S&P: 340B cuts will weaken nonprofit hospitals

The $1.6 billion in cuts to Medicare payments made under the 340B drug discount programs could add to the financial stress of smaller not-for-profit hospitals and health systems, leading to cuts in patient care and eventually leading more patients to rely on emergency departments, according to Standard & Poor’s (S&P) Global Ratings.

The cuts to 340B went into effect Jan. 1, 2018, from a provision in this year’s Medicare outpatient payment rule. CMS reduced the Medicare Part B reimbursement rate for 340B medications from the average sales price (ASP) plus 6 percent to the ASP minus 22 percent.

Hospital groups have sued to block the change. While S&P expected the court challenge to proceed, unless the cuts are reversed, nonprofit hospitals will likely see their operating performance weakened “at a time of already tightening margins.”

“If they cannot generate sufficient cash flow due to the cuts, we believe they will serve fewer patients, which in turn would add to the burdens on some hospitals, because patients without options tend to seek treatment from hospital emergency rooms or clinics,” the S&P report said.

The dollar amounts won’t have much impact on larger 340B hospitals, the report said, but the pain could be considerable for smaller, rural providers and disproportionate share hospitals (DSH) which need 340B margins to hold up their bottom lines.

That would play into one of criticisms of 340B: It’s grown well beyond its original purpose. Legislation has been introduced to require hospitals to report their drug costs and related reimbursement. Also, President Donald Trump’s drug pricing plan mentioned requirements to ensure hospitals use their 340B discounts on charity care.

A federally funded study published in the New England Journal of Medicine earlier this year found that instead of offering more care to low-income patients, 340B hospitals increased their use of covered drugs and were far more likely to employ hematology-oncology physicians and ophthalmologists to prescribe them.

“We found evidence of hospitals behaving in ways that would generate profits, by building their outpatient capacity to administer drugs,” said study author Sunita Desai, PhD, an assistant professor in the department of population health at the NYU School of Medicine.

Hospitals have criticized those studies and blasted the 340B debate as an effort funded by pharmaceutical companies which don’t like to offer discounts on their products.

Tom Nickels, the American Hospital Association's executive vice president of government relations, has said his organization is open to additional transparency in 340B, but it’s not going to negotiate on shrinking the program.

“This program is not about taxpayer dollars," he said at the American College of Healthcare Executives (ACHE) Congress in Chicago. "I think Congress should be very vigilant in watching out for my tax dollars. They should be on that all the time. These are drug company dollars that go to hospitals."