Shift to Hospital-Based Oncology Inadvertently Spurred by the 340B Drug Pricing Program

Community oncology clinics are disappearing at a rate of about 20% a year, according to a report released in mid-2013 by the Community Oncology Alliance.1 In their stead, the number and size of hospital systems are increasing.

The deleterious results include reduced access to oncology services in rural or remote regions of the country, and runaway costs on the part of payers. The original vision of the federal government in the 1970s to bring high-quality care to cancer patients in every corner of the country is being rapidly wiped away from memory.

A significant part of this problem can be traced to the 340B Drug Pricing Program, which was created in 1992 to solve the problem of high drug costs resulting from the Medicaid Drug Rebate Program that was created in 1990. The intent of 340B was to ensure that patients who were uninsured or indigent could receive adequate medical treatment by discounting the cost of drugs in facilities that serve high numbers of these types of patients.

But an Avalere Health report published in early 2013 documented that there are gaping holes in the program.2 As a result, and already as far back as 2006, fully 34% of 340B-enrolled hospitals had a lower percentage of uncompensated care as a percentage of total revenues than the Internal Revenue Service–reported average for hospitals, which was 7%.2 And yet, as of a year ago, about a third of all hospitals in the United States were in the 340B program; collectively, they represented 46% of outpatient medication spending at all hospital facilities in the United States.2

Whether the 340B program—which is run by the Office of Pharma-cy Affairs under the Health Resourc-es and Services Administration (HRSA) umbrella—is failing to meet its original mandate because of the government’s lack of willingness or lack of resources is not easy to determine. What is easy for some to determine, though, is who the winners and losers are.

“Who loses are the patients. And who wins are the large hospital systems that are enticing private practices to merge into their big systems, because every time they acquire a physician that means another $2.5 million to $4 million per year of cancer drugs,” Ted Okon, BSc, MBA, Executive Director of the Community Oncology Alliance, told Oncology Practice Management. “When you apply a large discount on that [large dollar value of cancer drugs] because of the 340B program, that’s a lot of money that immediately falls to the bottom line. 340B is a much-needed, important program, but a lack of oversight and greed are causing significant abuse.”

The Scope of the Problem
In a June 2013 report, the Community Oncology Alliance found that in the previous 15 months there had been a 20% increase in the number of clinics that had closed, and a concomitant 20% increase in practices with a hospital agreement or that had been purchased by a hospital.1

Hospitals are very actively en­gaged in acquiring oncologists and oncologist clinics—and at the same time rushing to enroll in 340B. Community practitioners are barred from enrolling in 340B. The number of hospitals and clinics enrolled in 340B—known in government-speak as “340B entities” or “covered entities”—doubled between 1998 and 2011, from 8035 to 16,572.3 The Avalere Health report—paid for by the Community Oncology Alliance, the Biotechnology Industry Orga­nization, the Pharmaceutical Research and Manufacturers of America, the National Community Pharmacists Association, the Pharmaceutical Care Management Association, and the National Patient Advocate Foundation—documents that a total of 1673 facilities accounted for the latter figure.

The pace was particularly pronounced in 2010 and 2011. This was due, in large part, to the Affordable Care Act’s expansion of the 340B Drug Pricing Program to cover the outpatient facilities of freestanding cancer hospitals, rural referral centers, sole community hospitals, and critical-access hospitals. Indeed, 639 such facilities jumped on the 340B bandwagon in the first year after the criteria were expanded.2 The bulk of these, 554, were critical-access hospitals. Another 60 were sole community hospitals, 23 were rural referral centers, and 2 were freestanding cancer hospitals.

These numbers are projected to grow, with the number of facilities signed on to 340B far outpacing the number of uninsured Americans. The Congressional Budget Office has estimated that the number of uninsured Americans is projected to drop by 45% between early 2013 and early 2019, while the increase in facilities benefiting from 340B will likely keep galloping upward.2 Facilities that benefit also self-police, with the onus being on them to notify the government if they become ineligible for 340B.

