Drug-discount program emerges as hot summer topic on Capitol Hill

Health Care Current | July 17, 2018

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies, and provides updates and insights on policy, regulatory, and legislative changes.

My Take

Drug-discount program emerges as hot summer topic on Capitol Hill

By Sarah Thomas, managing director, Deloitte Center for Health Solutions, Deloitte Services LP

Last week, we saw a lot of activity on Capitol Hill around a 25-year-old program that might be a victim of its own success. Depending on your perspective, the 340B drug-discount program might be vital to helping low-income people access needed medications. Or, it might be a program in need of stricter oversight. Maybe both are true. Congress is reviewing aspects of the program, and 340B is also mentioned in the administration’s blueprint to lower drug prices.

The 340B program, which is named for the numbered section of the law, gives certain hospitals and clinics access to discounts from drug manufacturers. In 2010, the Affordable Care Act (ACA) broadened the definition of covered entities that could participate in the program. As a result, the number of covered entities increased dramatically—from 8,605 to 38,396 between 2001 and 2017. In 2016, an industry researcher estimated that 5 percent of all drugs are paid through this program, amounting to $16.2 billion annually.1 In 2018, Medicare reduced its payments to hospitals, but not to the level of the discounts they receive through 340B.

A GAO report, a hearing, and a slew of legislative proposals

Last month, the Government Accountability Office (GAO) released a report that focused on one aspect of the 340B program—the use of contract pharmacies among hospitals and clinics. Key findings include:

  • Of the 340B hospitals and clinics, about one-third of them contract with outside pharmacies to dispense drugs on their behalf. For 29 of the 30 contracts GAO reviewed, the hospitals and clinics pay these contract pharmacies a flat fee—from $6 to $15—for each eligible prescription.
  • Not all contracts require that drug discounts be passed along to low-income, uninsured patients. Thirty of the 55 hospitals and clinics GAO reviewed give low-income, uninsured patients discounts on 340B drugs at some or all of their contract pharmacies. Of these 30 hospitals and clinics, 23 pass on the full discount to patients, resulting in patients paying the 340B price or less for drugs. Fourteen hospitals and clinics determine the patient’s eligibility for discounts based on income, 11 provide discounts to all patients, and five determine eligibility on a case-by-case basis.
  • Challenges in the Health Resources & Services Administration’s (HRSA) oversight keep the agency from being able to ensure compliance with 340B program requirements at contract pharmacies. For example, HRSA audits do not fully assess compliance with the program’s prohibition on duplicate discounts for drugs prescribed to Medicaid beneficiaries, according to the report.

House subcommittee holds hearing on 340B

On July 11, the House Energy and Commerce Committee’s subcommittee on Health held a hearing to both explore the GAO’s findings and to hear from a panel of health care providers. Statements from lawmakers ranged widely from general concerns about the program (based on issues raised by GAO), to questions about the intent of the program. Some committee members made the case that the program is working as intended and that Congress should instead focus on broader issues around drug prices. Health care providers and members of the subcommittee discussed how some providers use funds generated by the drug-discount program to meet the needs of their communities. Others offered examples to illustrate problems with the program.

Congress is working on a number of bills related to 340B. Committee chairman Michael Burgess (R-Texas), for example, has authored legislation that would require the program to implement GAO’s recommendations to strengthen the oversight of contract pharmacies.

Other bills seek to broaden the scope of the program, add more drugs to the list, increase Medicare payments, or boost discounts. Some bills call for a moratorium on any new 340B hospitals and clinics, greater transparency around how funds are used (including publishing prices), and greater audit and oversight.

What are the key questions?

At the heart of the 340B debate is a belief that the goals of the program should be better defined. Congress should provide the tools—especially budget and regulatory authority—to effectively manage the program and help it meet its intended goals. Some of the key questions are:

  • Should the discounts go to low-income people or to the hospitals and clinics that serve them? Right now, the law calls for the savings to go to the hospitals and clinics, but some stakeholders expect discounts to be passed directly to low-income people.
  • If the discounts are for hospitals and clinics, which ones are most deserving? How can they demonstrate that they merit the special treatment?
  • How should hospitals and clinics use the money they save from the discounted drugs? Should they pass the savings on to individuals, use it for social purposes, or to help support the overall mission of the organization?
  • How much of a discount is fair?
  • Should Medicare pay less for the drugs for which hospitals and clinics receive discounts?

