By Ken Perez, vice president of healthcare policy, Omnicell, Inc.
On June 24, President Donald Trump
issued an almost 1,600-word executive order (EO), “Executive Order on Improving Price and
Quality Transparency in American Healthcare to Put Patients First.”
The EO’s overall purpose is
“… to enhance the ability of patients to choose the healthcare that is best for
them” by providing them with access to useful price and quality information,
which enables them to find and choose low-cost, high-quality care.
This EO aligns with previous pronouncements by the Trump administration, including Executive Order 13813 of October 12, 2017, (Promoting Healthcare Choice and Competition Across the United States) and Centers for Medicare and Medicaid Services Administrator Seema Verma’s promise, announced at HIMSS18, “to put patients at the center of the healthcare delivery system and empower them with the data they need to make the best decisions for themselves and their families.”
Central to this latest EO is the
assumption that valid price comparisons can be made for “shoppable” services,
defined as common services offered by multiple providers through the market,
which patients can research and compare before making informed choices based on
price and quality.
Shoppable services are significant. Per
a study cited by the Council of Economic Advisers in its 2019 Annual Report, of
the categories of medical cases requiring inpatient care, 73 percent of the 100
highest-spending categories were shoppable, and among the categories of medical
cases requiring outpatient care, 90 percent of the 300 highest-spending
categories were shoppable.
In addition, improved price transparency
could help protect patients from surprise billing, which occurs when patients
receive unexpected bills at highly inflated prices from out-of-network
providers they had no opportunity to select in advance. Other benefits of
improved transparency included competition, innovation, and value in the
The EO specifies that within 60 days
of the date of this order, the U.S. Department of Health and Human Services
(HHS) shall propose a regulation to require hospitals to publicly post standard
charge information, including charges and information based on negotiated rates
and for common or shoppable items and services, in an easy-to-understand,
consumer-friendly, and machine-readable format using consensus-based data
standards that will meaningfully inform patients’ decision making and allow
patients to compare prices across hospitals. Posting of standard charge
information will apply to all services, supplies, or fees billed by the
hospital, and hospitals will be required to regularly update the posted
information. HHS will establish a monitoring mechanism to ensure compliance.
The EO also specifies that within 90
days, there will be rulemaking (by HHS, the Department of the Treasury, and the
Department of Labor) on a proposal to require healthcare providers, health
insurance issuers, and self-insured group health plans to provide or facilitate
access to information about expected out-of-pocket costs for items.
In addition, the EO specifies that within
180 days, HHS shall issue a report describing how the federal government or the
private sector are impeding healthcare price and quality transparency for
patients, and providing recommendations for eliminating these impediments
in a way that promotes competition.
EO also included mandates regarding the establishment of a Health Quality
Roadmap and standardization of quality measures, as well as HHS providing the
private sector with increased access to de-identified claims data from taxpayer-funded
The Trump administration is choosing
a consumer-driven approach to try to reduce healthcare costs. As former Rep.
Ernest Istook (R-Okla.), president of Americans for Less Regulation, said,
“Everything is based upon the theory that consumers would wade through the data
to decide whether to seek care from different hospitals or doctors and would
Because of its breadth—spanning
pricing and out-of-pocket costs for all services, supplies and fees—in striking
contrast to the Trump administration’s previous railing against the burden
imposed on the healthcare industry by the prior administration and the
Affordable Care Act, this EO would also impose a heavy regulatory burden on
hospitals, physicians, and health insurance companies. Not surprisingly, the
price and quality transparency provisions are opposed by the American Hospital
Association (AHA), the Federation of American Hospitals (FAH), and America’s
Health Insurance Plans (AHIP). The provisions could prove to benefit companies
such as Castlight Health, ClearCost Health, and Healthcare Bluebook that
aggregate and present price and quality information for use by the public and
Because of this opposition by nonprofit
and for-profit hospitals, as well as health plans, the rulemaking processes for
the price and quality transparency initiatives will surely be contentious and potentially
lengthy, possibly resulting in a narrowing of the breadth of services subject
to the transparency requirements, rollout across multiple stages, an extended
phase-in period, etc. Conceivably, the hospital and health plan groups could
ask for offsetting relief from other regulatory requirements.
