Drugmakers Cut Back Participation In Federal Drug Discount Program

Heated And Deep-Pocketed Battle Erupts Over 340B Drug Discount Program |  Kaiser Health NewsSource: Stateline.org, by Michael Ollove

Hospitals and community and rural health clinics that serve low-income patients say drug manufacturers have threatened their financial stability by dramatically cutting back their participation in a federal drug discount program that saves those health providers millions of dollars a year.

Without the drug discounts, the hospitals and clinics say, they are getting close to laying off health care workers, reducing hours or scaling back or scrapping mobile health vans, free cancer screenings, behavioral health treatment and a host of other services that help patients with low incomes who lack insurance.

“They are killing health centers,” said Jangus Whitner, who runs the pharmacy program for PrimaryOne Health, a community health center with more than 40,000 patients that operates 11 medical sites as well as five clinics in the Columbus, Ohio area. “It is infuriating; it is egregious.”


Since 2020, more than a dozen drug companies have scaled back or halted their participation in a federal discount program known as 340B. Under the program, drugmakers sell their products more cheaply to safety-net health providers, hospitals and clinics that provide care regardless of patients’ ability to pay. In exchange, the government promises that Medicare and Medicaid will cover their products.

But in the past two years, 17 drug companies, including Bristol Myers Squibb, Gilead, Johnson & Johnson, Merck and Pfizer, have scaled back their participation in 340B. The drugmakers’ lobbying association, PhRMA, argues that the discounts have been used too broadly and for patients who could afford the drugs’ higher retail prices.

The drugmakers also don’t like providers allowing patients to get their prescriptions at “contract pharmacies,” drugstores that have arranged with 340B providers to fill prescriptions for their patients at the discounted prices.

The 340B discount for outpatient drugs is generally between 20% and 50%, according to a University of Southern California Schaeffer Center for Health Policy and Economics report, and in 2020 resulted in $38 billion in drug sales.

That year, about 12,700 safety-net providers were in the program, according to the U.S. Government Accountability Office.

“The 340B is critically important because it provides resources that allow us to achieve our mission to expand access specifically to a medically underserved population,” said Sue Veer, president of Carolina Health Centers, a community health center that operates a dozen medical clinics across western South Carolina.


But PhRMA, the lobbying arm of the drug manufacturing industry, expresses skepticism that the program benefits low-income patients, and asserts that many 340B hospitals and clinics are claiming discounts for patients who do not meet eligibility requirements.

“There is very little to no evidence that 340B is helping patients access medicines, and that’s a big concern to the industry, because the amount of discounts we provide amount to tens of billions of dollars every year,” said Nicole Longo, a PhRMA spokesperson. “If those dollars aren’t being used to help patients, where are they going? The 340B program is a black box. There’s not transparency, and that’s a big source of concern for the industry.”

A 2020 report by the U.S. Government Accountability Office noted that the Health Resources and Services Administration, which oversees the discount program, conducted 1,241 audits between fiscal years 2012 and 2019 and found a total of 1,536 violations of the rules, including 900 cases in which there was more than one violation.


The pharmaceutical industry cites that report and a 2018 New England Journal of Medicine study that concluded that 340B savings “for hospitals have not been associated with clear evidence of expanded care or lower mortality among low-income patients.”


Arguing the details

One of the drug companies that has scaled back its participation in the program, Gilead, which makes drugs to treat hepatitis C, said in an email to Stateline that safety-net providers are abusing the program. The company wants data showing more detail about the discount claims, it said.

“We are simply requesting that 340B covered entities provide claims level data for units of Gilead’s (hepatitis C) products dispensed from contract pharmacies in an effort to increase transparency in, and protect the integrity of, the 340B program,” Gilead wrote in its email message. “Covered entities that elect to provide claims level data may continue using the contract pharmacy networks of their choice.”

The drug manufacturers that began limiting or refusing 340B discounts in 2020 argued that the original statute didn’t envision use of contract pharmacies. But safety-net providers say eliminating those drugstores, many of which are geographically closer to their patients, essentially deprives them of savings and their patients of 340B discounts. Only small minority of safety-net providers operate in-house pharmacies.

Safety-net providers also assert that violations of the rules represent a tiny fraction of the thousands of prescriptions filled under the 340B program. They point out the program is overseen by the U.S. Department of Health and Human Services and insist that they plow all the savings back into the mission of caring for low-income patients. The New England journal’s study, they say is flawed.

Veer said that in her South Carolina health centers, 340B savings help pay for low- or no-cost drugs for uninsured patients, dental health, behavioral health and substance abuse treatment.

HHS has sided with the safety-net providers.


Not all the drug manufacturers fully withdrew from 340B, according to 340B Health, a membership organization representing 1,400 nonprofit hospitals and health systems that participate in the program. Some drugmakers cut off hospitals but not community health centers, while others did the reverse or both.

Sometimes, officials at affected hospitals or health centers said, a drug manufacturer has required them to submit detailed and private claims data to keep the discounts flowing.

