There are many reasons why medical care costs continue to spiral out of control. Some of these are systemic like an aging population, rapidly advancing technologies, and the economic reality that people expect and demand the best care “that money can buy”.
But there are other reasons.
Among them, a regulatory environment that limits access to the market for new drugs based on rigid FDA standards and the high cost of clinical trials required to meet these standards. But there are still other remediable factors that must be examined if we are to curtail the current avalanche of medical expenditures.
One of the most obvious programs is known as 340B.
This federal program created in 1992 was designed to allow hospitals that provide charitable care to receive a discount in the cost of medications.
Recognizing that charitable hospitals expended enormous amounts of money on drugs, the federal government forced pharmaceutical manufacturers to provide deep discounts to participating hospitals.
Under the program, hospitals purchased the drugs at a steep discount and then provided the care to medically indigent patients, protecting the hospitals from out of pocket expenses.
In 2001 eligible hospitals numbered 8600. However, as hospitals that provided any amount of charitable care pushed the envelope, by 2011, that number had risen to over 16,000 medical centers.
Today, fully 1/3 of all US hospitals take advantage of 340B discounts.
Eligibility for 340B falls under six categories: i) disproportionate share hospitals, ii) children's hospitals, iii) cancer hospitals, iv) sole community hospitals v) rural referral centers, and vi) critical access hospitals. Each must also meet certain criteria regarding contracts and relationships with government entities.
The 340B program now constitutes approximately 5% of all medication purchases in the US and is responsible for over $16 billion in annual expenditures.
Once a hospital qualifies for 340B, they can purchase all their drugs at ½ off and then sell these same drugs back to Medicare, Medicaid and the private insurers (including their privately insured patients) at full price, pocketing the difference on all their patients not just the medically indigent ones.
Has the 340B program delivered?
Well, that depends on who answers the question.
A report by the Alliance for Integrity and Reform of 340B showed that the amount of charity care provided by nearly 2/3 of the 340B participants was below the national average for all US hospitals. An additional study in the Journal of Health Services Research, found that those hospitals that participate in 340B shift patient care from the more affordable physician-office to the more expensive hospital-outpatient/inpatient centers, demonstrably increasing the cost of care.
Additional concerns have been voiced by the Journal of the American Medical Association, who found that the 340B program incentivizes hospitals to use more expensive drugs to benefit from the larger margins.
A more recent study in the New England Journal of Medicine found that the 340B program has led to an exodus from private care to hospital care, all increasing the costs of health care delivery. One of the authors of the New England Journal of Medicine study, Dr. Michael McWilliams, said "Ideally, we should have policies that help underserved patients directly without distorting the incentives to provide drugs."
So where did 340B go wrong?
First, it artificially disrupted the market for drug sales and purchases, creating a unique niche that could only be met by certain medical centers and hospitals.
Second, it did not monitor the actual amount of charitable care delivered once certain rudimentary criteria were met.
Third, it unfairly punished private practitioners, who have consistently been shown to provide care more efficiently and more cost effectively than large hospital centers.
Fourth, it provided enormous incentives to large hospitals to purchase and utilize expensive drugs and finally, it bilked the government, the pharmaceutical industry and taxpayers while allowing the so-called “not-for-profit” medical centers to pocket the difference.
For cancer patients who have wondered where their private practitioners have gone, 340B is the answer.
These dedicated physicians can no longer compete in the market.
They cannot get 50% reductions in the cost of cancer medicines. As such, virtually all medical care is moving into the large institutions. This would be fine if the large institutions were well-honed machines that provide care efficiently and effectively.
Instead, many of these institutions overpay their practitioners as conduits for expensive medical care, with the difference pocketed by the institutions.
As cancer medicines constitute some of the more expensive therapies in medicine, hospital systems are acquiring medical oncologists to avail themselves of these profits.
According to an article in the July 31, 2013 Wall Street Journal “Acquiring a single oncologist and moving the doctor’s prescriptions under a hospital’s 340B program can generate an additional profit of $1 million for a hospital.”
For over two thirds of the hospitals that receive 340B, charitable care is actually below the national average and in 24% of 340B hospitals, charity care represented 1% or less of their total costs.
Finally, and most tellingly, 80% of all charity care delivered under 340B DSH status, is delivered by only 22% of the eligible hospitals. While these “charitable” hospitals truly deserve discounts, it is the other 78% of hospitals, many located in upscale communities that reap the benefit.
The federal government should level the playing field in medical care delivery, curtail costs, and reinvigorate medicine as a profession.
Corporatized medicine is not the answer; it is the problem in medical care costs.
While there are many systemic problems associated with the rising costs of medical care, we should have the fortitude to address those policies that neither serve the public good, nor meet patient needs.
With cost containment on everyone’s mind, is it not time to repeal 340B so that large medical systems pay their fair share?
As always, I appreciate your thoughts and comments.
Dr. Robert Nagourney, has been internationally recognized as a pioneer in cancer research and personalized cancer treatment for over 20 years. He is a TEDX SPEAKER, author of the book OUTLIVING CANCER, a practicing oncologist and triple board certified in Internal Medicine, Medical Oncology and Hematology helping cancer patients from around the world at his Nagourney Cancer Institute in Long Beach, California. For more info go to NAGOURNEYCANCERINSTITUTE.COM