A Drug Discount Monitor news analysis.
April 6, 2012—The critical access hospital in Warm Springs, Ga., President Franklin Delano Roosevelt's rural retreat, just became eligible for 340B drug discounts on April 1.
But before July arrives, the 25-bed facility in Meriwether County—where nearly one in five lives below the poverty line—could possibly find itself out of the federal program, along with nearly 800 other critical access hospitals, sole community hospitals, rural referral centers, and free-standing cancer centers across the country that gained eligibility for 340B under the Affordable Care Act (ACA). About 40 free-standing children's hospitals that originally became eligible for 340B under a 2005 law would also be at risk of losing their drug discounts because a law passed in late 2010 made ACA the sole basis for their eligibility.
Hospitals losing their 340B eligibility would be just one of the effects of a potential U.S. Supreme Court decision to declare all of health care reform unconstitutional. The justices heard arguments last month on whether ACA's individual mandate to buy health insurance and its expansion of Medicaid are constitutional and, and if both or either is not, whether the entire law must be struck down. The justices are expected to hand down their ruling by late June.
It is unclear whether the Court will decide to uphold the entire reform law, strike down part but leave the rest standing, or strike it down entirely. Some legal analysts doubt the Court will do the latter. But others point out that Associate Justices Antonin Scalia and Anthony Kennedy made remarks during the arguments that raised the prospect of nullifying the whole law.
The constitutionality of the 340B sections of ACA are not at issue in the lawsuit, Department of Health and Human Services v. Florida (Case No. 11-398). But if the Court does declare the whole act void, including its 340B provisions, the consequences could be serious for patients and others in Warm Springs and other communities nationwide.
"Really Would Take a Hit"
"You are going to see these small hospitals close" if the justices nullify the entire law, predicts James Johnson, pharmacy director of Warm Springs Medical Center.
"We enrolled in 340B because we are looking for everything we can do to improve our financial situation," he continued. "It's precarious, like it is for most rural hospitals. Every week, we discuss what we can do to maintain services to our community," which Johnson says is older and more likely to be enrolled in both Medicare and Medicaid than on average and has above-average incidences of obesity and diabetes. "We have very little private insurance here and many of our patients are self-paid, which means that we often aren't paid."
"Even a little bit of money can make a big difference in an operation like ours," he says. "If we don't get some relief on the cost of drugs or elsewhere on the revenue side, we are not going be here for long."
The repercussions, Johnson adds, would extend beyond community health. "Our little hospital is the second or third largest employer in this community," he notes. "A huge number of families rely on us for their livelihoods. This county really would take a hit if we were gone."
The extension of 340B to rural, children's, and cancer hospitals wouldn't be the only aspect of the drug discount program affected by a High Court decision to declare the whole of ACA unconstitutional.
For example, 340B discounts on brand-name and generic drugs would likely decrease due to a return to smaller Medicaid drug rebate percentages. A drug's 340B ceiling price is calculated by subtracting its Medicaid unit rebate amount (URA) from its average manufacturer price (AMP). Health care reform increased the mandatory Medicaid drug rebate percentage on most brand name drugs from 15.1 percent to 23.1 percent of AMP, and on generic drugs from 11 percent to 13 percent of AMP.
Apexus/340B Prime Vendor Program (PVP) reports that since the second quarter of 2010, when the new URAs took effect, 340B ceiling prices have declined overall by 9.44 percent. 340B prices have dropped by 10.43 percent for brand name drugs and 3.3 percent for generics.
Meanwhile, an initiative to expand the number of federally qualified health centers, which would qualify for 340B discounts, would also be in jeopardy, as would an initiative to close the so-called doughnut hole in the Medicare Part D drug benefit. And a host of congressional requirements to bolster 340B program integrity would be cast into limbo.
The Health Resources and Services Administration's (HRSA) Office of Pharmacy Affairs (OPA) is in the middle of implementing one of those integrity initiatives now—the requirement that all 340B covered entities recertify their eligibility annually. It is likely to be carried out this year. But it is uncertain if recertification will be required in subsequent years in the absence of a law ordering that it be done and, presumably, in the absence of appropriations to carry out it and other 340B-related health reform provisions, which include:
HRSA audits of 340B hospitals and other covered entities, which were called for in a Government Accountability Office (GAO) report that Congress mandated in ACA, are likely to continue this year.
Spotlight on Program Integrity
Some influential members of Congress have begun looking into the 340B program, saying they are concerned about the potential for abuse in light of its expansion under health care reform and through HRSA initiatives such as allowing covered entities to contract with multiple pharmacies. Some questioned 340B's expansion in 2010, or even whether it needed to continue to exist, if millions of previously uninsured Americans were going to obtain affordable private insurance or Medicaid coverage under health care reform. Congress is likely to keep a spotlight focused on 340B program integrity, however, even if enrollment in the program falls.
In theory, Congress could take all of ACA's 340B provisions and re-enact them in new legislation. But that could be a challenge in an election year, with lawmakers eager to spend as much time as possible in their home districts and states and with little time left in this year's legislative calendar.
When ACA extended 340B eligibility to rural and cancer hospitals, it also prohibited them from receiving 340B discounts on orphan drugs. In January, HRSA set May as its target for issuing its long-awaited final regulation to implement the prohibition. But if the High Court strikes down the entire health care reform law and rural and cancer hospital participation in 340B with it, the debate over how to interpret the prohibition will become a dead letter.
Many of the drugs affected by the prohibition are used to treat cancer. Johnson, the Warm Springs hospital's pharmacy director, says his institution hopes one day to open an outpatient oncology clinic so that townspeople with cancer would no longer have to make hour-and-a-half-long round trips along two-lane country roads to receive treatment."We won't be able to afford to do that," he says, "if less-expensive 340B drugs are not available to us."