Concomitantly, the fraction of chemotherapy administered in the community setting has fallen from 87% in 2005 to 67% at the end of 2011, according to a 2013 report by The Moran Company (written communication, May 29, 2013).

“What’s widely acknowledged around Washington, DC, is that the current administration believes they can control costs more by favoring fewer large, integrated health systems as opposed to a medical delivery system dominated by individual physicians and physician groups,” Mr Okon observed. “But then everybody loses—especially patients with cancer who are faced with higher costs—except for the large hospital systems.”

GAO and Avalere Health Reviews of 340B
As a result of the dizzying drive upward in the number of 340B entities, the Government Accountability Office (GAO) reviewed the program. Its findings were published in September 2011.3 Among those findings, 13 of the 29 covered entities that the GAO interviewed had generated revenue from the 340B program that actually exceeded their drug-related costs.3 It also found that HRSA’s oversight was not enough to provide “reasonable assurance” that the covered entities and drug manufacturers were in compliance with the 340B program requirements, including the requirement that drugs purchased at 340B prices would be transferred only to eligible patients.3
The GAO also found that use of the 340B program is on the rise in hospitals, where the risk of improper purchase and use of such drugs is higher, attributable in part to the fact that hospitals treat all patients, regardless of whether they are or are not eligible for 340B drugs.3 HRSA was found to engage in few activities that helped to oversee the 340B program.3 Therefore, the GAO recommended that HRSA take steps to strengthen its oversight of program participation as well as compliance with program requirements.3

This was echoed and expanded in the Avalere Health report.2 Since the GAO report was published, HRSA has begun taking steps to improve its oversight of the program (eg, officials overseeing the 340B program are now auditing the enrollees and issuing clarifications of definitions of such things as the eligibility of accountable care organizations) there is still a plethora of obvious problem areas. The Avalere Health report states that these problems include the fact that all outpatients of 340B facilities, both insured and uninsured, are allowed to be treated with medications bought via the 340B program. Another problem is the resultant market distortion, with physician practices being swallowed by 340B entities—a phenomenon that is “prevalent in the fields of oncology and cardiology.”2

Indeed, the market is so distorted that an entire industry has grown up around providing information on enrolling in and benefiting from the 340B program. For example, a document produced in May 2011 by the National Association of Community Health Centers “is designed to help health centers take advantage of this program,” noting that “use of the 340B program can lead to significant cost savings and revenue generation for health centers.”4 It helpfully points out that “health centers may use the savings in a variety of ways, such as providing medications at a reduced cost or at no cost to some patients, expanding their formulary, reaching additional low-income patients, or offering new services.”4

The marketplace is indeed mature: this past July, the 20th Annual 340B Coalition Annual Conference took place in Washington, DC, availing attendees with information on how to benefit from the program. At 1 of the conferences a presenter recommended, among other ways to profit from the 340B program, that facilities change chemotherapy protocols to make the most of the difference between the cost and the reimbursement for the medications.

Reports Confirm Significantly Higher Costs of Hospital-Based Cancer Care
The differences in cost are highlighted by 2 reports produced in August 2013. Although the reports are not on the topic of the effects of 340B, they do confirm the patterns of an upward push in pricing of hospital-based oncology care. One of the reports was prepared by Milliman, Inc.5 It was commissioned by Genentech.

“Genentech supports patient access to care in all settings. Our primary concern is ensuring that patients who may benefit from our medicines are able to access them, regardless of where they are being treated. We believe that patients currently treated in community clinics should continue to have access to community-based care,” Charlotte Arnold, spokesperson for Genentech, South San Francisco, CA told Oncology Practice Management.

