Hospitals chase lucrative drug discounts

Pharmacist Bridget McCord prepares prescriptions at Grady Memorial Hospital. It provides prescriptions for $5 or less to thousands of outpatients who are low-income or do not have insurance.

Pharmacist Bridget McCord prepares prescriptions at Grady Memorial Hospital. It provides prescriptions for $5 or less to thousands of outpatients who are low-income or do not have insurance.

At Grady Memorial Hospital, where Atlanta’s poor and uninsured are welcomed, the pharmacy charges most patients $5 or less for outpatient medications that treat everything from diabetes to cancer.

One reason Grady can offer patients such a good deal on costly pills and treatments is a little-known federal program called “340B.” That program, which saved Grady $29 million last year, requires drug makers participating in the Medicaid program to give deep discounts to hospitals that treat low-income patients.

"Without the 340B program, our ability to operate and remain financially solvent and provide these services would be sorely tested," said Rondell Jaggers, the executive director of Grady's pharmacy.

The 340B program was created in 1992 for charity hospitals like Grady that serve lots of low-income patients covered by government health plans. These days, however, Grady is hardly the only metro Atlanta hospital saving millions through the program.

Large nonprofit hospitals have become experts at qualifying for 340B, with some netting millions of dollars in discounts. But they don’t have to pass the discounts on to their patients or use the money to expand charity care programs, even though the program was created to help hospitals that serve low-income patients.

Under 340B, a qualifying hospital can get deep discounts, charge insured patients the regular price and use the profits however the hospital sees fit. So, if you’re a cancer patient getting treatment at a hospital-owned chemotherapy center, the hospital can get a huge discount on your medications, charge you and your insurance company regular prices and hold onto profits — perhaps for charity care, or maybe to pad the CEO’s next bonus.

Hospitals do not have to file reports on what they do with the savings. The federal agency that oversees the program doesn’t even have the authority to track how the hospitals use the profits, let alone demand that the money be used on care for patients who can’t afford treatments.

The evolution of 340B represents one of the many oddities of health care financing. In this case, a program that was designed to make it more affordable to provide care to needy people today offers the biggest financial payoffs to hospitals that have lots of paying patients.

Northside Hospital in Atlanta gets 340B discounts at scores of outpatient sites all over Atlanta, stretching from Cumming to Stockbridge and from Douglasville to Conyers. Yet, the hospital is hardly a leader in caring for those who can’t afford to pay. According to cost reports filed with the federal government, charity care consumed just 1.7 percent of Northside’s expenses in 2016.

At Grady, charity care accounted for 16 percent of the hospital’s costs.

Emory Healthcare found a way to get 340B discounts at all of its outpatient cancer clinics – including those in affluent areas — even though Emory Midtown is the only Emory hospital that qualifies for the program. At these outpatient clinics located across metro Atlanta, 2 percent of the charges were for uninsured patients. Charity care accounted for less than 3 percent of expenses at Emory Midtown last year.

In recent years, a whole industry has evolved to help hospitals get into the program and max out the benefits. The number of Georgia hospital treatment sites approved for the discounts has tripled since 2013, according to an AJC review of federal data.

Hospitals say they desperately need the program to maintain the vast range of services they provide to their communities. But critics say too many hospitals across the country are focused on getting the 340B discounts to reap extra profits instead of serving the poor and uninsured the way Grady does. They also complain that 340B is helping some hospital systems expand in ways that ultimately make health care more expensive for patients.

Sen. Charles Grassley, R-Iowa, said a report by congressional watchdogs raised questions about possible misuse of the program. “We need more transparency about how hospitals use this program and the effects on the rest of the health care system,” Grassley told the AJC.

Dr. Erin Dunbar is among those calling for changes that would refocus the discount program so that it does more to support smaller hospitals and independent doctors.

An oncologist who treats brain and spine tumors at Piedmont Atlanta Hospital, Dunbar said patients need specialists and community hospitals to stay afloat. That way, patients can get care as close to home as possible, not just at large big-city health systems like the one she works for.

She said 340B is a 25-year-old system that leaves out key players, demands too little accountability and needs to get back to its original mission.