To that end, the Health Quality
Roadmap and standardization of quality measures would be well received by the
healthcare industry, and the increasing access to data could be a boon to
healthcare providers, healthcare IT vendors, healthcare consulting firms, and
health plans—especially in support of improved population health management,
given the vast amounts of Medicare and Medicaid claims data.
It was such a beautiful, logical vision: The creation of “an electronic circulatory system for health information that nourishes the practice of medicine, research, and public health, making health care professionals better at what they do and the American people healthier,” as David Blumenthal, the National Coordinator for Health Information Technology from 2009 to 2011, wrote in an article on the potential of the HITECH Act’s subsidization of the adoption of EHRs by hospitals and physician practices that appeared in the Dec. 30, 2009, issue of the New England Journal of Medicine.
The HITECH Act was combined with the American Recovery and Reinvestment Act of 2009 (ARRA), an economic stimulus bill created to help the U.S. economy recover from an economic downturn that began in late 2007. The passage of the bill spawned an ambitious vision of an elaborate national health information infrastructure that would enable frictionless, collaborative data sharing primarily through a National Health Information Network (NHIN) that would connect an interlocking web of regional health information organizations (RHIOs) and health information exchanges (HIEs).
It must be emphasized that the NHIN vision was a federal government vision—not one generally shared by the private sector. It was never realized, and the adoption of EHRs by healthcare providers has been described as “a digital revolution gone wrong” and “a bridge to nowhere,” in the 15-page cover article of Fortune magazine’s April issue, entitled “Death by a Thousand Clicks,” by Erika Fry of the magazine and Fred Schulte of Kaiser Health News.
For their report—which has the feel of an exposé — Fry and Schulte interviewed more than 100 physicians, patients, IT experts, administrators, health policy leaders, attorneys, government officials, and representatives from several leading EHR vendors. They employ a combination of poignant vignettes of patients who were harmed by EHR shortcomings — including the experiences of former Vice President Joe Biden’s son Beau and the husband of CMS Administrator Seema Verma — as well as ample facts and figures.
Per Fry and Schulte, the federal government has spent $36 billion to date to subsidize the adoption of EHRs by healthcare providers, and today, 96 percent of non-federal acute care hospitals and 86 percent of physician offices have EHRs.
Despite the significant amount of federal funding and broad adoption of EHRs, they have not fulfilled their potential, as Blumenthal has admitted. The expected “digital dividend” from EHRs has not materialized, or at least its magnitude is much smaller than hoped for. According to Fry and Schulte, EHRs’ general demerits include poor, tedious usability—which adds work and is cited as a major contributing factor to physician burnout — rampant errors that lead to patient safety risks, “upcoding” (bill inflation), lack of interoperability, widespread data blocking, and patients’ inability to access their EHRs. Data silos clearly exist between the 700 federally certified EHRs of widely varying functionality, as well as between provider organizations and other players in the healthcare system. In short, idealism has run into the reality of commercialization.
Fry and Schulte provide no optimistic, Hollywood ending to the article. Industry attempts to promote interoperability are described as fledgling, and their sobering conclusion is that the state of EHRs in the United States is “an unholy mess.”
By Ken Perez, vice president of healthcare policy, Omnicell.
The 340B Drug Pricing Program was created in 1992 to give safety net providers — those that deliver a significant level of both healthcare and other health-related services to the uninsured, Medicaid, and other vulnerable populations — discounts on outpatient drugs to “stretch scare federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” In brief, the program requires drug makers participating in Medicaid and Medicare Part B to provide discounts on outpatient drugs to 340B providers, which include various types of hospitals and certain federal grantees, such as federally qualified health centers and comprehensive hemophilia treatment centers.
