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Federal drug program may be helping hospitals more than needy patients, critics say

A federal program designed to allow certain safety-net hospitals and clinics to save money on drug purchases is under fire from critics, who say the facilities are using that money to pad profits rather than help patients.

The 340B drug-pricing program lets thousands of hospitals, community health centers and family-planning clinics buy outpatient prescription medications from manufacturers at an estimated 25 to 50 percent discount. Participants can then charge higher rates to insured patients and keep the additional revenue.

But growth in the 20-plus year-old program — sparked in part by the Affordable Care Act, which expanded eligibility — is signaling alarms among drug makers and some members of Congress. They say that some facilities should not be eligible and that the money they receive from the discounts is not always plowed back into patient care.

Administration officials have promised to propose clearer rules, which had been expected as early as this month, but a recent federal district court ruling has put into question whether they have that authority.

“Everyone sees this as a cash cow,” said Maya Bermingham, vice president and senior counsel at Pharmaceutical Research and Manufacturers of America, a drug-industry trade group. “You can actually make money off of this program, and that was not really the intent of the program when it was originally formed.”

Hospitals that benefit from the 340B program are fighting back.

“We find it highly ironic that the pharmaceutical industry is talking about cash cows,” said Ted Slafsky, president and chief executive of Safety Net Hospitals for Pharmaceutical Access. “They are the ones who are profiting off of the skyrocketing costs of pharmaceuticals.” Without the savings the program provides, participating hospitals “would have to cut back on vitally important services,” he said.

Hospitals say those services include specialized clinics, trauma care, burn units and poison control, as well as deferring some of the cost of uncompensated care. The discounts also allow the facilities to provide drugs at reduced prices or for free to impoverished patients. About a third of all hospitals participate. According to the American Hospital Association, the program saves hospitals $1.6 billion to $3.2 billion each year on drug purchases.

In 2011, eligible facilities bought about $6 billion worth of drugs through the program, and by 2013 that figure had grown to $7.5 billion, according to government figures. Some analysts predict the program could account for $12 billion in drug purchases by 2016, but hospital groups say those estimates are overblown.

At Mount Sinai Hospital, which serves many low-income neighborhoods in Chicago’s West Side, the $2 million raised through the 340B program annually helps fund a clinic for patients who have experienced neurological conditions, such as those following a stroke. “If we didn’t have the 340B program, we wouldn’t be able to afford to have that clinic,” said Justin L. Schneider, a vice president at Sinai Health System.

The 340B program brings in about $70 million a year for the Henry Ford Health System in Detroit, funding about a third of the hospital’s uncompensated care, said Robert Chapman, who runs the Josephine Ford Cancer Institute. Without those funds, Chapman said the medical center would have to cut services.

“In some ways, I like to think of it as keeping the last straw off the camel’s back,” he said.

The federal Health Resources and Services Administration (HRSA) runs the 340B program. In 2011, a Government Accountability Office report called HRSA’s oversight of the program “inadequate” because it primarily relied on self-policing by the participating entities and drug makers. An HRSA spokesman said the agency has taken steps to address those concerns, including auditing some program participants.

In May, the U.S. District Court for the District of Columbia struck down an HRSA regulation governing sales of orphan drugs, which treat rare medical conditions, under the 340B program and said the agency did not have the authority to issue the regulation. The court ruling has “thrown into question HRSA’s ability to issue broad regulations” about the program, said Ellyn L. Sternfield, an attorney with the firm Mintz Levin.

Despite the ruling, HRSA officials said in a Web post last week they are moving forward. They have not yet said whether they will appeal the court’s decision.

The HRSA-proposed regulation has been expected to touch on key areas, including:

●Eligible patients: Patients who have a “relationship” with a 340B hospital or clinic are eligible for the discounted 340B drugs. But what constitutes such a relationship isn’t clearly defined. “There’s always been a discussion about who truly is a patient of a covered entity and who truly can receive a 340B drug,” said David Ivill, a 340B expert with the law firm McDermott Will & Emery.

●Eligible facilities: Currently, if a clinic is included in an eligible hospital’s Medicare cost report, it can qualify for 340B drug pricing. Analysts expect a new regulation would clarify which facilities qualify. While one part of a qualifying 340B hospital might serve large numbers of poorer patients, an affiliated clinic could see mostly insured patients. Under current rules both qualify to receive the discounted drugs.

●Contract pharmacies: Some providers in the 340B program can contract with outside pharmacies, such as Walgreens, to give patients the flexibility of filling their prescriptions. A report released in February by the inspector general of the Department of Health and Human Services found inconsistencies in how some contract pharmacies determine patient eligibility and in how they conduct the oversight activities that HRSA recommends.In a statement, an HRSA spokesman said the agency has followed up individually with pharmacies identified in the report “to determine necessary next steps.”

Kaiser Health News is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

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