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Drug discount program for hospitals needs more scrutiny, US Senate panel told

Officials from two federal government watchdog agencies urged a Senate committee to increase oversight of the controversial 340B drug discount program for hospitals.

Both the Democratic and Republican leaders of the Senate Health, Education, Pensions and Labor, or HELP, Committee also called for more scrutiny at the May 15 hearing.

But while criticism over the 1992 program has focused on hospitals not always passing on discounts to patients through lower drug prices, officials from the Department of Health and Human Services' inspector general's office and the Government Accountability Office, or GAO, said drug manufacturers should also face greater scrutiny over their actions in the program.

Drug companies at times have sold hospitals drugs at higher prices than allowed under the program, with overcharges totaling $3.9 million during just one month in 2005, said Ann Maxwell, HHS' assistant inspector general for evaluation and inspections.

Under the program, drug companies who want to sell pharmaceuticals through the government's Medicaid insurance program are required to give discounts to hospitals that serve disproportionate numbers of the poor or uninsured.

However, the program has come under scrutiny as it has grown rapidly from 583 facilities in 2005 to 12,722 in 2017. A number of government audits including a 2011 Government Accountability Office report have questioned whether the hospitals are passing on the savings to patients in the form of lower drug prices.

Republicans like Louisiana Sen. Bill Cassidy, a member of the HELP committee, said the program has also created unintended consequences.

If hospitals can charge patients the full price of drugs and pocket the discounts, that increases the incentive to prescribe the most expensive drugs, he said at the hearing. That, in turn, helps drive up healthcare and drug costs, he said.

Citing such criticisms, the Centers for Medicare and Medicaid Services, or CMS, last July announced a 28.5% reduction in the reimbursements hospitals get for drugs they buy with the discount.

The American Hospital Association and other industry groups are appealing the cuts and argued before a federal court May 4 that the administration went beyond its authority in making the reductions.

Bills seek to curb program

A number of Republican bills in the House and Senate would also limit the number of hospitals qualifying for the discounts and require more disclosure over what the facilities do with the savings.

Part of the problem is that there is no clarity about what the program is supposed to accomplish, said Debra Draper, director of healthcare issues for the GAO, Congress's investigative arm. Critics have said hospitals do not pass on the discounts to patients through cheaper drug prices, but it is unclear if they are supposed to. The law creating the program says only that it is intended to help hospitals serving disproportionate numbers of the poor stretch scarce dollars.

"Until these questions are answered, there will still be questions about the integrity of the 340B program," Draper said.

The fact that the hospitals do not have to disclose how they are using the savings creates a problem, said the committee's chairman, Sen. Lamar Alexander, R-Tenn.

"It very well may be that hospitals and clinics are using the savings to benefit low-income patients as intended. But it is hard to know that until we have more information," Alexander said.

Sen. Patty Murray of Washington, the panel's senior Democrat, expressed openness to requiring hospitals to disclose more about how they use the savings. But she said drug companies should also face more scrutiny.

"We should be confident entities are using their 340B savings appropriately, and pharmaceutical manufacturers are providing 340B discounts fairly," she said.

Murray noted that HHS on May 4 proposed delaying for the third time a January 2017 rule imposing civil penalties for overcharging hospitals for discounted 340B drugs.

'Greater burden'

Talk of increased disclosure requirements raised the concerns of the American Hospital Association, which said in a statement, "the burden of greater compliance" could deter some hospitals from participating in the program.

"As a result, vulnerable communities could be harmed and implementation costs could increase for the federal government," the association said. "The sole beneficiaries would be drug manufacturers, who could drive up already sky-high margins by forcing hospitals to pay higher prices for a portion of their drugs."

But the group said that any additional transparency requirements considered by Congress must be balanced and provide additional oversight of manufacturers as well as hospitals.

The Pharmaceutical Research and Manufacturers of America, or PhRMA, meanwhile, repeated its attacks on the program May 15, citing a May 7 report by Drug Channels, which said hospitals have been providing less charity care while collecting more drug discounts.

"For a program that was created to help safety-net entities provide care to uninsured or vulnerable patients, there doesn't appear to be a lot of evidence that patients are actually benefiting," PhRMA said in a press release.