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New Study Shows Hospitals’ 340B Profit Margins Increasing; Growing Discounts Putting Upward Pressure on Drug Prices

Washington, DC, Dec. 12, 2017 (GLOBE NEWSWIRE) -- A new study of trends in the 340B Drug Discount Program, released today by the Community Oncology Alliance (COA), finds that the average profit margin on oncology drugs purchased by hospitals through the 340B program has grown to 49 percent in 2015. At the same time, 340B discounts provided by manufacturers have exploded, leading to pricing pressure on cancer drugs.

"The Oncology Drug Marketplace: Trends in Discounting and Site of Care." A new study of trends in the 340B Drug Discount Program, released today by the Community Oncology Alliance (COA), finds that the average profit margin on oncology drugs purchased by hospitals through the 340B program has grown to 49 percent in 2015. At the same time, 340B discounts provided by manufacturers have exploded, leading to pricing pressure on cancer drugs.


Change in Statutory and Discretionary Price Concessions on Oncology Drugs. The value of gross mandatory drug manufacturer discounts has almost tripled – driven largely by the growth of 340B – putting upward pricing pressure on cancer drugs.




The study “The Oncology Drug Marketplace: Trends in Discounting and Site of Care” was conducted by Berkeley Research Group (BRG) researchers Aaron Vandervelde and Eleanor Blalock, and commissioned by COA. It builds on previous research of this federal drug discount program and examines the role of 340B in driving cancer care into the more expensive hospital outpatient setting; the scale of statutory discounts on oncology drugs, particularly in the 340B program; and the role these discounts are having on drug prices.

The BRG study shows that 340B hospitals are playing an increasingly large role in cancer care and that growth of the 340B program is placing upward pricing pressure on cancer drugs. Escalating 340B profits have created substantial financial incentives for participating hospitals to expand oncology services, either through internal expansion or acquisition of independent community oncology practices. The shift of cancer care to the much more expensive hospital setting is costing cancer patients, Medicare, and all taxpayers more, while the explosion of 340B discounts is putting upward pressure on drug prices.

The study had three important findings:

  1. Average profit margin on 340B oncology drugs was almost 50 percent in 2015. The average hospital profit margin on Medicare Part B oncology drugs purchased at 340B prices increased substantially from 40 percent in 2010 to 49 percent in 2015. This creates huge financial incentives for 340B hospitals to expand oncology services and administer a higher volume of cancer drugs purchased at a 340B price. This finding echoes a report from the government’s own watchdog agency, the Government Accountability Office (GAO) in a 2015 investigation of the 340B program.
  2. Large 340B profits give hospitals a clear financial incentive to expand oncology services. 340B hospitals, which now account for 67 percent of all Medicare Part B hospital oncology drug reimbursement versus 38 percent in 2008, have played an outsized role in the shift in the site of care from independent community cancer clinics to outpatient hospital outpatient facilities. For oncology drugs, the BRG researchers estimate that the average 340B discount increased from 54 percent in 2010 to 63 percent in 2015.
  3. The value of gross mandatory drug manufacturer discounts has almost tripled – driven largely by the growth of 340B – putting upward pricing pressure on cancer drugs. Drug manufacturers are required by law to provide statutory discounts and rebates for drugs purchased through various federal programs and agencies, including 340B, Medicaid, and more. The report authors found that the statutory discounts and rebates on oncology drugs were approximately $1 billion and represented 7.4 percent of total gross sales for these drugs in 2010. By 2015, the statutory discounts and rebates on the same set of drugs were over $3 billion and represented 14.4 percent of total gross sales for these drugs. Growth in 340B, purchases of cancer drugs under 340B, and the accompanying expansion of Medicaid has tripled the statutory discounts. As statutory discounts and rebates increase, net sales realized by drug manufacturers decline, which places upward pricing pressure on prices to offset these discounts.

“These study findings show what I and other oncologists across the country see every day: 340B hospitals are putting enormous pressure on community practices to be acquired, resulting in the consolidation of cancer care and leaving patients to pay the price,” said Jeff Vacirca, MD, CEO of NY Cancer Specialists in New York. “340B discounts have become an enormous and vicious profit generator for hospitals, with patients and taxpayers left to shoulder the increasing costs of cancer care. This madness has to stop.”

Since its inception, the 340B program has been the subject of countless research studies, white papers, and analyses looking at its substantial growth and role in the United States’ health care system. Earlier this year, COA released a compendium examining 25 years of data since the 340B program’s beginning in 1992. It focuses on the origins of the 340B program and data on its growth, particularly in hospitals. According to a report by the Medicare Payment Advisory Commission (MedPAC) to Congress, by 2014, there were 2,140 hospitals participating in 340B. Today, approximately 45 percent of all acute care hospitals participate in the 340B program. Although 340B hospital proponents misleadingly talk about the small size of the 340B program, the study documents the reality that over one-third of all Medicare Part B cancer drugs are discounted under 340B.


“340B should be an important safety net for patients in need but it has mutated into a nightmare of increasing costs for seniors, adversely impacting cancer care, and fueling drug prices,” said Ted Okon, executive director of COA. “I applaud the efforts of the Energy & Commerce Committee to shed much-needed light on this broken but critical 340B program and CMS for taking the first step in trying to address abuses. Congress must legislate program transparency and accountability to ensure that 340B savings help patients in need.”

A full copy of the study and methodology are available on the COA website at http://bit.ly/brg340b2017.

Attachments:

A photo accompanying this announcement is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/3ca42f37-bf4a-403e-a614-b4c62277a79e

Attachments:

A photo accompanying this announcement is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/32f76fb0-bdb4-46b0-86e4-f16824a9d8f2

Attachments:

A photo accompanying this announcement is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/685bdc11-a954-4913-9c28-64f20d23774f

Nicolas Ferreyros Community Oncology Alliance 6466854262 nferreyros@coacancer.org

Source:Community Oncology Alliance