Thursday, August 30, 2018

EXCLUSIVE: The 340B Program Reached $19.3 Billion in 2017—As Hospitals’ Charity Care Has Dropped (rerun)

This week, I’m rerunning some popular posts before the Labor Day weekend. Click here to see the original post and comments from May 2018. Note that the data from this post were provided to me by the Health Resources and Services Administration (HRSA)!

ICYMI, be sure to read yesterday's New York Times article: A Little-Known Windfall for Some Hospitals, Now Facing Big Cuts


The 340B Drug Pricing Program continues to expand at double-digit rates. Our research reveals that these discounted sales hit a record $19.3 billion in 2017.

What’s more, we found that since 2014, purchases under the program have grown at an average rate of 29% per year. By comparison, manufacturers’ net drug sales grew at an average rate of less than 5% over the same period.

Consequently, the 340B program has grown to account for at least 6% of the total U.S. drug market.

Here’s another uncomfortable fact: Nearly all of the billions in 340B discounts have accrued to hospitals. Yet hospitals' charity care has dropped by almost $8 billion amid the 340B program’s astounding growth.

Read on for the latest details and ponder who really benefits from the 340B program's growth.

THE 340BOOM CONTINUES

Last year, I pestered Health Resources and Services Administration (HRSA) for months to learn even the most basic data about the 340B program. For 2018, HRSA was responsive and professional. Thank you! For general background on the program, see Section 10.5 of 2018 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

The chart below shows the ongoing surge in covered entities’ purchases made under the 340B Drug Pricing Program. We include the estimated invoice value of these purchases.

[Click to Enlarge]

Here’s what we found:
  • Discounted purchases made under the program via Apexus, the HRSA-designated Prime Vendor, totaled $19.3 billion in 2017—up by 19.1% from $16.2 billion in 2016.
  • The compound average growth rate (CAGR) was 22.8% from 2012 to 2017. But from 2014 to 2017, the CAGR was an even-higher 28.8%. For comparison, manufacturers’ net revenues grew at a CAGR of only 4.8% during the same period.
  • The program’s growth in 2017 slowed somewhat after three consecutive years of 25%+ growth. Nonetheless, the program’s growth was more than 30 times faster than the 0.6% growth in manufacturers’ net revenues in 2017 (per IQVIA).
Consider the program's size in light of my warning from last September: Why Manufacturers and PBMs Should Worry About the Growth of Hospital-Owned Specialty Pharmacies.

340B WAS AT LEAST 6% OF THE MARKET IN 2017

Many partisan supporters try to minimize 340B’s share of the total U.S. market. In reality, the 340B program is a significant and growing part of the industry. Here are two computation approaches that yield comparable results.

1) 340B as a share of discounted purchases

The discounted HRSA figures above include purchases at or below the deeply discounted 340B ceiling prices. An appropriate comparison must therefore also be discounted purchases.

According to IQVIA’s Medicine Use and Spending in the U.S.: A Review of 2017 and Outlook to 2022, net spending (manufacturers’ net revenues) were $324.4 billion in 2017.

Using net spending, 340B’s share in 2017 was 5.9%, or $19.3 billion ÷ $324.4 billion.

2) 340B as a share of undiscounted purchases

An alternative method compares estimated undiscounted 340B purchases at invoice prices with IQVIA’s invoice-price spending market size. This figure was $452.6 billion in 2017. It represents the amounts paid by their pharmacy or hospital customers, including prompt-payment and volume discounts.

Using invoice-price spending, 340B’s share in 2017 was 6.6%, or $29.7 billion ÷ $452.6 billion.

These are very rough estimates that understate 340B’s actual share of the market. That’s because the data from Apexus includes only indirect sales made via wholesalers. The $19.3 billion figure is therefore less than the actual total 340B purchases at discounted prices, because it excludes an unknown amount of manufacturer sales made directly to healthcare institutions.

For a more careful and thorough estimate, I recommend Measuring the Relative Size of the 340B Program: 2012–2017. This Berkeley Research Group report projected that 340B accounted for 7.8% of the U.S. market.

HOSPITAL CHARITY CARE HAS DROPPED

Most 340B purchases are made by hospitals. The 340B program’s defenders usually argue that hospitals provide charity care that justifies the amazing growth shown above.

As an embarrassing point of comparison, the total value of hospitals' uncompensated care has declined, from $45.9 billion in 2012 to $38.3 billion in 2016 (the most recent year available). The data come from the American Hospital Association (AHA). Uncompensated care as a percentage of hospitals’ total expenses has also declined, from 6.1% in 2012 to 4.3% in 2016.

[Click to Enlarge]

BTW, uncompensated care is at an historic low as a percentage of expenses. As I noted in a January tweet, the AHA has tried to hide this fact by removing the computation from its most recent report.

Does anyone else recall that hospitals have many generous incentives to subsidize charity care? Nonprofit hospitals are exempt from most federal, state, and local taxes. In exchange, they are expected to provide various "community benefits" to maintain this non-profit status. Much of the charity care reported above is tied to these requirements, and not tied to the 340B program.

REFORM TIME

Hospitals frequently hide behind the fact that 340B legislation does not specify or restrict how covered entities should utilize the profits that the program generates. But substantial evidence suggests that 340B savings are not always shared with patients and their insurance providers, including Medicare. See this report from the Energy & Commerce Committee.

I offered my $0.02 about 340B reform in a meeting last year with the former Secretary of Health and Human Services. Multiple pieces of proposed legislation would bring more transparency and accountability to the program. (Click here to read a useful summary.)

Let’s hope that our fractured political climate does not stop changes that would refocus the booming 340B program on genuine safety-net providers and needy patients. Frankly, I'm tired of hearing covered entities tell everyone "It's our money, we can do what we want."

P.S. Today, I am presenting at the The National Leadership Summit on 340B in Washington, DC. You can download my slides here: Market Distortions from the 340B Drug Pricing Program.

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