There are also two important questions around government oversight:

  • How can manufacturers avoid having to pay both discounts and rebates to Medicaid programs? The law says that manufacturers do not need to offer both 340B discounts and rebates to Medicaid programs. However, the GAO report found that the data and systems used to identify Medicaid beneficiaries are insufficient to prevent this from happening. This is especially true for Medicaid managed care enrollees.
  • Should Congress or regulatory agencies lay out payment or other contract terms for the pharmacies that dispense and contract with 340B hospitals and clinics?

To me, an even bigger-picture question is whether the mandated discounts address the fundamental drivers of high health care costs for both payers (the government and private health plans) and individuals. Indeed, manufacturers might respond to the mandated discounts and rebates with higher prices. The 340B program is a regulatory approach to drug spending rather than a more market-based approach that would stimulate competition. Moreover, this policy addresses these therapies in isolation from the larger picture of their value.

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1 Drug Channels analysis, May 2017:


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In the news

CMS releases proposed 2019 Medicare Physician Fee Schedule

On July 12, the Centers for Medicare and Medicaid Services (CMS) released the proposed rule for the 2019 Medicare Physician Fee Schedule, which focuses on easing administrative burdens, reducing the number of quality measures for reporting, and encouraging the use of virtual care. Major changes proposed include:

  • Coding and billing simplification for “evaluation and management” (E/M) visits: The existing coding system has four sets of documentation requirements. The proposed rule would shift to a single set and establish one blended payment rate for E/M visits. For some physicians, this could result in a payment reduction of between 1 percent and 2 percent.
  • Changes to MIPS and APMs: Medicare’s Merit-Based Incentive Payment System (MIPS) requires clinicians to choose six quality measures for reporting. The proposed rule calls for the removal of 34 process-based measures. The agency says these measures are already widely met and are not focused on improving patient outcomes. CMS also proposed dropping 10 measures that don’t improve quality for accountable care organizations (ACOs). Moreover, the proposal notes that CMS is moving forward with its Medicare Advantage Qualifying Payment Arrangement Incentive (MAQI) demonstration. This demonstration project intends to test whether certain Medicare Advantage plans should qualify as advanced alternative payment models (APMs) and exempt participating physicians from MIPS.
  • Part B drug payments: Under the existing payment system for Medicare Part B drugs, Medicare pays physicians for a drug's wholesale acquisition cost (WAC) plus 6 percent. The proposed rule aims to reduce the payment to WAC plus 3 percent. After the first two quarters of the year, reimbursement for the new drug would revert to the current system of average sales price plus 6 percent.
  • Virtual care: CMS is proposing that Medicare start paying for virtual check-ins (phone or video chat between patients and physicians), as well as paying for the time it takes a doctor to review any images a patient texts to the office.
  • Call for pricing transparency: The proposed rule includes a request for information on how CMS could make health care costs more transparent and help patients better understand their out-of-pocket costs. Although the 2019 Hospital Inpatient Prospective Payment System proposed rule would require hospitals to post their standard charges online, on July 12, CMS stated that more can be done regarding price transparency.

Public comments on the proposed rule are due by September 10.
(Source: CMS, 42 CFR Parts 405, 410, 411, 414, 415, and 495)

Exchange updates

  • Court ruling prompts CMS to freeze $10.4 billion in risk-adjustment payments
    CMS has suspended its usual distribution of more than $10 billion owed to health plans through the ACA’s risk-adjustment program. The decision affects payments for the 2017 plan year, which were to be paid to health plans this fall. In a July 7 prepared statement, CMS explained its decision is tied to a late February ruling from the US District Court in New Mexico. The ruling found that the formula used by the agency to calculate risk-adjustment payments and collections is not valid.

