Today s Agenda. Statement of Conflicts of Interest 7/9/2015

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1 Geri Brennan Assistant Director, Health Care United States Government Accountability Office Statement of Conflicts of Interest Geri Brennan has no actual or potential conflict of interest in relation to this presentation. 2 Today s Agenda Overview of GAO Background on GAO s work related to the 340B Program Discussion of GAO s recent report examining hospital participation in the 340B Program and implications for Medicare and its beneficiaries 3 1

2 CE Question True or False: Medicare reimburses each hospital for Part B drugs based its drug acquisition costs. 4 About GAO Independent non partisan agency that works for Congress. Often called the "congressional watchdog," GAO investigates how the federal government spends taxpayer dollars. Our Mission is to support the Congress in meeting its constitutional responsibilities and to help improve the performance and ensure the accountability of the federal government for the benefit of the American people. We provide Congress with timely information that is objective, fact based, nonpartisan, nonideological, fair, and balanced. 5 GAO s Past 340B Work DRUG PRICING: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement (GAO ), September 2011 DRUG DISCOUNT PROGRAM: Status of GAO Recommendations to Improve 340B Drug Pricing Program Oversight (GAO T), March

Our Mission is to support the Congress in meeting its constitutional responsibilities and to help improve the performance and ensure the accountability of the federal government for the benefit of

3 GAO s Recent 340B Report MEDICARE PART B DRUGS: Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals (GAO ), June Why GAO Did This Study Approximately 40 percent of all U.S. hospitals participate in the 340B Program. The majority of 340B discounted drugs are sold to hospitals. Medicare reimburses hospitals for Part B drugs under a statutory formula regardless of the prices hospitals paid for the drugs. Questions about the increase in hospital participation and implications for Medicare and its beneficiaries. 8 Research Objectives 1. Compare 340B hospitals with non 340B hospitals in terms of financial and other characteristics. 2. Compare spending for Medicare Part B drugs at 340B hospitals with spending at non 340B hospitals. 9 3

Medicare reimburses hospitals for Part B drugs under a statutory formula regardless of the prices hospitals paid for the drugs.

4 Methods To examine hospital characteristics we analyzed two sources of data: Medicare Cost Reports (2012), and Health Resources and Services Administration (HRSA) Covered Entity Database (2008 and 2012). To examine Medicare spending for Part B drugs we analyzed three sources of data: Medicare claims data (2008 and 2012), Medicare Cost Reports (2008 and 2012), and HRSA s Covered Entity Database (2008 and 2012). All of our analyses of 340B hospitals were limited to 340B DSH hospitals because they account for nearly 80 percent of all 340B drug purchases. 10 Methods Compared hospital characteristics and payments for 340B DSH hospitals to two groups of hospitals: Non 340B DSH hospitals, and Other non 340B hospitals. Spoke with stakeholders including: three groups representing drug manufacturers, and three groups representing 340B hospitals B DSH Hospitals were Generally Larger than Non 340B Hospitals Median Value for Certain Characteristics of 340B Disproportionate Share Hospitals (DSH) and Non 340B Hospitals, B DSH Hospitals (N=925) Non 340B DSH Hospitals (N=1,461) Other Non 340B Hospitals (N=567) Total facility $221,798,171 $124,953,410 $86,558,543 revenue Medicare revenue $47,056,462 $27,095,156 $17,989,741 Number of inpatient beds Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) and Health Resources and Services Administration (HRSA) data. GAO Notes: This table is based on analysis of 2012 data from CMS s hospital cost reports and HRSA s 340B covered entity database. 340B DSH hospitals qualified for the 340B Program because they either had a Medicare DSH adjustment percentage greater than or met DSH alternative criteria and they met other specified criteria. Non 340B DSH hospitals received DSH payments, but did not participate in the 340B Program. Other non 340B hospitals did not receive DSH payments and did not participate in the 340B Program. The analysis excluded hospitals that were located outside the 50 states and Washington, D.C.; were not an acute care hospital; or were paid under a Medicare system other than the prospective payment system. 12 4

To examine Medicare spending for Part B drugs we analyzed three sources of data: Medicare claims data (2008 and 2012), Medicare Cost Reports (2008 and 2012), and HRSA s Covered Entity Database (2008

