340B 101

Biopharmaceutical Companies Providers Payers and PBMs

Taking Into Account Entire Supply Chain

2

3 3

Medicine Spending is in Line with Other Health Care Services

Per

cent

Ann

ual G

row

th R

ate

Note: Total retail sales include brand medicines and generics. Centers for Medicare & Medicaid Services ).

Health Care Prescription Medicines

3

Data Show Medicine Spending Growth Declining

4

2016 Data

5.2%

3.8%

2015

2016

5%

3.2%

2015

2016

9%

5%

2015

2016

Below 1% 2017

2017 Data

5 5

Nearly 40% of the List Price is Rebated Back to Payers, the Government and Other Stakeholders

Rebates, discounts and fees keep increasing Brand companies retain just 63% of list price spending on medicines

62.6% 18.5%

12%

6.9%

Brand Companies

Market Access Rebates and Discounts

Statutory Rebates and Fees

Supply Chain Entities

Berkeley Research Group.

2013 2014 2015

$67.0B

$84.6B

$106.4B

6 6

Patients’ Out-of-Pocket Spending is Growing Faster Than Underlying Medical Costs

Kaiser Family Foundation analysis of Truven Health Analytics MarketScan Commercial Claims and Encounters Database, 2005-2015; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 2005-2015 (April to April).

Savings Aren’t Always Shared with Patients

7

Cost sharing for nearly 1 in 5 brand prescriptions is based on list price

More than half of commercially insured patients’ out-of-pocket spending for brand medicines is based on the full list price

48%

39%

13%

52%

Copay

Deductible

Coinsurance

Amundsen Consulting Group study.

Hospitals Mark Up Medicine Prices Nearly 500%

A hospital is paid 2.5 times what the biopharmaceutical company, who brought the medicine to market, receives.

8

*Analysis does not take into account the

impact of the 340B program

The Moran Company, “Hospital Charges And Reimbursement for Drugs: Analysis of Markups Relative to Acquisition Cost,” October 2017.

The 340B Program Continues to Expand

9

340B Hospital Participation 340B Sales Volume For-Profit Retail Pharmacy Participation

2004 2016 2002 2010 2017

51 151

2,357

1992 2002 2017

$2.65B

$16.1B

279 6,293

51,963

By 2021, the 340B program will effectively surpass today’s spending on drugs in the Part B program. 9 Health Resources and Services Administration. Office of Pharmacy Affairs 340B Database, January 2017; Sales at the 340B price, Mathematica Policy Research Inc., August 2004 and BRG,

December 2016; Avalere analysis of the HRSA OPA Database, March 2017.

And the Program is Not Always Helping Patients

10

As noted by economists, the 340B program causes many patients to pay more out of pocket because …

Consolidation in the health care market partially driven by

perverse incentives in 340B causes costs to go

up for patients and payers

GAO has cited the incentives to prescribe

more and more expensive drugs at 340B hospitals

Rapid program growth may be affecting market prices for prescription

medicines

R. Conti, P. Bach, Cost Consequences of the 340B Drug Discount Program, JAMA :The Journal of the American Medical Association, 2013;309(19):1995-1996. doi:10.1001/jama.2013.4156.

12

Program Basics

How Hospitals & Clinics Qualify to Participate in 340B

13

340B Grantee Eligibility 340B Hospital Designation 340B Hospital Eligibility

• Clinics and other entities qualify largely based on the receipt of a federal grant from HHS

• Grant is provided to support care for vulnerable populations

• Grantees use the program as intended

• Applies to the hospital or clinic not the patient

• Hospital or clinic may claim steep discounts on outpatient drugs dispensed to all patients whether insured or uninsured

• 340B hospitals are not required to pass discounts along to uninsured or low-income patients

• 340B hospital eligibility is for non-profit hospitals and based in part on how many low-income Medicare and Medicaid patients a hospital admits

• Congress intended for this to be a proxy for safety-net hospitals treating a lot of uninsured patients

• Not based on charity care or uninsured patients served, allowing wealthy hospitals to qualify

Health Resources and Services Administration. Eligibility & registration.

Hospitals and Grantees Have Different Requirements for Use of 340B

14

Participating grantees use revenue from 340B and other sources to help vulnerable patients. Hospitals face no such requirements.

340B Requirements

Provide care to a vulnerable community on an income-based, sliding-fee scale

Reinvest any additional resources into services for vulnerable patients

Meet federal reporting requirements on use of 340B revenue

Hospitals Grantees

340B drug pricing program: eligibility & registration. Health Resources and Services Administration Web site.