For years, the 340B program has been fraught with controversy, with concerns raised about the program’s lack of accountability and oversight, and findings of widespread diversion of benefits (discounted drugs) to ineligible patients.
The nonpartisan Medicare Payment Advisory Committee (MedPAC) found that hospitals in the 340B program receive a minimum discount of 22.5 percent of Average Sales Price (ASP) for drugs paid under the Medicare Hospital Outpatient Prospective Payment System (OPPS). The Office of the Inspector General of the U.S. Department of Health and Human Services (HHS) found that the average 340B discount was 34 percent of ASP, and at least two organizations with 340B members estimated that 340B discounts could be as high as 50 percent of ASP.
Based in part on these findings, in 2017 HHS proposed and finalized a rule implementing a sharp reduction in 340B reimbursement of hospitals by the Centers for Medicare and Medicaid Services from ASP plus 6 percent to ASP minus 22.5 percent, along with an offsetting payment rate increase for non-drug items and services. It was estimated that 85 percent of 340B hospitals would see overall net payment increases in 2018 as a result of these changes, and that 340B hospitals would continue to benefit financially from the program.
Nevertheless, the American Hospital Association (AHA), America’s Essential Hospitals, and the Association of American Medical Colleges—all non-profit hospital associations—filed suits against HHS to block the change.
On Dec. 27, 2018, Washington, D.C. federal district court judge Rudolph Contreras (a Democrat nominated by President Barack Obama), issued a 36-page ruling in favor of the AHA, et al. and struck down the 340B payment reduction, contending that HHS Secretary Alex Azar exceeded his statutory authority by issuing a policy that would “fundamentally rework the statutory scheme.”
Contreras issued a permanent injunction of the new reimbursement policy, but he did not grant the plaintiff’s request for retroactive OPPS payments based on the original reimbursement formula. (HHS is unable to come up with the monies to pay back the hospitals, as they have already been spent.) Contreras ruled that the plaintiffs “are entitled to some relief,” but, recognizing “the potentially drastic impact of …[his] decision on Medicare’s complex administration,” he ordered a supplemental briefing to come to a “proper remedy.”
By Ken Perez, vice president of healthcare policy, Omnicell, Inc.
As widely reported, based on exit polls, healthcare—not the economy—was the top issue on voters’ minds in the 2018 midterm elections. This was due in part to the nation’s sustained economic recovery of the past two years, resulting in the current healthy state of the economy in general. In addition, Democratic Party political advertising emphasized healthcare—61 percent of pro-Democratic House ads from Sept. 18 to Oct. 15 mentioned healthcare, compared with just 10 percent of all Democratic ads in 2016.
According to several analysts, the Democrats’ success in taking back the House was largely due to their riding the “train of healthcare,” with a large proportion of Democrats in Congress supporting the idea of single-payer healthcare as embodied in Independent Vermont Sen. Bernie Sanders’s “Medicare for All” bill that he introduced in Sept. 2017.
Many of the most likely Democratic candidates for president in 2020 have publicly expressed their support of Medicare for All. Five of the seven most likely Democratic candidates from the Senate cosponsored the Medicare for All bill: Cory Booker of New Jersey, Kirsten Gillibrand of New York, Kamala Harris of California, Jeff Merkley of Oregon and Elizabeth Warren of Massachusetts. Some of the possible Democratic candidates from the House (e.g., Rep. Beto O’Rourke of Texas) and current and former Democratic governors (e.g., former Massachusetts Gov. Deval Patrick) are also Medicare for All backers.
At this point, what is the plausibility of Medicare for All becoming law after the 2020 elections?
It would obviously require the election as president of Sanders or a Democratic candidate who supports a single-payer system. In addition, the Democrats would need to retain their new majority in the House, and they would also need to attain a 60-seat majority in the Senate to overcome a possible minority party filibuster by the Republicans, assuming their united opposition. Note that the Patient Protection and Affordable Care Act passed in the Senate by a 60-39 vote, with not a single Republican senator voting for the bill.
