	Background

		340B Program

The 340B Program, which is administered and overseen by HRSA, within  HHS, is named for the statutory provision authorizing it, which was added   Eligibility for the program is  to the Public Health Service Act in 1992.statutorily defined and is limited to entities that participate in specified  federal programs and hospital types that meet certain eligibility criteria. Under the OPPS, Medicare reimburses all hospitals for separately  payable Part B drugs at rates determined by a statutorily defined formula  regardless of the price the hospital pays for the drug. 340B DSH Hospitals Were Generally Larger and Many Provided More Charity Care and Uncompensated Care Compared with Non-340B Hospitals, with Notable Exceptions

Compared with non-340B hospitals—including both non-340B DSH  hospitals and other non-340B hospitals—340B DSH hospitals in our  analysis tended to be larger in terms of annual total facility revenue,  annual Medicare revenue, and the number of inpatient beds in 2012.The differences between 340B DSH hospitals and non-340B hospitals  were most pronounced among major teaching hospitals, and among the  279 major teaching hospitals, 189 (or nearly 70 percent) were 340B DSH  hospitals (see table 1). However, there were notable numbers of 340B DSH hospitals that  provided low amounts of uncompensated care and charity care. For  example, while we found that 340B DSH hospitals tended to provide a  larger amount of charity and uncompensated care compared with non- 340B hospitals, 12 percent of 340B DSH hospitals in our analysis were  among the hospitals that provided the lowest amounts of charity care. The differences we found did not  appear to be explained by the hospital or patient population  characteristics we examined. Because Medicare pays hospitals at set  rates for Part B drugs regardless of their costs for acquiring them, there is  a financial incentive at hospitals participating in the 340B program to  prescribe more drugs or prescribe more expensive drugs to Medicare  beneficiaries. Per Beneficiary Part B Drug Spending Was Substantially Higher at 340B DSH Hospitals Compared with Non-340B Hospitals

Among the hospitals in our analysis that provided outpatient services and  whose 340B status did not change between 2008 and 2012, on average,  per beneficiary Medicare Part B drug spending was substantially higher at  340B DSH hospitals compared with non-340B hospitals in both 2008 and  2012. For example, in 2012, average per beneficiary spending at 340B  DSH hospitals was $144, compared to $60 and $62 at non-340B DSH  and other non-340B hospitals, respectively. Differences in Per Beneficiary Part B Drug Spending at 340B and Non-340B Hospitals May Reflect Responses to Incentives in the 340B and Medicare Programs

Medicare uses a statutorily defined formula to pay hospitals at set rates  for drugs, regardless of their costs for acquiring them, which CMS cannot  alter based on hospitals’ acquisition costs, and the 340B statute does not  restrict covered entities from using drugs purchased at the 340B  discounted price for Medicare Part B beneficiaries. Unnecessary spending has  negative implications, not just for the Medicare program, but for Medicare  beneficiaries as well, who would be financially liable for larger  copayments as a result of receiving more drugs or more expensive drugs,  and higher Part B premiums that reflect the increases in Medicare  spending for those drugs. Conclusions

Certain providers, including hospitals that serve a disproportionate  number of low-income patients, have access to discounted prices on  outpatient drugs through the 340B Drug Pricing Program. Currently,  approximately 40 percent of all U.S. hospitals participate in the program,  including approximately 1,000 DSH hospitals. While limiting  hospitals’ Medicare Part B reimbursement for 340B discounted drugs or  eliminating the 340B discount for drugs provided by hospitals to Medicare  Part B beneficiaries could diminish the incentive to prescribe more drugs  or more expensive drugs than necessary at 340B hospitals, CMS and  HRSA are unable to take such actions because they do not have the  statutory authority to do so. Matter for Congressional Consideration

To help ensure the financial sustainability of the Medicare program,  protect beneficiaries from unwarranted financial burden, and address  potential concerns about the appropriateness of the health care provided  to Part B beneficiaries, Congress should consider eliminating the  incentive to prescribe more drugs or more expensive drugs than  necessary to treat Medicare Part B beneficiaries at 340B hospitals. For example, they noted that 340B  hospitals are larger, more likely to be teaching hospitals, and more likely  to treat cancer patients or otherwise higher-risk patients.
Why GAO Did This Study

