According to a report released July 6, 2015 by the Government Accountability Office (GAO), hospitals that qualify to participate in the 340B Drug Pricing Program by virtue of their serving a disproportionate share of low-income patients (340B DSH hospitals) had higher rates of per‑beneficiary Medicare Part B drug spending than non‑340B hospitals in 2008 and 2012.

340B DSH hospitals are but one category of covered entity eligible to participate in the 340B Program, which enables covered entities to purchase, at a discounted rate, covered outpatient drugs to be furnished to patients of the entity.  340B DSH hospitals are general acute care hospitals with a Medicare disproportionate share adjustment percentage greater than 11.75 percent that also meet certain other eligibility criteria.

In performing its analysis, GAO compared 340B DSH hospitals to non‑340B DSH hospitals (i.e., those that received DSH payments but did not participate in the 340B Program) and to all other non‑340B hospitals.  Based on 2012 cost report data, GAO compared characteristics such as hospital size, teaching status, ownership type, location, DSH adjustment percentage, provision of charity care and uncompensated care, and various financial characteristics.  GAO also analyzed 2008 and 2012 claims data to examine characteristics of Medicare Part B drug spending.
GAO’s conclusions were as follows:

• Financial Characteristics—According to GAO’s analysis, 340B DSH hospitals were generally larger and had lower total facility margins, but higher (i.e., less negative) total Medicare and inpatient Medicare margins than non‑340B hospitals.  GAO speculated that these higher Medicare margins may be due to the fact that 340B hospitals were more likely to receive Medicare payment adjustments, and in higher amounts, as compared with non‑340B hospitals.  However, GAO noted that 340B hospitals generally had lower outpatient Medicare margins than non‑340B hospitals.
• Charity Care and Uncompensated Care—GAO concluded that many 340B DSH hospitals provided more charity care and uncompensated care than did non‑340B hospitals, but 12 percent of 340B DSH hospitals in GAO’s analysis were among the hospitals that provided the lowest amounts of charity care, and 14 percent were among the hospitals that provided the lowest amounts of uncompensated care across all hospitals in the analysis.
• Per-Beneficiary Part B Drug Spending—GAO concluded that in both 2008 and 2012, per beneficiary spending on Medicare Part B drugs was substantially higher at 340B DSH hospitals than at non-340B hospitals, indicating that, “on average, Medicare beneficiaries were prescribed more drugs, more expensive drugs, or both, at 340B DSH hospitals.”  GAO speculated that the observed drug spending differences “did not appear to be explained by the hospital or patient population characteristics,” and that the higher spending at 340B DSH hospitals may reflect a response to the “financial incentive” at 340B hospitals to “prescribe more drugs or prescribe more expensive drugs to Medicare beneficiaries,” since Medicare reimbursement for Part B drugs does not vary depending on hospitals’ acquisition costs.  The report specifically examines the relative increase in the numbers of oncology patients served at 340B DSH hospitals from 2008 to 2012.

Much of the meat of this report lies in the third bullet point above.  GAO speculated that the drug spending differences at 340B DSH hospitals “were likely not explained by the health status of the outpatients served,” because the “health status of outpatient beneficiaries was generally similar at 340B and non-340B hospitals.”  GAO compares, without analysis, the average risk scores at 340B DSH hospitals to those at non 340B DSH hospitals and other non 340B hospitals, and asserts that the differences between the risk scores is likely insufficient to explain the observed differences in drug spending.  Rather, GAO concludes that 340B DSH hospitals may be responding to the “financial incentive to maximize Medicare revenues through the prescribing of more or more expensive drugs.”  GAO recommends that Congress consider eliminating this incentive in order to “help ensure the financial sustainability of the Medicare program, protect beneficiaries from unwarranted financial burden, and address potential concerns about the appropriateness of the health care provided to Part B beneficiaries.”

HHS expressed concerns that certain of GAO’s conclusions are “not supported by the study methodology.”  Specifically, HHS noted that GAO did not examine differences in patient outcomes or quality, noting the possibility that higher spending on physician-administered drugs could lead to better clinical outcomes.  Without comparing outcomes, HHS argues, GAO’s characterization of Part B drug spending at 340B DSH hospitals as excessive or “potentially inappropriate” is inappropriate.  HHS also questioned GAO’s interpretation of the differences between the average risk scores at the various groups of hospitals in GAO’s analysis, noting that the stated differences “could represent a meaningful difference in health status of beneficiaries,” and that further analysis is warranted.

A copy of the GAO report, which includes HHS’s response, is available by clicking here.  An industry response to the GAO report from 340B Health, formerly Safety Net Hospitals for Pharmaceutical Access (SNHPA), is available here.

Reporter, Susan Banks, Washington, D.C., +1 202 626 2953, sbanks@kslaw.com.