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Hospitals face off against drugmakers as Congress targets charity care program

In proposing changes to a federal drug discount program in his Feb. 12 budget request, President Donald Trump said he wanted to reward hospitals that provide "charity care."

While that might sound benign enough, hospital groups say Trump's proposal could cost nonprofit hospitals some of the billions in discounts they get from drug companies a figure that reached $6 billion in 2016, according to 340B Health, a healthcare trade group named after the federal program.

That, say groups such as 340B Health, could force some facilities to cut back on programs that the discounts fund, such as helping patients pay for chemotherapy.

Head to head

The proposal, which could disqualify some hospitals from receiving a portion of the discounts, also comes as a high-stakes debate is expected to come to a head when the House Energy and Commerce Committee takes up several bills to rein in the program, which may happen as early as March.

With billions on the line, it is also pitting two of the most powerful industries against each other in Congress. Industry lobbying group Pharmaceutical Research & Manufacturers of America, or PhRMA, is pushing to limit the number of hospitals eligible for discounts. The group estimates that discounted drugs have gone from making up 5.2% of pharmaceutical sales in 2013 to a projected 8% in 2019.

But PhRMA, which spent the fourth-most of any group to lobby Congress in 2017, according to the Center for Responsive Politics, is being opposed by the American Hospital Association, the sixth-biggest spender.

"Nearly every Congressional district has a 340B hospital or clinic, and in rural districts, these hospitals can be one of the largest employers,” said Sean Dickson, a Drug Spending Research Initiative officer at The Pew Charitable Trusts, in an email. "Drug manufacturers may have substantial influence on the national scale, but 340B's importance at the local level could be a strong counter force."

Created by Congress in 1992, the 340B program requires pharmaceutical companies that want their medicines to be sold to Medicaid patients to give discounts to the hospitals and clinics.

The program has come under fire as it has grown rapidly in recent years, and as a number of government audits, including a 2011 Government Accountability Office report, questioned whether the hospitals are passing on the savings to patients in the form of lower drug prices

The program has grown rapidly, with 12,722 healthcare sites qualifying for the discounts in 2017, compared to 583 in 2005, according to a Feb. 12 Council of Economic Advisers report critical of the program. The expansion of Medicaid in 33 states under the Affordable Care Act allowed more hospitals to qualify based on the fact that they serve a disproportionate number of low-income patients, according to a Jan. 10 House Energy and Commerce Committee report.

The expansion has increased the discounts given out by drug companies to $6 billion in 2016 from $3.8 billion in 2013, according to a report by the Health Resources and Services Administration, the HHS agency that oversees the program.

However, the Council of Economic Advisers, or CEA, said the program's criteria are so lax that some hospitals that do not serve large numbers of low-income people are getting the discounts.

Outpatients, for instance, are not counted in determining whether a hospital disproportionately serves low-income patients. So a hospital can serve a large number of higher-income outpatients and still qualify for the discounts, said the CEA.

In addition, the House report said the program is a cash cow for hospitals, which are able to charge full prices to insurance companies for drugs they bought at a discount.

Further tightening

Trump's budget proposes that a share of the government's savings, after reducing Medicare payments for 340B drugs in November 2017, go to hospitals that spend 1% of their patient care costs on uncompensated care. The proposal is "rewarding hospitals that provide charity care and reducing payments to hospitals that provide little to no charity care," the budget said.

Meanwhile, hospital lobbyists are expecting Rep. Chris Collins, R-N.Y., to propose further tightening the 340B program so that only hospitals serving a certain number of uninsured patients are eligible for the discounts. A Collins spokeswoman declined to comment.

Richard Sorian, a spokesman for the 340B Health, said tying 340B eligibility to the numbers of uninsured served would hurt some hospitals.

Particularly in states that have expanded Medicaid, hospitals might not see enough uninsured people to continue receiving the discounts even if they serve large numbers of low-income people who get subsidized insurance.

"Focusing on charity care and uninsured numbers alone does not provide a complete picture of the high level of services 340B hospitals provide to low-income patients," he said.

At the same time, Sorian countered concerns that hospitals are not directly passing on the discounts to patients. Congress intended the money to be used for "more comprehensive services," he said. Hospitals, in addition to providing cheaper drugs for some, are using discounts for other social purposes such as low-income HIV/AIDS patients, diabetes treatment and dental clinics, according to Sorian.