    The February ruling was prompted by a 2016 complaint filed by a Consumer Operated and Oriented Plan (CO-OP) in New Mexico. Several CO-OPs—small, not-for-profit health plans created under the ACA—claimed that the risk-adjustment calculation formula benefits larger carriers. Of the 24 CO-OPs that formed after the enactment of the ACA, four remain. A month before the ruling in New Mexico, the US District Court in Massachusetts made a contrary decision in response to a complaint from a CO-OP in that state. CMS has asked the court in New Mexico to reconsider its decision, but says the ruling prevents the agency from making further risk-adjustment collections or payments in the meantime.

    The trade group America’s Health Insurance Plans (AHIP) said that CMS’s decision to freeze payments could create uncertainty in the market and cause health plans to increase premiums in 2019.

    Risk adjustment distributes funds from health plans that attract lower-risk members to health plans that attract sicker members in the individual and small-group markets. It is one of three premium-stabilization programs created by the ACA. While the other two programs—reinsurance and risk corridors—concluded in 2016, the risk-adjustment program is permanent.
  • CMS announces lower funding level for navigator program
    On July 10, CMS said it would allocate $10 million to ACA’s federal health insurance navigator program for the upcoming open-enrollment period for 2019. The amount represents a decrease from $36 million this year and $63 million last year. The decision affects grantees in the 34 states where the insurance exchange is operated by the federal Navigators include chambers of commerce, small businesses, trade associations, and faith-based organizations. The agency said less funding is needed for the navigator program because Americans have become familiar with the exchanges. CMS also noted that navigators have not been as cost effective as agents and brokers in helping people find coverage through an exchange.
  • CMS releases reports on exchange and individual market performance
    On July 2, CMS released three reports that provide information on the federal and state-based exchanges, and on individual health insurance markets outside of the exchanges. According to the reports, enrollment in the individual market has declined in some states. Between 2015 and 2016, 23 states saw declines in enrollment outside of the exchanges. The reports show a nationwide 20 percent drop in individual-market enrollment among individuals who did not receive premium subsidies for the 2017 plan year. During the same period, subsidized enrollment decreased by 3 percent.

    CMS expanded the role of health insurance agents and brokers who supported more than 3.6 million enrollments (42 percent of all enrollments via CMS also now requires applicants to verify eligibility if they try to enroll during Special Enrollment Periods (SEPs).
  • More health plans expected to join exchanges for 2019
    More health plans are expected to offer individual health coverage through the public insurance exchanges during the fall open-enrollment period, according to an analysis from the Robert Wood Johnson Foundation (RWJF). The report, published July 9, cites favorable financial results for participating health plans and a continuation of the “silver-loading” trend, where higher premiums for silver-tier plans result in larger federal subsidies for enrollees. This trend has helped to create relative market stability. Additionally, no health plans have announced decisions to exit the markets for plan year 2019. RWJF’s analysis includes a public web tool, which can be used to track health plan participation for 2019 at the county level.

VA, National Cancer Institute partner to give veterans better access to clinical trials

On July 10, the US Department of Veterans Affairs (VA) announced that it has formed a partnership with the National Cancer Institute (NCI) to provide veterans with greater access to the latest cancer treatments. The NCI and VA Interagency Group to Accelerate Trials Enrollment (NAVIGATE) will build infrastructure at VA sites to help veterans participate in NCI-sponsored clinical trials for innovative and experimental treatments. The network seeks to help VA Medical Centers nationwide enroll more patients in clinical cancer trials, with special attention given to minority patients who might have less access to new treatments and are not always represented in national clinical trials.

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Medicaid activity

  • CMS denies Massachusetts Medicaid program’s prescription drug request
    On June 27, CMS denied a waiver request from the Massachusetts Medicaid program, MassHealth, which proposed limiting access to covered outpatient drugs to the program’s enrollees. Under this proposal, MassHealth would have its own drug formulary and would have to cover one drug per therapeutic category.

    CMS said that the state’s request was not consistent with Medicaid statutory requirements. The agency noted that outpatient prescription drug coverage is an optional Medicaid benefit, which MassHealth can propose to discontinue in favor of covering only select drugs under an 1115 waiver.
  • CMS releases guidance for drugs approved under FDA’s accelerated approval pathway
    In a June 27 notice, the Center for Medicaid and CHIP Services (CMCS) specified that drugs approved by the US Food and Drug Administration (FDA) under its “accelerated approval” pathway must be covered by state Medicaid programs if they meet the definition of “covered outpatient drugs,” as defined in Section 1927 of the Social Security Act.