A 60-seat Senate majority for the Democrats is not very likely to happen in 2020. Evidently, the Democrats will have 47 seats in the Senate once the 2018 midterm election results are finalized. The most aggressive current projection from a Democratic perspective regarding their Senate prospects in 2020 is a flipping of five seats presently held by Republicans (in Arizona, Colorado, Iowa, Maine, and North Carolina), resulting in a 52-seat majority. However, even that outcome would be eight seats short of the 60 needed. Thus, it appears that it would take some combination of executive branch meltdown (e.g., impeachment proceedings) and retirements by multiple Republican senators during the next two years in order for voters to flip an additional seven seats in the Senate to the Democrats in 2020.
Decreasing inpatient admission volumes, shifts in the re-imbursement mix from higher-margin commercial payers to lower-margin public payers, and pressures resulting from value-based care have been solid trends during the past several years. Thus, it was not surprising that a Moody’s Investors Service report released in August portrayed the current condition of finances for not-for-profit hospitals as troubling.
According to Moody’s, the median annual expense growth rate slowed from 7.1 percent in 2016 to 5.7 percent in 2017 because of hospitals’ continued control of labor and supply costs. But annual revenue growth fell faster, from 6.1 percent in 2016 to 4.6 percent in 2017, the second straight year that expense growth exceeded revenue growth, a trend that is expected to continue through 2019. Moody’s concluded that not-for-profit hospitals are on an “unsustainable path.”
Consequently, median operating margins dropped to an all-time low of 1.6 percent in 2017. More than 28 percent of hospitals posted operating losses last year, up from 16.5 percent in 2016. Of course, operating losses cannot be sustained forever. If they are sustained for multiple years, closure of the hospital frequently results. Earlier this year, Morgan Stanley concluded that 18 percent of U.S. hospitals are at risk of closure or are weak financially, with approximately 8 percent of hospitals (roughly 450 facilities) presently at risk of closing. To put that figure in perspective, during the past five years, only 2.5 percent (150 hospitals) have closed. Also, Morgan Stanley found that 10 percent of hospitals suffer from weak finances.
Various factors account for not-for-profit hospitals’ financial difficulties.
Because the vast majority of net patient revenue came from fee-for-service based payment models—such as DRG payment, fee schedule, percentage of the chargemaster, or list price—overall reduced payment rates adversely impacted revenue in 2017. To be clear, nominal payment rates did not decline—e.g., Medicare’s Inpatient Prospective Payment System and Outpatient Prospective Payment System both incorporated nominal year-to-year increases in 2017—but the revenue mix for hospitals did shift from higher-margin commercial payers to lower-margin public payers. Median Medicare and Medicaid payments as a percentage of gross revenue rose to 45.6 percent and 15.5 percent, respectively, in 2017. Furthermore, continuing a five-year trend, public payers’ share of hospital revenue is projected to increase for the foreseeable future, as more of the baby boomers—an obviously large demographic group—reach retirement age and an increasing number of them incur the sizable costs of the last year of life.
In addition, hospital finances were adversely impacted by the continued shift from inpatient to outpatient care, a trend driven by greater competition from ambulatory facilities, such as physician offices and ambulatory surgery centers. Moody’s reported that median outpatient growth rates exceeded inpatient growth rates for the fifth straight year. In her July 25 address to the Commonwealth Club, Seema Verma, administrator of the Centers for Medicare & Medicaid Services, supported the inpatient-to-outpatient shift, stating that Medicare is seeking to avoid “downstream” expenses, such as emergency department (ED) visits and hospital admissions.
Faced with these financial challenges, not-for-profit hospitals have pursued a number of approaches.
Most commonly, they have tried to improve their management of labor and supply costs. However, this strategy—while certainly logical—may be reaching a point of diminishing returns. Lyndean Brick, president and CEO of the Advis Group, a healthcare consulting firm, has concluded: “This is no longer solely about expense reduction. If not-for-profits just focus on that, they will be out of business in the next few years” (Modern Healthcare, Aug. 29, 2018).