Many of the safety-net providers said providing the claims data is not only administratively burdensome, but also risks violating patient confidentiality. They say they are mystified as to why the drugmakers want the data or how they will use it.

“We’re asking these Fortune 500 companies to follow that law and not target these safety-net hospitals and their patients,” said Nate Awrich, vice president of pharmacy operations for the University of Vermont Health Network, which encompasses six hospitals in Vermont and northern New York and contracts with150 outside pharmacies.

The manufacturers’ actions have cost the hospital network $100 million a year, which may necessitate cuts in services, he said. The 340B savings, Awrich said, enable the system to remain in the black, for now. “The future in which this is sustainable is short.”

Two states, Arkansas in 2021 and Michigan this year, have passed laws to stop the manufacturers from withholding 340B discounts for prescriptions filled at contract pharmacies.

Severe effects

The effects of the drugmakers’ actions have been severe, say providers. 340B Health surveyed more than 500 hospital member organizations between November and March, a period in which the number of drug companies with 340B restrictions grew from eight to 14.

Hospitals reported median annual losses of $2.2 million in discounts, with a tenth of those hospitals expecting losses of $21 million or more.

Rural hospitals surveyed expected annual losses of $448,000, with a tenth projecting losses of $1.3 million or higher. That comes amid a financial crisis that has seen at least 130 rural hospital closures in the past decade.

Since the survey, three more drug companies began similar program cuts.

In a series of federal lawsuits, manufacturers have claimed that the 340B statute does not require them to provide the discounts when the safety-net providers use contract pharmacies.

The National Association of Community Health Centers also surveyed its membership.

A third of the centers reported that without access to 340B discounts, more than half of their patients would go without needed medications, including insulin for diabetes patients and inhalers for children with asthma.

The most likely cuts, the centers said, would be for outreach programs for low-income and rural patients, such as mobile medical units, those that provide care coordination and help patients manage their medications, and those that provide low-cost or free medications. They also expected they’d have to cut community health and social workers.

Under both the Trump and Biden administrations, HHS has issued letters saying the drugmakers are in violation of their agreements with the federal government. The Department of Health and Human Services has referred some drugmakers to its inspector general to pursue financial penalties, though it has not threatened to remove those manufacturers from the Medicaid and Medicare formularies.

Meanwhile, some of the manufacturers have gone to federal court to forestall federal penalties. Attorneys general from half the states, both red and blue, have signed an amicus brief siding with the federal government. Lower courts have issued conflicting rulings, and the cases now are on appeal.

Safety-net providers are not conflicted about how they regard the actions of the manufacturers.

“These are billion-dollar companies,” said Dr. Kemi Alli, CEO of the Henry J. Austin Health Center in Trenton, New Jersey. “The percent they are taking from us is so small to their bottom line, but it is so significant to us.

“It just seems inconceivable why they even put the effort into this to take away from the most vulnerable in our society. It doesn’t make any moral sense.”

Record Fines Might Mean California Is Finally Serious About Improving Medi-Cal

Record Fines Might Mean California Is Finally Serious About Improving Medi- Cal | California HealthlineSource: Kaiser Health News, by Bernard J. Wolfson

Is California getting tougher on health plans that participate in Medi-Cal, the state’s insurance program for low-income residents?

A few weeks ago, state regulators imposed record $55 million in fines on L.A. Care, California’s largest Medi-Cal managed-care plan, for failing to ensure adequate care and allowing treatment delays that threatened enrollees’ health. Patient advocates hope the move signals stricter enforcement against other Medi-Cal insurers, which have many of the same shortcomings for which the regulators just fined L.A. Care.

Twenty-five managed-care plans across the state provide care for nearly 12 million of the more than 14 million Californians enrolled in Medi-Cal, and the state is often accused of failing to hold the plans accountable for subpar care. Medi-Cal members are among the state’s most vulnerable people: They can face language and cultural barriers and have disproportionately high rates of chronic illness.

The state Department of Health Care Services, which runs Medi-Cal, is drafting a new managed-care contract, scheduled to take effect in 2024, that officials say will improve care by holding participating health plans to higher standards. The state hopes to reduce health disparities and improve health outcomes by tightening surveillance and enforcement.

“They are trying to do more, and that’s really positive,” says Abbi Coursolle, senior attorney at the National Health Law Program in Los Angeles. “Obviously, they have a lot more to do.”

DHCS and the state Department of Managed Health Care, which also regulates Medi-Cal managed-care plans, launched coordinated investigations of L.A. Care, based in part on a 2020 Los Angeles Times report that highlighted long, sometimes deadly, delays in care at facilities run by the Los Angeles County Department of Health Services. That agency operates the county’s public safety-net system and contracts with L.A. Care to provide care for hundreds of thousands of the health plan’s members. In their investigations, state regulators also relied on information that L.A. Care reported to them.

That they relied on these sources, Coursolle says, raises questions about the effectiveness of their own surveillance and auditing.

On March 4, the Department of Managed Health Care hit L.A. Care with a $35 million penalty — more than triple its highest previous fine. The Department of Health Care Services levied $20 million, nearly eight times its earlier record.

