In Rural Iowa, 340B Program Funds Critical Services

There’s big money in the federal 340B Drug Pricing Program—$12 billion in total spending during 2015, representing $6 billion* in cost savings for participating hospitals, according to government estimates.

But at a time when high drug costs for consumers and payers are making headlines, Iowa pharmacist Crystal Starlin said not enough people know where the dollars that underpin the 340B program really come from.

“It’s not funded by taxpayers. It’s funded by the profits from the pharmaceutical industry,” said Starlin, pharmacy director for Cass County Health System in Atlantic.

Congress created the 340B program to help hospitals provide services that benefit low-income patients. The services are funded by the differential between the discounted price the hospital pays for its 340B-covered drugs and the amount payers reimburse the hospital for the drugs.

Some critics of the 340B program claim that it allows hospitals to pocket that differential instead of using the funds to help patients. Proponents of the 340B program say the funds are reinvested to support initiatives that directly benefit low-income patients.

Starlin said Cass County Health System uses revenues from the 340B program to provide free medications to qualified low-income, uninsured patients.

The 340B revenues also support a 4-bed behavioral health unit that is home to the only staffed inpatient psychiatric beds in the county. Starlin said the psychiatric unit is almost always full.

Without 340B revenues or another source of funding, she said, “we would have to maybe look at reducing or closing our unit.”

Iowa had 2 state-operated inpatient psychiatric beds per 100,000 population in 2016 and ranked last nationally on that metric, according to the nonprofit Treatment Advocacy Center. The Iowa Department of Human Resources reported a total of 731 staffed public and private psychiatric beds in the state during 2016; those beds were located in 29 hospitals in 20 of the state’s 99 counties.

“We quite frequently have [behavioral health] patients waiting in our emergency department—waiting for placement—because we don’t have room and no one else does either,” Starlin said.

She said the psychiatric unit and other important hospital services nationwide are under financial threat, in part, because drug manufacturers want Congress to curtail the 340B program.

“It’s David and Goliath, the hospitals versus the pharmaceutical industry,” she said.

The Pharmaceutical Research and Manufacturers of America (PhRMA), a drug industry trade group, spent nearly $26 million last year on various lobbying activities, according to the Center for Responsive Politics.

PhRMA in January voiced its support for 2 proposed laws targeting the 340B program: the 340B Protecting Access for the Underserved and Safety-Net Entities Act (H.R. 4710) and the Helping Ensure Low-income Patients have Access to Care and Treatment Act (S. 2312).

If enacted as written, these bills would prevent certain hospitals that don’t already participate in the 340B program from doing so for the next 2 years and forbid some participating hospitals from adding more outpatient sites to the program. The bills also include new requirements for hospitals that participate in the 340B program to report information on uncompensated care, drug reimbursement data, and the expected payer mix for patients at off-campus clinics known as child sites.

ASHP has stated its opposition to both bills as well as the recent decision by the Centers for Medicare and Medicaid Services (CMS) to drastically reduce reimbursement for drugs purchased through the 340B program.

That change, which went into effect in January, cuts the amount CMS reimburses some hospitals for their 340B-covered drug purchases to the average sales price (ASP) minus 22.5%. The previous reimbursement formula was ASP plus 6%.

CMS estimated that the change will cut total reimbursement in the 340B program by $1.65 billion this year. That money will be redistributed elsewhere in the Medicare program to fund nondrug products and services covered under the hospital outpatient prospective payment system.

“One of the most frustrating things about the CMS cut is that it’s highly unlikely it will result in any net positive for patients’ bottom lines,” said Jillanne Schulte Wall, ASHP’s director of federal regulatory affairs. “Rather than lower drug costs, patients will just see their out-of-pocket expenditures on nondrug services increase or be shifted to cover drugs or services that were previously paid for with 340B program savings.”

Starlin said the reimbursement cut doesn’t affect Cass County Health System, a critical access hospital that is exempt from the new CMS policy. Children’s hospitals, certain cancer hospitals, and rural sole community hospitals are likewise exempt and continue to qualify for ASP-plus-6% reimbursement for drugs purchased through the 340B program.

But she is worried that this action from CMS portends negative changes ahead.

“The concern is that they’re starting with that, and they’re just going to work their way down and try to limit the program whatever way they can,” Starlin said.

Rather than wait for that to happen, Starlin is reaching out to legislators to tell them how the 340B program benefits the community.

“If we don’t get out and talk about it and tell our congressmen, then they don’t understand how important it is to us,” Starlin said.

Starlin also teamed with Carrie Galvan, 340B program coordinator for Boone County Hospital (BCH), to pen a letter to the editor of a local newspaper responding to an earlier opinion column critical of the 340B program.

According to the letter, which was published in late December, BCH uses revenues from the 340B program to support the hospital’s labor and delivery unit. The critical access hospital reported 104 births during the 2014–15 fiscal year and 137 births during the next fiscal year.

Galvan said in January that the number of births at BCH is high for a critical access hospital that serves patients in a rural area.

Researchers at the University of Minnesota Rural Health Research Center reported in December that 898 rural counties in the United States—45% of the national total—had no hospitals with obstetric services at any time during the period 2004–14. According to the organization, an additional 179 rural counties lost all access to hospital-based obstetric services during that time.

“That’s a service that’s extremely underfunded,” Galvan said. “It’s not uncommon for women in rural areas to have to drive an hour or more to find somewhere to deliver their babies, which is why we feel strongly about supporting our labor and delivery unit.”

ASHP acknowledged in a January issue brief that the organization expects to see new legislative activity affecting the 340B program this year.

Not all recent congressional activity on the 340B program has focused on scaling it back. For example, a bill (H.R. 4392) was introduced in the House late last year to reverse the ASP-minus-22.5% 340B reimbursement change.

ASHP on December 13 submitted a letter to Congress in support of H.R. 4392. The bill had 186 cosponsors in late February.

[This news story appears in the March 15, 2018, issue of AJHP.]