Another strategic response has been consolidation—in which small hospitals join a larger health system—to gain more leverage with payers, to accomplish greater economies of scale, to get access to lower-cost capital, and to enhance access to talent.
By Ken Perez, vice president of healthcare policy, Omnicell, Inc.
“If at first you don’t succeed, try, try again.”
During the first half of 2017, two mergers, each pairing national health plans—Aetna with Humana and Anthem with Cigna, respectively—were blocked by two federal judges, both of whom concluded that the mergers would reduce competition in the health insurance market and, therefore, raise prices.
Departing from the horizontal merger approach, three national health insurers are now involved in proposed or possible vertical mergers. CVS Health announced its intent to acquire Aetna in December 2017; Cigna announced its plan to acquire pharmacy benefits manager Express Scripts in March 2018; and Walmart is reportedly in acquisition talks with Humana. Because of their size, the interesting value delivery chains they would create, and potential synergies, these corporate combinations have been described as disruptive and industry game-changers.
From a health policy standpoint, what has contributed to these mega-mergers?
First, the specter of a single-payer healthcare system—as most ardently promoted by Sen. Bernie Sanders (I-Vt.)—has been greatly diminished by the election of Republican Donald Trump as president in 2016, continued Republican majorities in both the House of Representatives and the Senate, and perhaps most saliently, the passage of the Tax Cuts and Jobs Act of 2017 (TCJA) in December 2017.
It is a truism in Washington, D.C. that taking back something that has been given to the public is hard, if not impossible. Since a single-payer healthcare system would clearly entail a major expansion of the federal government that would require not only the repeal of the TCJA’s tax breaks for individuals and corporations, but also the imposition of additional tax increases, it would appear to be a political impossibility for at least until 2021.
Second, Medicare Advantage (MA), Medicare’s managed care program, increasingly is where the action is for health plans. Congressional Republicans strongly support MA, and the program is gaining in popularity with Medicare beneficiaries. The Centers for Medicare and Medicaid Services projects that 20.4 million people will enroll in MA for 2018, an increase of 9 percent over 2017, about three times faster than the growth of the total Medicare enrollee population. More than a third (34 percent) of Medicare beneficiaries are enrolled in MA.
The proposed mega-mergers involving Aetna, Cigna and Humana secure control of significant shares of the Medicare population, including sizable shares of the MA enrollee pie.
By Ken Perez, vice president of healthcare policy, Omnicell, Inc.
Paying for high-cost drugs based on the patient outcomes they produce—an approach known as outcomes-based pricing—is gaining momentum as health plans seek to slow the growth of healthcare costs in the face of rapidly escalating drug prices.
Under outcomes-based pricing, health plans and drug manufacturers agree to a contract in which the revenue the manufacturer receives is adjusted based on how well the medication performs in a real-world population. In practical terms, in the event the patient outcomes are less favorable than expected, the manufacturer must issue a refund or rebate to the health plan, which in effect constitutes a price adjustment.
Aetna, Anthem, Cigna, Harvard Pilgrim and UnitedHealth Group have all signed outcomes-based contracts with drug makers. According to Avalere Health, a healthcare consulting and research firm, one in four health plans has at least one outcomes-based contract, and another 30 percent of health plans were negotiating one or more outcomes-based contracts as of early 2017.
Several of the early outcomes-based deals are for treating common, high-cost conditions for which there is a lot of outcomes data, such as high cholesterol and diabetes. According to the Centers for Disease Control and Prevention, over 100 million American adults have cholesterol levels above healthy levels, and similarly, more than 100 million American adults have diabetes or prediabetes.
In addition, pharmaceutical firms with new cancer drugs that have little data proving their longer-term outcomes value should be motivated to enter into outcomes-based agreements.
