MedPAC: 340B drug discount program doesn’t incentivize higher spending

The 340B drug discount program does not appear to incentivize hospitals to use more expensive drugs, according a Medicare Payment Advisory Commission (MedPAC) report presented at its January 17 meeting. The report concluded that although participating hospitals spent more on drugs to treat certain types of cancer, these increases in spending could not be attributed to the 340B program.

The MedPAC report investigated several questions to determine whether the program can be linked to higher cancer drug spending and higher out of pocket costs for patients. Prior to 2018, hospitals participating in the 340B program were able to purchase outpatient drugs at a discount but were reimbursed at the average sales price (ASP) plus 6%. The 2018 Outpatient Prospective Payment System final rule cut reimbursement for most 340B drugs to ASP minus 22%.

In its January 17 report, MedPAC noted that empirical evidence about the effect of the 340B program on drug selection is limited. The report pointed out that 340B prices are generally confidential. A 2015 report by the Office of the Inspector General (OIG) found that although  340B hospitals generally earned high margins on cancer drugs, the margins varied. In addition, the margins weren’t tied to the price of the drug—some lower-priced drugs yielded higher margins than higher-priced drugs. The MedPAC report also references a 2015 Government Accountability Office (GAO) report that found that per beneficiary spending for cancer drugs was 44% greater at 340B disproportionate share hospitals (DSH) compared to non-DSH hospitals. However, as MedPAC’s report noted, stakeholders have critiqued these studies for not controlling for differences in the mix of patients.

To address these concerns, MedPAC analyzed the average cancer drug Part B and D spending per month for five types of cancer and included beneficiaries treated by 340B hospitals, non-340B hospitals, and physician offices. The report noted that, in general, 340B hospitals are more likely to be larger teaching hospitals and care for patients who are young, disabled, and receive Part D’s low-income subsidy.

The report found that average drug spending for the treatment of certain cancer types at 340B hospitals is 2%–5% higher than at non-340B hospitals. Compared to spending at physician offices, 340B hospitals spending generally ranges from 1% lower to 7% higher. However, there was no consistent spending pattern at hospitals that recently gained 340B status, which does not suggest that gaining 340B status increased spending.

In general, 340B hospitals appeared to spend more on medications for the treatment of some types of cancer, specifically prostate and lung cancers. However, the report was unable to find evidence that the greater spending was due to incentives created by the 340B program.

The report concluded that the effects on cancer drug spending are likely specific to the type of cancer and can’t be generalized to other types of cancer or conditions. Overall, the higher drug spending in some cases is not likely to have an impact on patients’ out of pocket costs, depending on the patient’s condition and supplemental coverage.