Contentious report suggests safety net hospitals leveraging discounts to pocket strong gains from cancer drugs

Some safety net hospitals are charging payers a median 3.8 times more than the purchase price for oncology drugs, according to an analysis of hospital price transparency data.

Across a selection of 59 oncology treatment and supportive drugs, the spread between the discounted purchase price and the charged price ranged from a 2.4 times median increase to an 11 times median increase at 340B disproportionate share hospitals, the Community Oncology Alliance (COA) wrote in a report published Tuesday.

The increases in pricing can vary broadly from facility to facility and even within a single hospital, according to the report. Further, 340B hospitals frequently did not list a treatment’s biosimilar and reported charging nearly identical rates to cash-paying patients as they did insurers.

“The availability of transparent hospital prices offers an opportunity to make the debate on 340B hospitals more informed, using actual data on the negotiated prices hospitals charge insurers and patients for the drugs they acquire at discounted prices under the 340B program,” the community oncology advocacy group wrote.

The analysis of the 340B hospitals’ listed prices also outlined limited compliance with the Centers for Medicare & Medicaid Services’ (CMS’) price transparency rule.

In a responding blog post, 340B Health, an advocacy group for these hospitals, contested the report’s methodology and said it gives an “erroneous picture” of 340B discounts and use of the savings, among other critiques.

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340B DSHs' drug pricing 'problematic,' COA says

COA wrote that its review, conducted for the group in April by consultancy firm Moto Bioadvisors, began with a sample of 1,087 acute care 340B disproportionate share hospitals but found that 327 had published pricing data relevant to CMS’ most recent price transparency regulation.

Of these, just 123 published individual negotiated payer price data for the study’s 59 oncology drugs and were included in the analysis. COA also made a note to stress that most did not provide the information as an easy-to-read data set, had inconsistencies in coding or sometimes included mistakes. These roadblocks required the groups to spend “substantial time” standardizing the data, they wrote.

Across the sample of 52,180 data points, COA and Moto calculated the median share increase by comparing the reported payer rates to 340B drug acquisition costs included by CMS in its 2020 Hospital Outpatient Prospective Payment System rulemaking. Here, CMS estimated the average 340B drug acquisition discount to be 34.7% lower than the average sales price (ASP).

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COA argued that markups outlined in the analysis generate profits for the 340B hospitals well exceeding those of a community oncology practice.

It illustrated its case using the numbers for Darzalex, a common multiple myeloma treatment. COA wrote that a practice would purchase the year’s worth of the drug for $116,876 and be reimbursed $123,889 (CMS’ reimbursement rate of ASP plus 6%), generating a gain of $7,013 per year of patient treatment. A 340B hospital could purchase the same drug for a discounted price of $76,320 and then charge the average 3.8 times increase of $290,016, yielding a gain of $213,696.

COA said its data suggest that hospitals are capturing 340B drug discounts and, subsequently, appear to be a contributing factor in systemwide high costs of care.

At the same time, COA acknowledged that 340B hospitals are not required to pass any discounts they obtain downstream and that “one would expect a reasonable markup that allows the hospital to retain some of the profits for other programs, but also serves the (presumably lower income) local community interest” of lower insurance and cash prices.

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Rather, the burden of exerting downward pricing pressure would presumably fall upon payers. However, “it is evident from the current situation that the drug price situation in 340B hospitals is problematic and relying on the current market structure to curb costs has not been effective,” they wrote.

Price transparency requirements stand to increase the visibility of any price increases to a broader range of stakeholders, they wrote, such as employers, regulators and the general public. COA said that it applauds these efforts and recent proposals to improve compliance but is “uncertain” whether transparency alone would be enough to cut down these trends.

“The healthcare system has proven resistant to change across multiple dimensions (electronic records, patient-generic settlements, etc.) and the arguments in favor of 340B institutions are well known,” COA wrote. “It usually requires legislative or regulatory changes modifying the ‘rules of the road’ to get a change to take place. One may be needed here to effectuate change.”

340B hospitals punch back on 'erroneous report'

In its responding blog post, 340B Health said COA’s report was “highly flawed and presents an inaccurate picture of the role 340B plays in America’s healthcare safety net.”

The study’s final sample of 123 disproportionate share hospitals was “inadequate” for drawing conclusions about the 340B sector, 340B Health wrote. It should also have calculated the value of the 340B discount as the difference between what providers would have paid without the program (the group pricing organization price) and the actual acquisition cost.

The group also took issue with the lack of benchmarks for non-340B hospitals and the implication that the gains are not redirected to payment for uncompensated care.

“Policymakers who understand the benefits and intent of the program will recognize the holes in these arguments,” they wrote.

Another statement penned by American Hospital Association Executive Vice President Stacey Hughes similarly highlighted the study's small sample size, the sole focus on commercial prices and 340B hospitals' intended goal of unreimbursed care. She also cited reports pointing to higher industry-wide drug prices and placed the blame on drug companies that "routinely suppress competition" and set prices at will.

"Relentless price increases and higher and higher prices at launch—all set exclusively by drug companies—means that patients and the providers who care for them are struggling to provide access to needed drug therapies," she wrote. "An unaffordable drug is not a lifesaving drug. We call on drug manufacturers to put patients ahead of profits."