Given the Trump administration’s anti-regulation bent and focus on spurring drug price competition through expedited approval of generics and biosimilars, the Department of Health and Human Services is unlikely to experiment with outcomes-based pricing during the next few years. Thus, commercial health plans should remain the key promoters of outcomes-based pricing for the foreseeable future.
H.R. 1, The Tax Cuts and Jobs Act (TCJA), gained passage in the Senate (by a 51-48 vote) and the House (by a 224-201 vote) on Dec. 20, 2017, and two days later, President Donald Trump signed the bill into law.
The TCJA constitutes the biggest tax reform legislation in three decades for the U.S. and unquestionably the most significant legislative accomplishment of the Trump administration in 2017. Two provisions and one possible pitfall of the TCJA are most relevant to the healthcare industry.
Decrease in the corporate tax rate from 35 percent to 21 percent
This change, excluding other provisions of the TCJA, will clearly benefit for-profit hospitals and health systems, as well as pharmaceutical companies.
Repeal of the Affordable Care Act’s individual mandate
Starting in 2019, the TCJA repeals the ACA individual mandate that requires all Americans under 65 to have health insurance or pay an annual penalty, $695 per person or 2.5 percent of income—whichever is higher.
Per the Congressional Budget Office’s November 2017 analysis, “Repealing the Individual Health Insurance Mandate: An Updated Estimate,” the repeal of the individual mandate in 2019 would increase the number of uninsured Americans—relative to a baseline that assumes continuation of cost-sharing reduction (CSR) subsidies in the ACA marketplaces—by 4 million in 2019, with that figure growing to 13 million in 2025 and remaining at that level thru 2027.
According to the CBO, the 13 million is composed of five million people who would not choose to obtain coverage thru the individual insurance market, five million people who would not enroll in Medicaid—not due to a pullback of the ACA’s Medicaid expansion, as that was not in the TCJA—and three million people who would choose to no longer have employer-sponsored insurance. The CBO admits that its projections are uncertain and states, “The preliminary results of analysis using revised methods indicates that the estimated effects on the budget and health insurance coverage would probably be smaller than the numbers reported in this document.”
Guest post by Ken Perez, vice president of healthcare policy, Omnicell, Inc.
Though largely overshadowed by the continued pursuit of repeal and replacement of the Affordable Care Act by the Trump administration and congressional Republicans, the concept of a single-payer healthcare system is gaining popularity, and a referendum on it is already starting to take place.
According to a June 2017 national survey by the Pew Research Center, 60 percent of the American public feels it’s the federal government’s job to provide healthcare coverage for all Americans, and a third of the public favors a single-payer health insurance system run by the federal government.
On September 13, Sen. Bernie Sanders (I-Vt.) introduced the Medicare for All Act of 2017. In striking contrast with his previous solitary introductions of this approach, this time 16 Democratic senators—one-third of the party’s Senate caucus—identified themselves as co-sponsors, including Senators Cory Booker, Kirsten Gillibrand, Kamala Harris, and Elizabeth Warren, all possible presidential candidates.
Medicare for All Defined
Per Sanders, Medicare for All would create a federally administered single-payer healthcare program that provides comprehensive coverage for all Americans, spanning the entire healthcare continuum, “from inpatient to outpatient care; preventive to emergency care; primary care to specialty care, including long-term and palliative care; vision, hearing and oral health care; mental health and substance abuse services; as well as prescription medications, medical equipment, supplies, diagnostics and treatments.” Every doctor would be in network, and saliently, there would be no deductibles, copays or cost-sharing requirements of any kind.
Estimating the Cost of a Single-Payer System
One admittedly simplistic way to estimate the cost of a single-payer system would be to assume that the federal government would pay for the nation’s entire national health expenditures (NHE), which the Centers for Medicare and Medicaid Services projects will reach about $3.5 trillion in 2017, which would be equivalent to a more than tripling of the roughly $1.1 trillion the federal government will spend this year on Medicare, Medicaid, the Children’s Health Insurance Program, health insurance subsidies and related spending, and Veterans’ medical care.