How 340B Discounts Work

$900

-$600

+$100

$400

Total reimbursement for drug from commercial insurer or Medicare

340B purchase price for drug from manufacturer

10% coinsurance received from patient

profit for 340B entity

Manufacturer provides 340B hospital with discounted drug

1 340B hospital provides medicines to patients, including those with commercial insurance

2 Commercial insurer or Medicare reimburses at full negotiated rate; hospital keeps difference as profit

3

Manufacturer Patient

Hospital

Insurer

Where does this profit go?

25-50% average discount

How 340B discount works for $1000 drug:

Average discount from Apexus 340B Prime Vendor Program 340B Price/Covered Outpatient Drugs 15

340B: Past and Present

16

45% of All Medicare Acute Hospitals Participate in 340B

1992 340B was envisioned as a small program to address unintended consequences of the 1990 Medicaid drug rebate statute by reinstating deep discounts that pharmaceutical manufacturers had voluntarily provided to certain clinics and true safety-net hospitals. Early 2000s – Present Overly broad guidance, historically weak oversight and other factors led to dramatic program growth, driven by the participation of large hospitals in the 340B program. 51 151

2,357

0

500

1000

1500

2000

2500

1992 2002 2017

Hospitals Participating in 340B

Medicare Payment Advisory Commission. Report to the Congress: overview of the 340B drug pricing program. Published May 2015. Health Resources and Services Administration. Office of Pharmacy Affairs 340B Database.

340B Has Shifted Over Time Now Vast Majority of 340B Sales Are to Hospitals

17

Grantees: 55%

Hospitals: 45%

Hospitals: 87%

Grantees: 13%

Total Sales at 340B Price: $16.2 Billion in 2016

Total Sales at 340B Price: $2.65 Billion in 2004

Mathematica, The PHS 340B Drug Pricing Program: Results of a Survey of Eligible Entities, August 2004 Apexus, 340B Health Summer Conference, July 2016

18

340B Key Issues

Key Areas for Future Reform

Patient Definition Hospital Eligibility Contract Pharmacy Patient Costs

19

Program Lacks Definition of a 340B Patient

• No 340B program requirement that 340B discounts be passed on to patients

• No way for a patient to know if their prescription qualifies as a 340B discounted drug

• Hospitals can profit from 340B discounts for patients due to lax program rules

20

“HRSA’s current guidance on the definition of a 340B patient is sometimes not specific enough to define the situations under which an individual is considered a patient of a covered entity for the purposes of 340B.”

GOVERNMENT ACCOUNTABILITY OFFICE

“[There is] a lack of clarity on how HRSA’s patient definition should be applied in contract pharmacy arrangements.”

OFFICE OF INSPECTOR GENERAL

“

“ Two previous administrations proposed guidance that would have added

greater clarity around the definition of a 340B patient.

Government Accountability Office. Manufacturer discounts in the 340B program offer benefits, but federal oversight needs improvement. September 2011. Office of Inspector General, US Department of Health and Human Services. Memorandum report: contract pharmacy arrangements in the 340B program. February 2014. OEI-05-13-00431.

Does the Program Use the Right Metrics?

• Formula for DSH eligibility is based on insured populations

• Analysis by MedPAC shows that the DSH adjustment percentage: • Is poorly targeted to hospitals’

shares of uncompensated care • Does not reflect the percentage of

uninsured patients treated by a hospital

• The hospital eligibility metric is an inpatient metric but 340B is an outpatient program

21

Hospitals’ 340B Drug Purchases vs. Uncompensated Care, 2005-2015

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

UNCOMPENSATED CARE AS % OF TOTAL HOSPITAL EXPENSES

HOSPITAL 340B PURCHASES AS % OF TOTAL HOSPITAL DRUG PURCHASES

MedPAC March 2007 and March 2016; Pembroke Consulting estimates; American Hospital Association. 340B purchases by hospitals are grossed up to account for contract pricing and exclude sales made directly to healthcare institutions by manufacturers.

Most 340B Hospitals Provide Little to Below Average Levels of Charity Care

Distribution of 340B Hospitals by Level of Charity Care as a Percent of Patient Costs Provided

Below Average Charity Care

Above Average

Charity Care

64% of 340B hospitals have

CHARITY CARE RATES below the 2.2% national average for all hospitals

22 AIR340B, Benefitting Hospitals, Not Patients: An Analysis of Charity Care Provided by Hospitals Enrolled in the 340B Discount Program . Spring 2016

How For-Profit Retail Pharmacies Take Advantage of 340B

23

Here’s how it works when 340B discounts are extended to for-profit retail pharmacies through contract pharmacy arrangements

Uninsured patient gets sick Uninsured patient gets treated at a 340B hospital

Patient goes to 340B contract pharmacy and fills prescription

at full retail price ($100)

Hospital gets $50 back from drug manufacturer, which it shares with the pharmacy

The hospital and pharmacy profit while the patient may see no direct benefit from the 340B discount

Patient may not see benefit

Contract Pharmacy Arrangements Increasing

24

2014 Department of Health and Human Services Office of the Inspector General report found few of the hospitals in their study passed 340B discounts on to

uninsured patients at contract pharmacies.