The state cited L.A. Care for more than 100,000 violations, including late responses to patient complaints and appeals, delayed or denied authorizations for necessary medical care, and failure to ensure the county health services agency complied with patient care regulations. The California Department of Public Health, which regulates hospitals and other health care institutions, didn’t respond to a question about whether it’s investigating any of the county’s medical facilities.

In announcing the fines, state agency directors said: “The magnitude of L.A. Care’s violations, which has resulted in harm to its members, requires immediate action.” The health plan has 2.4 million Medi-Cal enrollees.

“The recent enforcement action against L.A. Care signals that DHCS intends to exercise our authorities to protect our Medi-Cal enrollees,” department spokesperson Anthony Cava told me in an email.

L.A. Care’s CEO, John Baackes, says the plan is not contesting the findings. “What we are contesting is the amount of the fines, which we believe are unreasonable,” Baackes said. The dispute could take months, or even years, to settle.

In a statement released after the fines were announced, L.A. Care noted Medi-Cal’s notoriously low payments to providers and said the penalties create “yet another financial hurdle for a public health plan that is a crucial part of the health care safety net.”

Although L.A. Care has generated millions of dollars in profits in recent years, it reported a loss of $132 million in fiscal year 2020. But the plan can weather the fines. At the end of last year, its tangible net equity — a key measure of solvency — was seven times as high as the minimum required by law.

The violations described by regulators are painfully familiar to Theresa Grant, a Culver City resident I wrote about late last year who has struggled to find relief from a debilitating pain in her rib cage. The violations are “horrific,” she says, “and I think it’s very true.”

But she believes the specialist physicians who have been unable or unwilling to help her deserve a big share of the blame. “You know how long I’ve been dealing with my problem,” she told me. “It’s been over a year now, and not a damn thing is being done.”

Despite the significant penalties levied on L.A. Care, consumer advocates and some state lawmakers think California needs the authority to levy even larger ones.

A bill sponsored by the consumer advocacy group Health Access would increase many of the fines that state health plan regulators can impose at least tenfold. Supporters say the legislation, SB 858, is needed because the amount the department can legally levy on health plans hasn’t been raised in some cases since 1975.

“We want to make sure that insurance companies do not view these fines as just the cost of doing business,” says the bill’s author, state Sen. Scott Wiener (D-San Francisco). “By raising them, they become less a cost of business and more an actual incentive to follow the law.”

The fines imposed on L.A. Care are outliers because of their size, which was determined in part by the sheer number of violations. “For every fine like that, there are many that are dramatically lower,” Wiener says. “I wouldn’t want to rely on one case and say, ‘Oh, no problem, because they got a big fine.’”

Another important factor in holding health plans’ feet to the fire, Wiener says, is consumer complaints, which can help bring problems to the attention of regulators — and to the plans themselves.

But a report last year by KFF showed that consumer appeals of denied care are exceedingly rare.

If you have a problem with your health plan or want to appeal a delay or denial of coverage, a good place to start is the Department of Managed Health Care (888-466-2219 or HealthHelp.ca.gov).

The state also has an ombudsman for Medi-Cal managed care (888-452-8609 or MMCDOmbudsmanOffice@dhcs.ca.gov).

You can also try the Health Consumer Alliance (888-804-3536 or www.healthconsumer.org), which assists people in public and private health plans. It offers free advice, provides legal services, and can help you get your documents in order for an appeal.

Regulators and health plans alike frequently say they are working on behalf of the patient. So if you’re not getting the care you need, stand up and be part of the solution.

Millions Would Drop Coverage If Subsidies Were Eliminated

Eliminating government subsidies for low- and moderate-income people through federally run health insurance marketplaces would reduce enrollment in the individual market by more than 9.6 million, according to a new RAND study. If the Republican controlled Congress strikes down the subsidies, enrollment in the ACA-compliant individual market would drop to 4.1 million in 34 states. Individual market enrollment would drop 70% among people buying policies that comply with the Affordable Care Act.Christine Eibner, the study’s senior author and a senior economist at RAND said, “The disruption would cause significant instability and threaten the viability of the individual health insurance market in the states involved. Our analysis confirms just how much the subsidies are an essential component to the functioning of the ACA-compliant individual market.”

Premium costs for a 40-year-old nonsmoker purchasing a silver plan would rise from $3,450 annually to $5,060.  In addition, unsubsidized individual market premiums would rise 47% in those states. The hike would correspond to a $1,610 annual increase for a 40-year-old nonsmoker with a silver-level plan.

The Supreme Court has agreed to hear a court case (King v. Burwell) that challenges the use of government subsidies to help low- and moderate-income people buy health insurance in marketplaces operated by the federal government. Ending federal subsidies would have a bigger effect in states with federally run marketplaces than in states that run their own marketplaces. States with federally run marketplaces generally have more low-income participants who are more likely to drop insurance without subsidies. Those states also had higher uninsurance rates prior to adoption of the Affordable Care Act

Last Updated 08/10/2022

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