Single-payer advocates argue that administrative savings and decreased waste would reduce spending, generally by 20 percent to 30 percent, but such savings would likely be offset by the cost of covering the approximately 25 to 30 million Americans without health insurance, as well as higher demand (from those currently with coverage), resulting from the elimination of all cost-sharing requirements, which tend to curb overutilization of medical services. Per a landmark 1982 Rand Corporation study that examined the spending patterns of patients with insurance that covered 100 percent of expenses versus those with copays and deductibles, patients without out-of-pocket fees spent 30 percent more for medical services. A 30 percent increase in demand for medical services would add more than $1 trillion to the nation’s annual healthcare bill.
Citing the lower per capita costs of healthcare in other industrialized countries with single-payer systems, Sanders argues that NHE would actually decrease under his single-payer plan, by $6 trillion over 10 years. Sanders’ white paper, “Options to Finance Medicare for All”— which outlines a dozen tax revenue-generating ideas —presents $16.2 trillion as the implied expected increase in federal expenditures over a 10-year period under Medicare for All.
Guest post by Ken Perez, vice president of healthcare policy, Omnicell.
In 1992, the 340B Drug Pricing Program was created to give safety net providers—those that organize and deliver a significant level of both healthcare and other health-related services to the uninsured, Medicaid, and other vulnerable populations—discounts on outpatient drugs to “stretch scare federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” In simple terms, the program requires pharmaceutical manufacturers participating in Medicaid and Medicare Part B to provide discounts on outpatient drugs to 340B providers.
340B-eligible providers include various types of hospitals, such as Disproportionate Share Hospitals (DSHs), Critical Access Hospitals, sole community hospitals, freestanding children’s hospitals, and freestanding cancer hospitals. In addition, certain federal grantees are 340B-eligible providers, e.g., federally qualified health centers, and comprehensive hemophilia treatment centers. DSHs, freestanding children’s hospitals, and freestanding cancer hospitals need to have their Medicaid and uninsured populations account for 11.75 percent or more of their total patient populations in order to be eligible for the program. DSHs accounted for 75 percent of 340B drug purchases in 2011 and continue to account for the majority of the purchase volume.
The program benefits safety net providers by offsetting the cost of providing free or discounted drugs to patients who cannot pay and by generating funds to improve and expand programs such indigent clinics and free oncology services to low-income patients.
Eligible patients must receive services from a covered entity (CE), defined as the healthcare provider that has established a relationship with the individual and maintains records of the individual’s care. Contract pharmacies dispense 340B drugs to CEs’ 340B-eligible patients.
Importantly, CEs are able to purchase drugs for outpatient use at the sizable 340B discount for all their outpatients, not just their Medicaid or uninsured patients. As of October 2016, there were 12,148 CEs, and there were 2,871 hospitals as CEs as of July 2017. Total discounted purchases under the program have grown steadily during the past decade and reached $16.2 billion in 2016.
The program is administered by the Office of Pharmacy Affairs within the Health Resources and Services Administration (HRSA), an agency of the U.S. Department of Health and Human Services.
For years, the 340B program has been fraught with controversy, with CEs and pharmaceutical companies defending and attacking the program, respectively. HRSA, the U.S. Government Accountability Office, and the HHS Office of Inspector General have all pointed out the lack of accountability and oversight of the program. There have been many reporting and program integrity issues. For example, in fiscal year 2016, 44 percent of CEs were found to have diverted benefits (discounted drugs) to ineligible patients.
Proposed Major Change to the Program
On July 13, the day after the conclusion of the 340B Coalition Summer Conference in Washington, D.C., the Centers for Medicare and Medicaid Services (CMS) issued its 2018 Medicare Hospital Outpatient Prospective Payment System (OPPS) proposed rule.
Contrary to the Trump administration’s deregulation bent, the proposed rule posited a dramatic reduction in 340B reimbursement of hospitals by CMS from Average Sales Price (ASP) plus 6 percent to ASP minus 22.5 percent.