The Government Accountability Office Publishes Data Claiming 340B Has Created Too Many Financial Incentives

The United States Government Accountability Office (GAO) published a troublesome recommendation in its recent report to Congress on Medicare Part B Drugs. In the June 2015 report, published on July 6, 2015, the GAO suggested that “Congress should consider eliminating the incentive to prescribe more drugs or more expensive drugs than necessary to treat Medicare Part B beneficiaries at 340B hospitals.”

The recommendation comes as a result of the GAO publishing its finding comparing the prescribing and spending practices of disproportionate share hospitals (DSH). Such hospitals are eligible for the 340B Drug Pricing Program (and thereby have access to discounted prices on outpatient drugs). The Program was created to ensure that pharmacies and other facilities serving a disproportionate share of low-income patients and meeting other specified criteria, enjoy an appropriate level of profitability. Of significance was the GAO’s finding that in both 2008 and 2012, per beneficiary Medicare Part B drug spending was substantially higher at 340B DSH hospitals than at non-340B hospitals. The GAO attributed the increased spending to the fact that beneficiaries at 340B DSH hospitals are either being prescribed more drugs or more expensive drugs than beneficiaries at the other hospitals in the GAO’s analysis.

The GAO noted that financial incentives are created because the Centers for Medicare & Medicaid Services uses a statutorily defined reimbursement formula to pay hospitals for drugs at set rates, regardless of hospitals’ costs for acquiring the drugs. Thus, there is a financial incentive at hospitals participating in the 340B program, with their lower acquisition costs, to prescribe more drugs or more expensive drugs to Medicare beneficiaries.

The GAO explored these concerns, including the impact on patients. According to findings, unnecessary spending reaches beyond the Medicare program to Medicare beneficiaries, who would be financially liable for larger copayments as a result of receiving more drugs or more expensive drugs. In addition, the GAO suggested that financial incentives could cloud the decision making of providers, and the corresponding care given.

The Department of Health & Human Services and 340B Health (formerly Safety Net Hospitals for Pharmaceutical Access) both had the opportunity to comment on the GAO’s reported findings. Both agencies noted concerns with GAO’s conclusions and suggested that further analysis is needed to examine patient outcomes and differences in health status. 340B Health released a statement that “[t]here is insufficient data in the report to justify a conclusion that higher per beneficiary spending on Medicare Part B drugs at 340B disproportionate share (DSH) hospitals ‘may’ be in response to financial incentives created by the 340B program.”

Congress’s request for a report on 340B DHS may indicate a trend towards 340B scrutiny of the implementation of the Program. 340B DHS and other entities availing themselves of the 340B program are urged to contact competent healthcare legal counsel to ensure compliance with all applicable Program requirements and continued updates on the Program’s course. Contact Frier Levitt to speak to an attorney.