279 461 816 1,195 1,577 1,799 2,162 2,525 6,293

9,493

23,173 29,643

33,880 37,177

42,613

51,963

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Num

ber o

f Con

trac

t Pha

rmac

y Ar

rang

emen

ts* 2010

Guidance

*Each relationship between a 340B entity and a contract pharmacy is counted separately for this analysis. Some pharmacies have relationships with more than one 340B entity, and those pharmacies are counted more than once in this analysis.

Office of Inspector General, US Department of Health and Human Services. Memorandum report: contract pharmacy arrangements in the 340B program. February 2014. OEI-05-13-00431. Avalere analysis of the HRSA OPA Database, March 2017.

Incentives for Hospitals to Buy Up Physician Offices

• HRSA guidance permits outpatient prescriptions written at hospitals’ offsite outpatient facilities (physician offices) to be eligible for 340B discounts, but there is no basis in the statue for including these offsite facilities in the program

• Ability to profit off “spread” between the 340B price and reimbursed amount incentivizes 340B hospitals to buy up community-based practices, resulting in higher costs to patients

25

“[In the absence of reforms] the trend toward consolidation will continue to drive up the cost of commercial insurance.”. PETER BACH & RH JAIN, Memorial Sloan Kettering

“ “ “[The 340B program] will ultimately end up increasing health care costs for everyone, as patients are shifted from cheaper, community-based care to more expensive hospital settings.....” STEPEHN PARENTE, University of Minnesota| Memorial Sloan 1994 HRSA Outpatient Facilities Guidance; COA, Site of Care Cost Analysis, 2017; Bach et al., Physician’s Office and Hospital Outpatient Setting in Oncology: It’s About Prices, Not Use,

Journal of Oncology Practice, January 2017.; Stephen Parente and Michael Ramlet, Unprecedented Growth, Questionable Policy: The 340B Drug Program, University of Minnesota, 2014

Incentives to Prescribe More Expensive Medicines

26

GAO: “Medicare beneficiaries were prescribed more drugs, more expensive drugs, or both, at 340B DSH [disproportionate share] hospitals.”

$58

$144

$27

$60

$0$20$40$60$80

$100$120$140$160

2008 2012

Average Per Beneficiary Medicare Part B Drug Spending in 2008 and 2012

340B Hospital in 2008 and2012

Non-340B Hospital in 2008 and2012

GAO, Medicare Part B Drugs; Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals, June 2015

Incentives to Shift Delivery of Physician-Administered Medicines to More Expensive Hospital Settings

11% 13% 15% 19% 24% 28% 32% 33% 17% 18% 18% 17% 18%

19% 19% 18%

73% 70% 67% 64% 58% 53% 50% 49%

2008 2009 2010 2011 2012 2013 2014 2015

Site of Care for Breast Cancer Drug Therapies Reimbursed in Medicare Part B

340B Hospitals

Non-340BHospitals

PhysicianOffices

27 BRG, Site of Care Shift for Physician-Administered Drug Therapies, October 2017.

Hospital Consolidation and For-Profit Pharmacies Expected to Fuel Future 340B Growth

From 2016 to 2021, the 340B program is estimated to increase by more than 40 percent.

$5.9 $16.1 $18.0 $19.6 $20.8 $21.9 $23.0

2010 2016 2017 2018 2019 2020 2021

Tota

l 340

B S

ales

($B

)

Estimated 340B Sales

Actual 340B Sales

BRG, 340B Program Sales Forecast: 2016 - 2021, December 2016. 28

Key Areas for Future Reform

Patient Definition

Problem: Lack of clarity around what constitutes a 340B patients enables hospitals to game the system.

Solution: Clearer rules needed to create an enforceable set of standards.

Hospital Eligibility Contract Pharmacy Patient Costs

Problem: Current metric does not focus program on true safety-net hospitals.

Solution: Update eligibility metrics so that true safety-net hospitals are eligible.

Problem: For-profit pharmacies gaining revenue with no benefit for patients.

Solution: Administration should revisit Obama-era guidance that vastly expanded the program with no accountability that patients are helped.

Problem: Program incentives raise costs for patients.

Solution: Limit hospital abuse of program and require sliding-fee scale to ensure that low-income and/or uninsured patients benefit from discounts.

29