The idea that the 340B drug discount program is the cause of rising cancer treatment costs is missing the point. Quality cancer care comes at a price. Now, who is going to pay it?
It’s no secret that changes in the healthcare industry have driven oncology patients from private practices to the nation’s safety net hospitals for their care. According to an Inside Oncology market intelligence report titled “Academic Cancer Centers (NCCC): Trends Impacting Key Account Management,” the ratio of private oncology clinic care versus hospital-delivered oncology care was 80:20 in 2007, compared to an estimated ratio of 50:50 in 2012 and a forecasted shift to 40:60 by 2015.
What’s the cause for this change in oncology care delivery locations? Many private practice oncology clinics simply can’t compete in a market where diminishing reimbursement from both Medicare and private payers has created intense financial pressures for private clinics.
Profitability issues began for private oncology providers back in 2003, when the Medicare Modernization Act introduced the Average Sales Price into the drug reimbursement equation, changing the way private practitioners were reimbursed. Since then, providers have been reimbursed using a formula known as ASP+6%. The 6 percent was intended to cover drug acquisition and clinic administration costs. But many private practitioners found that reimbursement through the new model was inadequate.
Prior to the ASP+6% model, the margins provided by Medicare Part B administered drugs helped private oncology practices stay financially healthy. With these profits, the practices were better equipped to handle the occasional losses associated with uninsured patients and those who failed to make their co-payments. But after ASP+6%, unable to balance out these losses, private providers began to refer their patients to the nation’s safety net hospitals for care. According to a 2012 report by biopharmaceutical consulting firm, Campbell Alliance, titled, “Turning Tides: Trends in Oncology Market Access,” only four percent of patients treated by community oncologists in 2011 were uninsured and another four percent were Medicaid. Of the patients these oncologists referred to outside practices, 15 percent were uninsured and 26 percent were Medicaid.
As the nation’s safety net hospitals began seeing higher volumes of oncology patients, they didn’t have the luxury of walking away or referring the patients elsewhere. They needed to expand their oncology services – an endeavor that called for investments in technology, equipment and staff to meet the growing need, deliver higher levels of care, and continue to improve outcomes. Hospitals stepped up to fill the gap, and in some cases, this meant acquiring existing oncology practices with practitioners who welcomed the opportunity to continue caring for patients in a more financially-stable environment.
Do oncology treatments administered in a hospital cost more than those administered in a private clinic? Medicaid and payors believe so, and they provide greater reimbursement rates in these settings. This makes sense, as the integrated care setting a hospital offers provides more value to the patient and, as a result, carries more associated overhead costs than a private practice clinic. Many hospitals provide comprehensive oncology services including advanced diagnostics, surgical services, radiation therapy, infusion services (including chemotherapy and hormonal therapy), counseling for the patient and their family, home care services and palliative care.
For safety net hospitals participating in the 340B Program, there’s the additional financial burden of serving a higher percentage of Medicaid and low-income, Medicare patients. This commitment to serving disadvantaged populations isn’t just feel-good hype. It’s their mission—and it’s a requirement for participation in the 340B Program. That’s where the 340B drug discounts come in. The 340B Program is helping make oncology care sustainable within our nation’s safety net hospitals without increasing taxes. The drug discounts these hospitals receive don’t raise the cost of care – they help to offset rising care and drug costs, expand services to the community, and ensure the organization’s financial stability. And unlike Medicare reimbursements, which must be paid for and measured in tax dollars, 340B drug discounts are exactly what the name implies: discounted pricing on eligible drug dispensations, with a cost that’s measured in slightly diminished profits for Big Pharma.
It should come as no surprise that AIRx340B, an alliance of pharmacy industry stakeholders, is leveraging a recent IMS Institute for Healthcare Informatics report in an attempt to demonize the 340B program and blame it for rising oncology care costs. They have profits to protect, and they’ve got the 340B Program directly in their sights – even though, according to the US Department of Health and Human Services Health Resources and Services Administration (HRSA), 340B drug purchases account for only two percent of all drug purchases. Yes, that’s right. Two percent of all drug purchases.
It’s time to stop blaming the 340B Program. Hospitals provide a level of integrated oncology care that is not available anywhere else, and it comes at a price. Refusing to pay the price for care delivered in the private practice setting has brought us to where we are today, and we need to heed the lessons learned. If not for the benefits hospitals receive from the 340B Program, hospital oncology departments may have no better chance of survival than private practice clinics.