Section 340B of the Public Health Service Act was enacted in 1992. It allows certain hospitals access to discounts on billions of dollars worth of drugs. A new article by Sunita Desai and J. Michael McWilliams in the New England Journal of Medicine takes a skeptical look at "unintended consequences" of the program:
The program is explicitly intended to encourage hospitals to dedicate resources generated from the discounts to expanding or improving care for vulnerable populations, particularly those served by safety-net providers. Accordingly, in assessing eligibility, the program favors hospitals that disproportionately serve low-income patients, but it does not require or provide incentives for hospitals to repurpose financial gains to enhance care for underserved patients. Rather, the discounts — which range from 20% to 50% — only strengthen the incentives for hospitals to supply drugs to patients who have generous insurance coverage. The extent to which hospitals support the mission of the program is subject to minimal oversight.
Thus, the program may not elicit the intended responses from hospitals — such as providing more care to low-income communities, investing in safety-net providers, or reducing health disparities — and may even have unintended consequences.In particular, the program may have induced provider consolidation. Particularly in the case of parenteral drugs that are infused or injected in clinical facilities (i.e., drugs reimbursed by Part B in Medicare), hospitals qualifying for the program have incentives to employ physicians and acquire or open practices with physicians who frequently order parenteral drugs, in order to increase referrals and expand capacity for outpatient drug administration. Hospitals are reimbursed for parenteral drugs when they are administered in hospital-owned facilities, including off-campus practices owned by hospitals.
It's complicated stuff, but the gist of the article is that the hospitals responded to the law by buying up medical practices that were treating well-insured, non-poor patients. The change of ownership meant that the practices could now take advantage of the drug discounts and become more "profitable" than they were before.
As the article concludes:
We found no evidence of hospitals using the surplus monetary resources generated from administering discounted drugs to invest in safety-net providers, provide more inpatient care to low-income patients, or enhance care for low-income groups in ways that would reduce mortality. These results suggest hospital responses that are contrary to the goals of the program and have a number of important policy implications. In general, policies that are intended to improve or expand care for medically underserved populations may be ineffective if they rely on indirect mechanisms with weak incentives, such as the cross-subsidization that the 340B Program intends for hospitals to implement.
Our findings suggest that the recent decision by the Department of Health and Human Services to lower drug reimbursements to hospitals participating in the 340B Program could slow hospital–physician consolidation while not adversely affecting care for low-income patients served by general acute hospitals.
The "recent decision" is a bit of a political football; six senators are involved in trying to block what they say are $1.6 billion in Medicare cuts aimed at hospitals that participate in the program.
It's a classic situation of something involving billions of dollars in health care funds. It's so arcane that few people are going to pay much attention to it other than those who have a lot of money at stake. And as is often the case, it features a gap between intentions — "improve or expand care for medically underserved populations" — and results.