Tuesday, February 25, 2014

EXCLUSIVE: 340B Is Taking Over the Hospital Market—With a 25% Share

At the recent 340B Coalition winter meeting, Apexus President Chris Hatwig revealed that 2013 purchases made under the 340B drug discount program were $7.5 billion. Hospitals accounted for 87% of this total. (source) After the article was published, Chris told me that the actual total was $7.2 billion.

Is $7.2 billion a big number? Defenders of the 340B status quo, such as the American Hospital Association, argue that this amounts to “only 2%” of U.S. drug purchases.

However, the 2% figure is just misleading propaganda. In reality, 340B is rapidly taking over the hospital market, which accounts for almost 90% of 340B purchases. Our exclusive analysis, detailed below, shows the reality:
  • During the past decade, purchases under the 340B drug discount program have grown by 800%, from $0.8 billion in 2004 to $7.2 billion in 2013.
  • In 2013, hospitals received 340B discounts on at least 25% of their drug purchases, compared with only 3% of 2004 purchases.
These numbers are extremely disturbing, since two-thirds of hospitals do not offer the reduced 340B prices to uninsured patients. (See New OIG Report Confirms Our Worst Fears About 340B Contract Pharmacy Abuses.) Given the money at stake, how can this status quo be considered acceptable? Let’s hope HRSA’s forthcoming proposed rule brings greater accountability to this out-of-control market and refocuses the 340B program on uninsured patients.

HOW BIG?

The chart below shows the startling growth in purchases made under the 340B drug discount program. Having briefly stabilized from 2006 to 2009, 340B purchases grew sharply after passage of the Affordable Care Act. It’s no coincidence that this growth corresponded to the HRSA-blessed explosion in 340B contract pharmacies. (See the first chart in Walgreens Still Dominates Booming 340B Contract Pharmacy Market, with CVS and Rite Aid Right Behind.)

[Click to Enlarge]

HOW MUCH?

At the recent 340B Coalition winter meeting, Apexus’ Hatwig stated that hospitals accounted for 86.6% of all 340B purchases. However, the rapid 340B growth is not due to increased demand for hospital services.

Instead, 340B purchases have been growing much, much more quickly than hospitals’ total drug purchases. From 2004 to 2013, total hospital drug purchases grew by only 15%, compared with the 800% growth in total 340B purchases (shown above).

As a result, 340B is taking over the hospital market. In 2004, hospitals received 340B discounts on about 3% of their drug purchases. By 2013, the 340B share had risen to more than 25% of purchases. (See chart below.) The actual percentage is likely higher, because direct sales are not included in the 340B totals.

[Click to Enlarge]

The website 340BFacts.com recently touted the fact that hospitals provided $45.9 billion in uncompensated care in 2012.  Despite booming 340B purchases, uncompensated care as a percentage for hospitals’ total expenses has hovered at about 6% for many years.

So, where does the money go? No one really knows. There’s still no transparency or accountability for the billions in 340B rebates that hospitals are collecting. Release the hounds!

DETAILS FOR NERDS

Here are the data sources behind the computations above:
Assumptions:
  • The reported 340B figures represent purchases at the 340B contracted price.
  • The IMS data include all GPO discounts. The IMS Health data reflect purchases by hospitals at invoice pricing. Contract pricing, such as a hospital’s GPO discount processed via a wholesaler chargeback transaction, may or may not be reflected on the invoice. (“It depends,” IMS told me.) This is a conservative assumption, because otherwise hospital purchases would be lower and the 340B share would be higher.
  • Hospitals purchase drugs at about 80% of WAC, when adjusted for contract pricing. The Government Accounting Office has estimated the 340B ceiling price to be 61% of Wholesale Acquisition Cost (WAC). Thus, I grossed up 340B purchases by 1.31 (=0.80/0.61). This is also a conservative assumption, because many brand-name drugs are priced closer to WAC. If I had assumed smaller average WAC discounts, then the 340B purchases would have been grossed up by a larger amount.
  • Sales via contract pharmacy are included in the 340B purchases. A 340B-eligible hospital’s wholesaler replenishes the pharmacy’s inventory but invoices the hospital, which pays the wholesaler. This process is called a ship-to/bill-to arrangement. See Exhibit 97 (page 163) of the 2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies
  • From 2004 through 2013, hospitals accounted for 86.6% of all 340B purchases.
Note that the 340B data understate total purchases, because they exclude an unknown amount of manufacturer sales made directly to healthcare institutions.

3 comments:

  1. Adam, add to this the "double dipping" that goes on when hospitals submit claims for Medicaid AND buy at 340b pricing. We've done analysis of claims and found the states are not policing "excluded" entity claims thus allowing doubling dipping.

    ReplyDelete
  2. Adam - let's say HRSA comes out with very strict regulations to address this (unlikely, I know).... Who stands to win at the expense of hospitals and contract pharmacies?

    ReplyDelete
  3. Uninsured patients will win, because stricter regulations will force hospitals to share the 340B discounts with the patients. Seem unlikely, but who knows?

    ReplyDelete

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