The Milliman report’s authors compared the costs of chemotherapy in a hospital outpatient setting and in a physician office for commercially insured patients. They used data from Truven Health Analytics from 2009 to 2011 for non–small-cell lung cancer (NSCLC), colorectal cancer (CRC), and breast cancer. Their analysis revealed:

  • The portion of chemotherapy that is delivered in the hospital outpatient setting increased between 2009 and 2010 for all 3 types of cancer, rising most sharply in the case of NSCLC, from 18.9% to 23.9%, and also very rapidly in breast cancer, from 18.7% to 20.9%5
  • Cost-per-episode for chemotherapy infusions was significantly higher in the hospital outpatient setting than in the physician office setting; the biggest difference was in metastatic NSCLC, at $122,909 versus $82,849 (48.4% higher for the hospital outpatient setting), and the smallest difference was in adjuvant CRC, at $101,060 versus $79,058 (27.8% higher for the hospital outpatient setting)5
  • The cost across all sessions in an episode ranged from 39% to 100% higher for the hospital outpatient setting; again, patients with metastatic NSCLC patients incurred the biggest cost difference, at $76,814 versus $38,535 (100% higher), while patients with adjuvant CRC had the smallest difference, at $73,029 versus $52,441 (39.3% higher)5
  • The largest contributors to these cost differences were “other” costs on the chemotherapy session day and cytotoxic chemotherapy and biologic drug costs, followed by radiation oncology, imaging, and laboratory services5
  • The unit cost for chemotherapy drugs was always significantly higher in the hospital outpatient setting. For patients with metastatic breast cancer, a carboplatin injection averaged $925 in the hospital outpatient setting and $361 in the community setting (256% higher in the hospital outpatient setting). For patients with metastatic CRC, the cetuximab injection was $7363 in the hospital outpatient setting and $3338 in the physician office setting (221% higher in the hospital outpatient setting)5

The other analysis was by employees of The Moran Company, which was paid for by the Community Oncology Alliance and comprised Medicare data from 2009 to 2011.6 They also found that chemotherapy costs are higher when administered in hospital outpatient departments than in community clinics, with an approximately 50% differential on an annual basis. In addition, the authors documented that patients are given more chemotherapy sessions in hospitals, averaging 9% to 12% more chemotherapy days per beneficiary.

Ms Arnold said that Genentech has recommended a policy proposal that would have Medicare, like approximately half of state Medicaid programs, pay hospitals for the average acquisition cost (AAC) of drugs purchased at the 340B price. Currently, Medicare pays the average sales price plus a percentage, which is higher than the AAC.

“If Medicare reimbursed 340B- participating hospitals and clinics by using AAC, a calculation that Medicare can obtain under the current system, the government can save much-needed dollars and hopefully help extend the solvency of the Medicare program,” Ms Arnold said. “Under our proposal, Genentech would still pay the same level of 340B discounts that we currently pay. We believe the government could save more than $10 billion over the next 10 years without adjusting payments to the government grantees and public hospitals that serve our nation’s truly indigent population, and without causing currently covered entities to drop out.”

Addressing the Difficulties
The American Society of Clinical Oncology Board has commissioned a task force to examine the 340B program and to develop a position on the current state of affairs. The American Cancer Society neither has an official position nor is developing one.

Mr Okon believes the situation deserves far more attention.

“We have a real cancer-care crisis in this country that few people understand. And it’s getting worse by the day.”

1. Community Oncology Practice Impact Report. The changing landscape of cancer care. June 25, 2013. munity_Oncology_Practice_Impact_Report_6-25-13F.pdf. Accessed December 3, 2013.
2. Avalere Health. The 340B drug discount program: a review and analysis of the 340B program. 2013. Accessed December 3, 2013.
3. United States Government Accountability Office Report to Congressional Committees. Drug pricing: manufacturer discounts in the 340B program offer benefits, but federal oversight needs improvement. Accessed December 3, 2013.
4. National Association of Community Health Centers. Understanding the 340B program: A primer for health centers. May 2011. Accessed December 3, 2013.
5. Fitch K, Iwasaki K, Pyenson B. Comparing episode of cancer care costs in different settings: An actuarial analysis of patients receiving chemotherapy. August 2013. Files/insight/2013/chemotherapy-site-of-service.pdf. Accessed December 3, 2013.
6. The Moran Company. Cost differences in cancer care across settings. August 2013. https://media.gractions.comE5820F8C11F80915AE699A1BD4FA0948B6 285786/adebd67d-dcb6-46e0-afc3-7f410de24657.pdf. Accessed December 3, 2013.

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