfizer (PFE), Celgene (CELG), and other pharmaceutical companies.
This article was edited to updated the author’s disclosures.