Drug-Price Agenda Puts Strain on Rural Hospitals

The White House and lawmakers are eyeing changes to a discount program to help lower drug prices, but reforms could put financial pressure on rural hospitals.

AP Photo/Gerry Broome
July 22, 2018, 8 p.m.

The Trump administration’s campaign against high drug prices could spell disaster for some rural hospitals.

The White House and Congress have targeted a drug-discount program for reforms due to its recent growth in size, but changes to how much hospitals can save in the program could lead small and rural facilities to cut services or even close, hospital groups warn.

The particular program receiving concentrated attention is the 340B Drug Pricing Program, which allows so-called safety-net hospitals to receive substantial discounts on drugs. Between President Trump’s plans to address drug pricing and lawmakers’ calls for more oversight, the program may end up receiving a bit of a makeover.

The Health and Human Services Department has already gotten started by changing how much certain hospitals are reimbursed under the program. Medicare in the past reimbursed hospitals for those discounted drugs at 6 percent above the average sales price, and hospitals kept the difference. But a final rule, which went into effect at the beginning of this year, reduced the amount of money they would get by around 28 percent.

Last week, major hospital lobbying groups, including the American Hospital Association, saw their legal case challenging HHS’s $1.6 billion cuts in reimbursements dismissed. The hospital groups vowed to “to refile promptly in district court.”

The slash in reimbursements could contribute to a rural hospital’s decision not to provide certain services or even to close, said Brock Slabach, senior vice president for member services at the National Rural Health Association. “340B is a program that helped to offset costs so that they can afford to offer programs like maternity services,” he said.

“The ability to operate these services continues to be threatened by this cascade of cuts, including what they’re talking about within the 340B space,” he said. “The hospital may not close, but it may be because they’re not making any money on [obstetrics] and they’re in fact losing the money, they may decide that obstetric services are going to have to discontinue because they can no longer afford to offer those services.”

Some rural facilities, like sole-community hospitals, did not fall under the reimbursement reduction that was finalized, although hospital stakeholders are waiting to see if that exemption continues. But the ones that did face 340B reimbursement reductions will likely face larger financial pressures than bigger hospitals, according to an S&P Global report.

“Smaller providers and rural hospitals ... could see bigger effects,” the May 29 report stated. “Small hospitals, rural hospitals, and [disproportionate share hospitals] that use the program depend much more on the margin they receive from 340B medications to sustain their bottom line and overall financial profiles. In these cases, cuts to the program are likely to further stress already-constrained operating performance, adding to financial pressure and possible negative rating actions.”

HHS stated in the final rule that it contemplated the change in reimbursements due to the growth of the program—from 583 hospitals in 2005 to 2,140 in 2014—as well the growing prices of drugs administered under Medicare Part B to hospital outpatients. Citing a report from the Office of Inspector General, the department said that “Part B payments were 58 percent more than 340B ceiling prices, which allowed covered entities to retain approximately $1.3 billion in 2013.”

And not all health experts are convinced that rural hospitals will lose out on the arrangement. An Avalere Health analysis in January found that rural hospitals would receive a 2.7 percent increase in payments when the $1.6 billion from the program is reallocated.

But hospital groups pushed back strongly against Avalere’s research. CMS is required to make such regulations budget-neutral, so the agency increased payments to all hospitals including those that are not in the 340B program for nondrug services, said Richard Sorian, senior vice president of communications for 340B Health, an association of nonprofit hospitals that participate in the program.

“For some hospitals those increases offset the cut, but for many—including large teaching hospitals that serve a very large percentage of low-income patients—there was a net loss,” Sorian wrote in an email to National Journal. “CMS has not yet published its proposed rule for 2019, so it is uncertain if they will exempt fewer facilities or make the cut deeper.”

Hospitals are urging the administration to back off the program in its efforts to lower drug prices. The drug-pricing blueprint the White House released in May contained questions about whether the program was raising prices: “How has the growth of the 340B drug discount program affected list prices? Has it caused cross-subsidization by increasing list prices applicable in the commercial sector? What impact has this had on insurers and payers, including Part D plans?”

The National Rural Health Association said in comments on the plan submitted last week that the program is vitally important to rural hospitals, noting that 44 percent of rural hospitals are operating at a financial loss.

“As a direct result of the 340B program, rural hospitals have been able to continue to serve their communities despite continuous reimbursement cuts,” the NRHA stated. “One hospital is only able to staff their labor and delivery unit because of the 340B program, preventing women from needing to travel at least an additional 45 minutes to deliver a baby. Other facilities use 340B funds to staff their ED, to offset uncompensated care, or simply to keep their doors open to allow them to continue to serve their community.”

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