Approximately 40 percent of all U.S. hospitals participate in the 340B Drug Pricing Program, and the majority of 340B discounted drugs are sold to hospitals. Medicare reimburses hospitals for Part B drugs under a statutory formula regardless of the prices hospitals paid for the drugs. Stakeholders have questioned the increase in hospital participation in the 340B program, and the implications for Medicare and its beneficiaries, especially regarding cancer care; and whether certain of the program's hospital eligibility criteria target hospitals appropriately.
GAO was asked to review hospitals' participation in the 340B and Medicare programs. This report (1) compares 340B hospitals with non-340B hospitals in terms of financial and other characteristics and (2) compares spending for Medicare Part B drugs at 340B hospitals, for all drugs and for oncology drugs, with spending at non-340B hospitals. To examine hospital participation using the most recent data available, GAO analyzed 2008 and 2012 data from HRSA and CMS to compare characteristics and Medicare Part B drug spending for 340B hospitals and non-340B hospitals.

What GAO Found

Certain providers, including hospitals that serve a disproportionate number of low-income patients, have access to discounted prices on outpatient drugs through the 340B Drug Pricing Program, which is administered by the Health Resources and Services Administration (HRSA) within the Department of Health & Human Services (HHS). In 2012, these hospitals—referred to as 340B disproportionate share hospitals (DSH) because they are eligible for the program based on their serving a disproportionate share of low-income patients and other specified criteria—were generally larger and more likely to be teaching hospitals compared with non-340B hospitals. They also tended to provide more uncompensated and charity care than non-340B hospitals; however, there were notable numbers of 340B hospitals that provided low amounts of these types of care. For example, 12 percent of 340B DSH hospitals were among the hospitals that reported providing the lowest amounts of charity care across all hospitals in GAO's analysis. Overall financial margins for 340B DSH hospitals tended to be lower compared with non-340B hospitals, which could be attributable, in part, to the tendency for 340B DSH hospitals to provide more uncompensated and charity care.
GAO found that in both 2008 and 2012, per beneficiary Medicare Part B drug spending, including oncology drug spending, was substantially higher at 340B DSH hospitals than at non-340B hospitals. This indicates that, on average, beneficiaries at 340B DSH hospitals were either prescribed more drugs or more expensive drugs than beneficiaries at the other hospitals in GAO's analysis. For example, in 2012, average per beneficiary spending at 340B DSH hospitals was $144, compared to approximately $60 at non-340B hospitals. The differences did not appear to be explained by the hospital characteristics GAO examined or patients' health status. The Centers for Medicare & Medicaid Services (CMS), which administers the Medicare program, uses a statutorily defined formula to pay hospitals for drugs at set rates regardless of hospitals' costs for acquiring the drugs. Therefore, there is a financial incentive at hospitals participating in the 340B program to prescribe more drugs or more expensive drugs to Medicare beneficiaries. Unnecessary spending has negative implications, not just for the Medicare program, but for Medicare beneficiaries as well, who would be financially liable for larger copayments as a result of receiving more drugs or more expensive drugs. In addition, this raises potential concerns about the appropriateness of the health care provided to these beneficiaries. HRSA and CMS have limited ability to counter this incentive because the 340B statute does not restrict covered entities from using drugs purchased at the 340B discounted price for Medicare Part B beneficiaries and the Medicare statute does not limit CMS reimbursement for such drugs.
In commenting on a draft of this report HHS noted some concerns with GAO's conclusions and suggested that further analysis may be needed to examine patient outcomes and differences in health status. GAO believes its methods appropriately support its conclusions as further discussed in the report.

What GAO Recommends

Congress should consider eliminating the incentive to prescribe more drugs or more expensive drugs than necessary to treat Medicare Part B beneficiaries at 340B hospitals.