"We want to do everything in our power," Dunbar said, "to make sure these cost savings go to rural hospitals and community physicians and patients who need access to these drugs."

Discounts at ‘child sites’

The outpatient infusion center at Emory Saint Joseph’s Hospital in the Atlanta suburbs is considered to be part of Emory’s hospital in Midtown, which is in Atlanta’s urban core.

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Emory patients who pull into outpatient cancer clinics next to Emory Johns Creek, Emory Saint Joseph’s or Emory University Hospital on the Emory campus know they’re not in the center of Atlanta. But since 2014, patients getting outpatient cancer care at any Emory facility are “at” Emory Midtown for billing purposes.

Emory Midtown is the only Emory hospital that treats enough low-income patients to qualify for 340B.

But the rules of the program allow qualifying hospitals to adopt “child sites” at other locations, and that’s how Emory and other hospitals have expanded the reach — and the potential profits — of 340B.

Other Atlanta hospitals have pursued a similar 340B strategy. An outpatient cancer-treatment facility that is part of the WellStar Kennestone campus in Marietta is considered part of WellStar Cobb, which qualifies for 340B discounts that Kennestone can’t get.

Many hospitals extend their 340B discounts to outpatient locations far from their qualifying hospitals. Others, such as Piedmont Healthcare, are more conservative. Piedmont limits its participation to sites near its qualifying hospitals. Piedmont Atlanta Hospital does not qualify.

Emory and Grady were the only Atlanta hospitals that agreed to tell the AJC the value of their 340B discounts and the details of how they used the savings.

Erin Hendrick, who is Emory Midtown’s chief operating officer and a pharmacist, argued passionately that the money Emory saves through the program is used to directly benefit patients.

Emory saved about $15 million through the 340B program last year, she said.

The savings helped the hospital provide millions of dollars in free drugs to outpatients over the past 18 months, primarily for cancer care, and also open an outpatient pharmacy last year at Emory Midtown that gave away more than 5,000 prescriptions to uninsured patients, she said.

The discount program also paid for Emory Midtown to renovate its pharmacy, hire more staff and give discounts to patients who had such high deductible insurance plans that they planned to forgo cancer treatment because they couldn’t afford the medications.

“We spend a lot of time making sure that we are using the program in the way it was intended — for our patients — because it is extremely important to us,” Hendrick said.

Questions about value

How much Northside Hospital saved through the 340B program is unclear. The hospital declined to provide the information, when the AJC asked.

In a statement to the AJC, Northside spokesman Lee Echols said Northside patients, especially those being treated for cancer, have benefited from the program. He said the discounts give Northside patients “better and consistent access to important medications.”

According to federal reports reviewed by the AJC, charity care for uninsured patients cost Northside Hospital-Atlanta $18.2 million during the most recent fiscal year — less than 2 percent of the hospital’s total expenses. Northside pointed out that it spends more on other types of uncompensated care: bad debts and costs that government health plans don’t cover.

The public got a glimpse of how valuable the 340B discounts can be in 2013, after Duke University responded to questions from Sen. Grassley. The university’s health system, which primarily serves patients with health plans, paid $65.8 million for discounted drugs in 2012 that it sold to its patients for $135.5 million.

Northside’s benefits through 340B have likely swelled since 2013, when it took over two large oncology practices with offices throughout Atlanta. Northside converted the offices to outpatient hospital locations that became 340B “child sites” of Northside in 2014.

“The 340B program is available to hospitals only,” wrote Echols, the Northside spokesman. “Thus, hospital-owned physician practices are eligible to participate – another benefit to both physicians and patients of hospital-owned practices.”

Independent doctors struggle

Some doctors complain that 340B makes it harder for them to stay independent at a time when hospitals are buying up physician practices left and right.

Healthcare is a “cat and mouse” game where doctors and hospitals change to chase the latest and largest payments, said Chris Kane, an Atlanta-based consultant with Progressive Healthcare.

Hospitals do not acquire physician practices because of 340B discounts alone, Kane said. “They acquire practices for other reasons, and to optimize the acquired practice they will look at where 340B will apply,” he said. Oncology is an obvious case, he said, because the discounts are especially attractive with high-cost specialty drugs.

