Senate Bill Would Save Safety Net Hospitals Billions in Inpatient Pharmacy Costs

Senate Bill Would Save Safety Net Hospitals Billions in Inpatient Pharmacy Costs

Cheryl Clark, for HealthLeaders Media, January 19, 2010

About 800 safety net hospitals will save $2 million a year on average if a provision in the Senate bill expands their right to buy discounted drugs under the so-called 340B program. The program would expand beyond outpatient care and include inpatient pharmacy drugs as well.

The Patient Protection and Affordable Care Act also would broaden 340B so that critical access hospitals, those facilities with no more than 25 beds, also may buy drugs at discounted prices under the federal program. At present, they are excluded.

And the bill would streamline and solidify a new rule, promulgated last summer, that allows freestanding Medicare-exempt children's hospitals to benefit from 340B too.

"It would save hospitals a lot more money if they could get these discounts for patients that are actually admitted as inpatients," says Ted Slafsky, executive director of the Safety Net Hospitals for Pharmaceutical Access, an advocacy group that has worked for many years with lawmakers to get such a provision passed.

How much savings each hospital will get depends on their level of drug purchasing. "Some hospitals will save $7 million to $8 million [with the expansion to inpatient drug purchases] while others will save less," says Slafsky.

Bottom line, he says, eligible hospitals would see a savings of at least $1 billion annually if the bill passes as written.

Under the 1992 340B program, pharmaceutical companies are required to sell discounted drugs to qualifying outpatient providers—such as federally qualified health centers, state AIDS drug assistance programs, and family planning, sexually transmitted diseases, and other types of clinics. Only outpatient facilities run by public hospitals or private, nonprofit facilities are eligible.

Also, qualifying facilities must have a Medicare disproportionate share percentage rating of 11.75% or greater.

"This change is vitally important to healthcare providers who serve our most vulnerable patients," Slafsky adds. "We need access to lower prices, not just in the outpatient setting, but in the inpatient setting as well, and this is an unprecedented opportunity."

Generic and brand name drugs get the discounts, including expensive infusion therapy, AIDS drugs, and sophisticated biologics.

The provision is not in the House bill that was passed on Nov. 7. Slafsky is worried it may get cut out of the final Senate-House reconciliation package because the pharmaceutical industry is vehemently opposed, he says.

A representative from Pharmaceutical Research and Manufacturers of America (PHRMA), which represents drug companies, could not be reached for comment yesterday.

"The safety net hospital community is crossing its fingers, but we're worried we may be a bargaining chip," Slafsky says.

With more patients becoming unemployed and uninsured, the discount is needed more than ever, he says.

"Our hospital will continue to struggle to survive in this difficult economy, and it's going to be difficult for them to provide the service," Slafsky says.

Provider organizations support program expansion
Hospital administrators and pharmacists have been pushing for this expansion for at least 15 years, says Andrew Lowe, director of the pharmacy department at the 456-bed Arrowhead Regional Medical Center, the county hospital in San Bernardino County, CA. He says Arrowhead would save millions annually on reduced drug prices, especially the cost of antibiotics and biologics, which have soared.

"It would enable us to cover our costs as we serve an increasing number of patients who are unable to afford their healthcare because of low income." Lowe says. "More than half of my patients are not eligible for Medicaid."

Additionally, he says, allowing expansion to inpatient drugs would "decrease some of the administrative burden we face in keeping inpatient and outpatient purchases separate. We now have two separate pharmacies."

Jim Kaufman, public policy vice president for the National Association of Children's Hospitals, says his group's members "are ecstatic" that their members are now able to participate, but says the Senate bill would solidify and streamline the process.

The National Association of Public Hospitals and Health Systems also wants the 340B expansion. "340B hospitals must pay significantly more for inpatient pharmaceuticals, amounting to an average of $1.7 million per hospital in additional costs each year," the association wrote on its Web site.

"These hospitals must also devote significant time and resources managing two drug inventories to prevent 340B drugs from being used in an inpatient setting," according to the National Association of Public Hospitals and Health Systems.

A provision in the 2003 Medicare Modernization Act allows manufacturers to offer discounted pricing on inpatient drugs as well, on a voluntary basis. But the association reported that a "survey of 340B hospitals indicated that inpatient discounts, post MMA, were received on only 12% of the most commonly used brand name drugs."

According to the National Association of Public Hospitals and Health Systems, the federal government could benefit too, depending on how the bill is ultimately worded. "Language passed by the House Energy and Commerce Committee and Senate HELP Committee would require hospitals to credit Medicaid a portion of their 340B savings on inpatient drugs administered to Medicaid patients.

"Thus, in addition to lowering inpatient drug costs for safety net hospitals, the bill would generate more than $1.2 billion in savings over 10 years for the Medicaid program, according to the Congressional Budget Office."

1