    A drug’s positive therapeutic effect that is clinically meaningful in the context of a given disease is known as its “clinical benefit.” Since it might require an extended period of time to measure a drug’s intended clinical benefit, FDA instituted the Accelerated Approval regulations in 1992. These regulations allow drugs for serious conditions that fill unmet medical needs to be approved based on a surrogate endpoint, which allows for faster approval. The Food, Drug, and Cosmetic Act (FD&C Act) allows the FDA to grant accelerated approval to a drug for a serious or life-threatening disease or condition that meets certain criteria, and the Food and Drug Administration Safety Innovations Act (FDASIA) of 2012 amends the FD&C Act to allow the FDA to base accelerated approval for this type of drug on whether the drug has an effect on a surrogate or an intermediate clinical endpoint.
  • CMS approves Oklahoma’s value-based drug purchasing plan
    CMS approved the Oklahoma state Medicaid program’s 1115 waiver on June 27. This waiver allows the state to enter into value-based purchasing arrangements with drug manufacturers. It is the first arrangement in which a state can pursue supplemental rebate agreements for drugs if the treatments do not achieve certain results.
  • Medicaid work requirements struck down in Kentucky
    On June 29, a federal court blocked Kentucky from enacting the first-ever Medicaid work requirements, as part of the state program’s 1115 waiver. The court found the requirements were inconsistent with the statutory intent of the Medicaid program.

    Medicaid programs in Arkansas, New Hampshire, and Indiana are planning to implement their own versions of Medicaid work requirements (see the May 15, 2018 Health Care Current). Arkansas plans to phase in its Medicaid work requirements this summer, while requirements for the Indiana and New Hampshire programs are scheduled to begin in January 2019.

    Related: Health officials in Virginia intend to seek federal permission to implement work requirements. In June, Virginia lawmakers approved expansion of the state’s Medicaid program, with the condition that the state apply for permission to include work requirements (see the June 12, 2018 Health Care Current).

Additional information on state Medicaid news and program updates can be found in the most recent RegPulse blog post.

Breaking Boundaries

Cracking the ‘neural code’ could lead to breakthroughs for many diseases

Recent advancements in technology, such as improvements in manufacturing and the ability to miniaturize complex medical instruments and hardware, are helping scientists better understand how the brain works. While it’s been 50 years since the genetic code was cracked, scientists have yet to break the “neural code.” The neural code refers to the patterns of neural circuits firing in the brain that represent the storage and exchange of information.

Neuropixels probes (recently-developed electrodes made of silicon thinner than a human hair) can record the activity of hundreds of neurons in the brain. Previously, scientists could study only one neuron at a time, which provided limited information about how neurons interact and work together during various brain activities. This technology has been a major breakthrough in furthering our understanding of how the brain works, specifically how neurons work together during learning, memory, vision, and movement. Down the road, scientists could potentially apply these findings toward developing new therapies to treat brain-related illnesses such as dementia, epilepsy, and Parkinson’s disease.

Scientists are conducting research on the brains of mice and rats. These early studies are already yielding exciting results. A team of researchers in California used the neuropixels probe technology to examine how rats plan to move from one location to another. They discovered that bursts of activity across the hippocampus region (responsible for forming and retrieving memories) engage neurons everywhere across the brain, including areas outside the hippocampus responsible for learning rules, decision-making, and rewards. Prior to this research, scientists did not realize these kinds of activities engaged so many regions of the brain.

Neuropixels probes are similar to the electrophysiology probes that neuroscientists have used for decades to measure brain activity. However, the new probes are tiny, which enables them to pass through and collect data from many different brain regions at the same time. The recording electrodes are densely packed along their length, making it easier for researchers to more precisely detect and measure cellular sources of brain activity. Also, each of the new probes incorporates a nearly complete recording system, which reduces hardware size, cost, and eliminates hundreds of output wires.

While there is still a long way to go to unlock the many mysteries of the brain, these tiny probes offer tremendous potential to help scientists figure out how diseases such as Alzheimer's, and conditions such as depression, take hold of the brain and interfere with its normal function.

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