Hospitals say patients can benefit from being part of a large health care system that can coordinate care and offer plenty of resources. However, doctors say patients can lose out on the boutique experience of going to a small office, while also facing higher bills because hospitals can often charge more than an independent physician can for similar services.

“The big negative is the cost of care is being driven up dramatically,” said Dr. Bruce Gould, an oncologist who practices in Marietta and believes 340B has pushed many doctors to throw in the towel and go to work for big hospital systems.

Dunbar, the Piedmont Atlanta Hospital oncologist, worries about what all of these trends will mean for patients. She wants a health care system that offers patients access to the most cutting-edge drugs and procedures at large hospitals, combined with the opportunity to get most of their care close to home. She worries about the struggles of doctors in private practice who can’t get some of the financial benefits hospitals reap these days.

"The challenge is that almost every law or rule or good intended policy that we put out in the health care system, it winds up evolving toward benefiting people that can make it benefit them," she said, "and sometimes that means that physicians have to stand up and advocate so that patients do not lose out."

Grassley, the Iowa senator, said the program has helped stretch prescription drug dollars. But he is concerned about a 2015 Government Accountability Office report that found that hospitals getting discounts through 340B were prescribing more drugs, or more expensive drugs, than hospitals that weren’t in the program. The report questioned whether potential profits of the program influenced prescribing.

“For patients, being prescribed more expensive drugs in Medicare Part B could mean paying higher out-of-pocket costs in deductibles and co-payments,” he said. “For taxpayers, more expensive drugs mean higher costs, and federal health care programs already account for a big part of government spending.”

The only way to find out if the program is working, Grassley said, is for hospitals to disclose how they use the discounts. “Hospitals should be as transparent as possible about how they use the program and why,” he said.

A congressional committee this month expressed concerns about the program and requested documents from the agency that oversees the program. President Donald Trump’s budget proposal called for more oversight.

Helping those in need

Hospitals across the country are opposed to significant changes to 340B, saying the push for change is really coming from profitable drug companies that can make even more money if they do not have to give the discounts. At a time when health care faces so many challenges, nonprofit hospitals say they need the discounts more than pharmaceutical companies need more cash.

Others say if everyone would use the savings like Grady Memorial Hospital does, then there wouldn’t be so much controversy around the program.

Sunday Simmons gets medical care at Grady Memorial Hospital to control her diabetes. After her husband lost his job, they lost health insurance. She is able to get outpatient prescriptions for $5 each.

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Grady filled 811,000 outpatient prescriptions last year — 52 percent for patients without insurance. Sunday Simmons is one of them. Simmons, who is in her 50s and has diabetes, lost her insurance coverage after her husband lost his job. When she went to see a doctor at Grady she told him she couldn’t afford needed medications, such as insulin which usually cost her $200. Her doctor told her to go to the Grady pharmacy and not to worry.

“When the guy told me my insulin was $5, I almost hit the floor,” Simmons said. “I said $5? I was shocked, tears came to my eyes.”

She got her blood testing strips for $5, too.

"If it wasn't for Grady, I do not know where I would be," she said. "I wouldn't be able to see a doctor, I wouldn't be able to get my medication. I would be one of those statistics… . I would probably be dead."

Saving money on drugs

To have their drugs covered by Medicaid, pharmaceutical companies must provide deep discounts on outpatient drugs to eligible healthcare providers.

Hospitals qualify for the program, in part, if they meet a certain threshold as a “Disproportionate Share Hospital” — a designation based on the number of patients a hospital treats who are both poor and covered by government health plans. Some health centers, Ryan White clinics, state AIDS Drug Assistance programs, children’s hospitals and safety net providers also can qualify.

The U.S. Health Resources & Services Administration oversees the program. The Atlanta Journal-Constitution studied the agency's database of participating healthcare providers to determine how extensively metro Atlanta hospitals were using the program. The AJC also studied Medicare cost reports maintained by to study charity care provided by hospitals that participate in the 340B program.