The healthcare reform law opens the door for more hospitals to purchase discounted drugs through a government program, though some industry executives say the absence of an inpatient drug option will reduce its savings potential and discourage participation.
Out is in: in is out
Reform law lowers drug prices--for outpatient only
While pleased that some types of critical-access, children's and cancer hospitals will be able to purchase outpatient drugs at lower prices through Medicaid's 340B discount drug program, the American Hospital Association and others in the industry were disappointed that lawmakers chose to leave out inpatient drug purchasing from the program changes passed as part of the healthcare reform package.
The 340B program allows hospitals serving large numbers of low-income and uninsured patients to purchase their outpatient drug supplies through the same manufacturers' rebate program used by Medicaid. By law, drugmakers are required to provide the discount to Medicaid.
The inclusion of inpatient drugs in the law definitely would have lowered costs for hospitals and patients and saved the federal government money, producing opportunities to pay for other things, said Don May, vice president for policy with the AHA. For these reasons, hospitals will undoubtedly be leaning on Congress to include inpatient drugs in future legislation, he said.
Two-hospital Truman Medical Centers, Kansas City, Mo., currently participates in the program and averages about $6 million worth of purchases through 340B each year, said John Bluford, the system's president and CEO. The program saves Truman “at least $1.2 million annually and basically helps about 90,000 patients,” said Bluford, who's also the AHA's chairman-elect.
Adding inpatient drugs would have produced another $1 million in annual savings, however, helping an additional 18,000 patients at his hospital system, Bluford estimated.
Likewise, two-campus Halifax Health, a public hospital system in Daytona Beach, Fla., estimates it “could have saved $3 million per year in discounted drugs” if inpatient drugs had been included, said Dee Schaeffer, governmental affairs officer.
Previously, the 340B program applied only to those hospitals that had a disproportionate- share hospital adjustment of 11.75% or higher. The health reform law lowered that threshold to 8%, “which let in a whole group of rural hospitals, free-standing cancer hospitals and sole community hospitals,” as well as certain types of critical-access hospitals, May said.
The AHA estimates that 1,300 to 1,400 hospitals will be newly eligible for the 340B program. Overall, hospitals should save between 15% and 30% on outpatient drugs, May added.
Although they had been added to a list of covered 340B items in the larger health reform bill, inpatient drugs were taken out by the House's reconciliation bill (March 29, p. 22). “The program could have been close to doubling in size if expanded to inpatient drugs because many hospitals have a larger inpatient drug program than outpatient program,” said Christopher Hatwig, vice president of Apexus, the company tasked with securing additional discounts for all participating hospitals on covered drugs in the program for the government.
The absence of inpatient drugs may be a significant driver in a low participation rate for critical-access hospitals, Hatwig said. At least 1,200 not-for-profit critical-access hospitals will be able to purchase drugs at 340B prices, making up the majority of the newly eligible, “but many of these hospitals don't have much in the way of outpatient pharmacy programs,” so the program may not have much value for them, he said.
Nevertheless, Maria Ryan, CEO of 25-bed Cottage Hospital, a critical-access facility in Woodsville, N.H., estimates the hospital could save 25% in its annual pharmacy budget through 340B. Although disappointed the program is not intended for inpatient use, the outpatient portion could still save significant dollars for critical-access hospitals because technically, “340B covers outpatient departments such as oncology day surgery,” creating an opportunity Cottage Hospital won't want to pass up, Ryan said.
There are other reasons that could prevent hospitals from participating in 340B, sources say.
Newly eligible providers will have to apply for the program through the Health Resources and Services Administration. This is not an automatic perk, May said. “Some may choose not to do it because of the paperwork,” or they're buying drugs elsewhere through group purchasing organizations, he said.
“It's not a hassle-free program,” said Eric Zimmerman, a healthcare lawyer who is a partner with McDermott Will & Emery in Washington. “Hospitals will need to take steps to ensure compliance,” such as ensuring the adequate separation of outpatient and inpatient drugs and not commingling the two, he said. “This brings administrative challenges and complications.”
Despite these potential headaches and the lack of inpatient drugs, the expansion as a whole will be a great benefit to those hospitals that qualify for it, Zimmerman said.
“I think there continues to be a great deal of interest in expanding inpatient drugs to the program,” Zimmerman said. “It's appealing to large numbers of members in the House. It will certainly get another hearing.”
Rep. Henry Waxman (D-Calif.), chairman of the House Energy and Commerce Committee, is likely to take up the issue in his panel. Several weeks ago at a healthcare conference, Waxman said drug prices, specifically changes to the outpatient 340B drug discount program, may be addressed in a separate bill in the future. For the time being “we're not there yet,” he told reporters.
Send us a letter
Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.