5 340B DSH Hospitals Generally Provided More Uncompensated Care than Non 340B Hospitals, with Notable Exceptions Median Amount of Uncompensated Care Provided by 340B Disproportionate Share Hospitals (DSH) and Non 340B Hospitals, as a Percentage of Total Facility Revenue, and Percentage of each Hospital Type That Provided Low Amounts of Uncompensated Care, B DSH Non 340B DSH Hospitals Hospitals (N=925) (N=1,461) Uncompensated care as a percentage of total facility revenue Percentage of hospitals that provided low amounts of uncompensated care Other Non 340B Hospitals (N=567) Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) and Health Resources and Services Administration (HRSA) data. GAO Notes: This table is based on analysis of 2012 data from CMS s hospital cost reports and HRSA s 340B covered entity database. 340B DSH hospitals qualified for the 340B Program because they either had a Medicare DSH adjustment percentage greater than or met DSH alternative criteria and they met other specified criteria. Non 340B DSH hospitals received DSH payments, but did not participate in the 340B Program. Other non 340B hospitals did not receive DSH payments and did not participate in the 340B Program. The analysis excluded hospitals that were located outside the 50 states and Washington, D.C.; were not an acute care hospital; or were paid under amedicare system other than the prospective payment system. We considered hospitals to have provided a low amount of uncompensated care if the reported amount, as a proportion of total facility revenue, was within the bottom quartile across all hospitals in our analysis. 13 Per Beneficiary Part B Drug Spending was Substantially Higher at 340B DSH Hospitals Compared with Non 340B Hospitals Average Per Beneficiary Medicare Part B Drug Spending in 2008 and 2012 among Hospitals That Did Not Change 340B Status $160 $144 $140 $120 $ B DSH in both 2008 and 2012 $80 $58 $60 $62 Non 340B DSH in $60 both 2008 and 2012 $40 $20 $27 $27 Other non 340B in both 2008 and 2012 $ Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) and Health Resources and Services Administration (HRSA) data. GAO Note: This figure is based on analysis of 2008 and 2012 data from CMS s Medicare outpatient claims and hospital cost reports, and HRSA s 340B covered entity database. The analysis included B DSH hospitals, 1,183 non 340B DSH hospitals, and 435 other non 340B hospitals. 340B DSH hospitals qualified for the 340B Program because they had either a Medicare disproportionate share hospital (DSH) adjustment percentage greater than or met DSH alternative criteria and they met other specified criteria. Non 340B DSH hospitals received DSH payments, but did not participate in the 340B Program. Other non 340B hospitals did not receive DSH payments and did not participate in the 340B Program. The analysis excluded hospitals that were located outside the 50 states and Washington, D.C.; were not an acute care hospital; were paid under a Medicare system other than the prospective payment system; changed participation groups between 2008 and 2012 (e.g., 340B DSH in 2008 but non 340B DSH in 2012); or did not serve at least one outpatient beneficiary. Per beneficiary spending is based on the number of unique outpatient beneficiaries served by each hospital in each year. All spending is in 2012 dollars, adjusted using the consumer price index for all goods and services purchased for consumption by urban households. 14 Differences in Spending were Not Explained by the Factors we Examined Teaching status Ownership type Location (urban or rural) Factors that might disproportionately affect hospitals that treat higher proportions of low income patients Health status of the Medicare outpatient beneficiaries 15 5

Hospitals (N=925) (N=1,461) Uncompensated care as a percentage of total facility revenue Percentage of hospitals that provided low amounts of uncompensated care Other Non 340B Hospitals (N=567) 7.4 6.

6 Differences in Per Beneficiary Part B Drug Spending May Reflect Responses to Incentives in the 340B and Medicare Programs Medicare uses a statutorily defined formula to pay hospitals for Part B drugs, which CMS cannot alter based on individual hospital s acquisition costs. The 340B statute does not restrict covered entities from using drugs purchased at the 340B price for Medicare Part B beneficiaries. Consequently, there is a financial incentive at 340B hospitals to prescribe more drugs or more expensive drugs to Medicare beneficiaries the substantially higher Part B drug spending at 340B hospitals may reflect responses to this incentive. 16 Implications for Medicare and its Beneficiaries Excess spending on Part B drugs: increases the burden on both taxpayers and beneficiaries who finance the program through their premiums, and has direct financial effects on beneficiaries who are responsible for 20 percent of the Medicare payment for Part B drugs. 17 CE Question True or False: Medicare reimburses each hospital for Part B drugs based its drug acquisition costs. 18 6

The 340B statute does not restrict covered entities from using drugs purchased at the 340B price for Medicare Part B beneficiaries.

7 CE Question True or False: Medicare reimburses each hospital for Part B drugs based its drug acquisition costs. Answer: FALSE. Medicare uses a statutorily defined formula to pay hospitals for Part B drugs, which CMS cannot alter based on an individual hospital s acquisition costs. 19 Additional Questions? James Cosgrove Director, Health Care United States Government Accountability Office 441 G Street NW Washington, DC Phone: cosgrovej@gao.gov 20 7

Medicare uses a statutorily defined formula to pay hospitals for Part B drugs, which CMS cannot alter based on an

MEDICARE PART B DRUGS. Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals

MEDICARE PART B DRUGS. Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals United States Government Accountability Office Report to Congressional Requesters June 2015 MEDICARE PART B DRUGS Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals