The 340B Drug Pricing Program, enacted in 1992, gives hospitals and other providers serving disproportionately low-income populations the ability to buy outpatient prescription drugs at large discounts. It has come under increased scrutiny lately, though, as more and more people have questioned whether the program is actually fulfilling its purpose.
Criticism of the program has ramped up recently with charges that some hospitals are raking in large profits by taking the discounts from manufacturers and instead selling the drugs through hospital-affiliated clinics to higher-income/insured patients at the price the insurer pays. With eligibility for the 340B program determined based on a hospital's inpatient population, critics charge that this creates an incentive to serve more people in off-site outpatient settings located in wealthier areas. Hospitals deny this claim, saying that the program has served its intended purpose -- either the drugs are provided to vulnerable patients or the money is spent on expanding low-income access to care.
A new study published in Health Affairs by Rena Conti and Peter Bach examined characteristics of hospitals that participate in 340B and sided with the critics. They looked at those hospitals that also received Disproportionate Share Hospital (DSH) payments and saw how their communities changed over time. The number of 340B DSH hospitals has increased steadily since 340B's inception; however, the authors note a sizeable uptick in the growth rate of not only those hospitals but also of hospital-affiliated clinics starting in 2003. The number of clinics increased even more dramatically after 2010 when the Affordable Care Act expanded the types of providers that could qualify for 340B.
During the recent slowdown in Medicare spending, the prescription drug portion of the program, Part D, has been the lead actor in the story. The unexpectedly slow growth of prescription drug costs has made Part D cost much less than anticipated. But a new CBO working paper by Andrew Stocking, James Baumgardner, Melinda Buntin, and Anna Cook shows how Part D costs could be further controlled by improving the design of Medicare Part D's Low-Income Subsidy (LIS).
For background, the LIS helps people below 150 percent of the federal poverty line (FPL) afford the costs associated with Part D prescription drug plans. For those with income below 135 percent of the FPL, the LIS covers all premiums as long as the beneficiary chooses a plan that costs below the region's benchmark (ranging between about $20 and $40 per month in 2014), pays the entire deductible, and leaves minimal co-pays for drugs (for those between 135 and 150 percent of the FPL, the LIS covers a portion of each of these items). If LIS beneficiaries choose a plan with a premium above the benchmark, they pay the difference. If a plan that costs below the benchmark in one year moves above the benchmark in the next, Medicare automatically re-assigns beneficiaries to a plan below the benchmark unless they actively choose to stay with the plan or had proactively chosen their Part D plan originally.
The working paper looks at the difference in responses to competitive pressures from LIS and non-LIS beneficiaries and plans. Not surprisingly, LIS beneficiaries tend to be in less expensive plans because of the automatic assignment to plans at or below the benchmark; 87 percent of LIS beneficiaries are in a plan that is within 50 percent of the least expensive plan in the region, compared to two-thirds of non-LIS beneficiaries. But the authors note that plans catering to LIS beneficiaries tend to increase their premiums in the next year if they fall below the benchmark, since they have little incentive to have lower premiums once they are below; plans are estimated to raise monthly premiums by between $6.90 and $9.70 if they fell $10 below the benchmark in the previous year. Furthermore, the addition of a new plan sponsor into a region is estimated to lower plan bids by 0.5-0.8% for non-LIS plans, but only 0-0.2% for LIS plans.
With today's release of the Congressional Budget Office's (CBO) final Monthly Budget Review for Fiscal Year (FY) 2014, many will be focused on the final 2014 deficit, but it also shows that Medicare clocked its fourth-lowest annual growth rate in history, at just 2.7 percent.
We have been closely following the unusually slow growth of Medicare throughout this year, and also documenting the program's "underlying" growth rate, or what growth would be with temporary or phased-in legislative cuts removed from the calculation*. Dechipering this underlying growth rate should provide a truer picture of the magnitude of Medicare's cost slowdown.
Interestingly (though not surprisingly), the three years with slower growth than this year -- 1998, 1999, and 2013 -- coincided with similar temporary or phased-in cuts.
For 2014, Medicare's underlying growth rate ended up at 4.9 percent, roughly one percentage point faster than both economic and beneficiary growth. Therefore, even removing these temporary effects, Medicare still grew slower than general inflation on a per beneficiary basis.
It is no secret that the 113th Congress has had little success reaching agreement on major policy changes, so its lackluster results on a report card from The National Coalition on Health Care (NCHC), grading lawmakers in the health care arena, should come as little surprise.
NCHC even graded on a curve by looking only at three areas where it initially saw promising prospects for bipartisan cooperation: modernizing physician payments/repealing the Sustainable Growth Rate (SGR) formula, increasing price and quality transparency, and strengthening Medicare by making it more efficient. NCHC handed out a D+ for strengthening Medicare, failed Congress on transparency, and gave it an incomplete on SGR repeal and physician payment reform, subject to revision based on what happens in the lame duck session after the November elections.
SGR Repeal/Physician Payment Reform
Arguably the area with the most immediate prospects for action is permanent SGR repeal and replacement. As we discussed a few weeks ago, some lawmakers are targeting the lame duck session to repeal the SGR in order to capitalize on the progress they've made during this congressional session, even though the current "doc fix" does not expire until April. There is a bipartisan framework to replace the SGR with a system to encourage physicians to participate in alternative payment models, moving Medicare away from fee-for-service reimbursement. However, lawmakers have not agreed on offsets for the bill, which could cost between $150 billion and $200 billion over ten years. The partisan bills that saw the light of day were not encouraging.
NCHC gave lawmakers an incomplete on this category but said it would give them an F if there was no further action. We also will give them an F if they pass a permanent doc fix without legitimate offsets.
Quality and Price Transparency
Two weeks ago, we discussed results from two different Accountable Care Organization (ACO) programs in Medicare, which showed an improvement in quality but only modest savings so far. But ACOs are still in their early stages, giving policymakers plenty of opportunities to learn lessons on how to fine-tune them to better serve Medicare beneficiaries and taxpayers. Last week, Reps. Diane Black (R-TN) and Peter Welch (D-VT) released a bill (H.R. 5558) to do just that, establishing greater incentives for high-quality, low-cost care from providers and more engagement with patients. Many of these goals are consistent with policy options that were discussed at the Dartmouth Medicare conference, co-sponsored by Fix the Debt, where experts emphasized ways to achieve more coordinated care and better patient engagement.
The bill would make a number of changes to give ACOs greater flexibility to accomplish their goals, specifically:
- Providing regulatory relief for ACOs that use two-sided risk models and that make greater use of telehealth and remote patient monitoring;
- Authorizing reduced cost-sharing for primary care services; and
- Allowing ACOs to establish other incentive programs for patients to ensure their own wellness.
In addition, beneficiaries would be prospectively assigned an in-network primary care physician, who would be required to give beneficiaries information about the ACO at initial check-ups.
Congress might not be too popular these days, but quietly a week and a half ago, they passed a small but important bill that could pave the way for Medicare delivery system reforms. Just before leaving town, the House and the Senate each passed the Improving Medicare Post-Acute Care Transformation, or IMPACT, Act of 2014 (H.R. 4994), by unanimous consent.
The National Law Review framed it appropriately:
The bill would enact data standardization across various post-acute care settings which could feed into various site-neutral and bundled payment initiatives. These initiatives could take a number of forms including independent legislation that targets the post-acute care sector, inclusion in broader payment reform efforts like the Medicare physician payment formula (SGR), and/or in efforts out of the Centers for Medicare and Medicaid Services (CMS) via demonstration authority. As we have noted in the past, post-acute care remains one of the top areas where health policy experts anticipate promising Congressional action this and next year. For example, post-acute care has been a priority for Senate Finance Committee Chairman Ron Wyden and is an area ripe for significant delivery and payment reforms.
The bill itself has little impact on the budget, increasing spending by $222 million to satisfy the new data requirements, offset by penalties for Skilled Nursing Facilities (SNFs) that don't satisfy the reporting requirements and reductions in caps on payments to beneficiaries in hospice care. The bill overall would save money but rather than use the net savings to reduce the debt, it adds $195 million to the "Medicare Improvement Fund," which hasn't actually funded Medicare improvements but serves as a sort of piggy bank to pay for doc fixes and other health policies.
Judd Gregg, a former Republican senator from New Hampshire, served as chairman of the Senate Budget Committee from 2005 to 2007 and ranking member from 2007 to 2011. He recently wrote an op-ed featured in The Hill. It is reposted here.
At Dartmouth College in New Hampshire, there was recently a gathering of major healthcare public policy experts, senior staff of congressional health committees, and people concerned about both the health of Medicare and the health of the nation’s fiscal situation.
It was a small group with a specific goal: To come up with some doable proposals that are bipartisan in nature and can be used both to improve the delivery of Medicare to seniors and to reduce its unsustainable cost path, which is a large driver of the nation’s debt.
It was called “The Dartmouth Summit.”
A new bipartisan bill seeks to drive down prescription drug costs for consumers and the federal government.
The Fair Access for Safe and Timely Generics Act or FAST Generics Act (H.R. 5657) was introduced late last week by Rep. Steve Stivers (R-OH) and Rep. Peter Welch (D-VT). It's goal is to close a loophole in drug safety rules (Risk Evaluation and Mitigation Strategies, or REMS) that allows name-brand drug manufactures to withhold access to some drug samples from generic manufactures, who generally use these samples to help produce safe and cheaper generic versions of drugs.
This bill comes on the heels of a report by Matrix Global Advisors that estimated:
[the] delay [in] generic market entry for these products totals $5.4 billion in lost savings to the U.S. health care system annually. The federal government bears a third of this burden, or $1.8 billion… Among government health care programs, Medicare, which accounts for nearly 26 percent of total U.S. prescription drug spending, experiences lost savings of $1.4 billion annually. The economic cost to Medicaid (both federal and state) totals $400 million.
The Centers for Medicare and Medicaid Services released some mixed news on Tuesday for health care reformers -- the results of two different Medicare Accountable Care Organization (ACO) programs in 2013. Twenty-three Pioneer ACOs and 220 ACOs in the Medicare Shared Savings Program (MSSP) generated somewhat modest savings of $372 million for Medicare while qualifying for shared savings payments of $445 million. Both programs performed better on quality benchmarks and patient experience compared to fee-for-service (FFS) Medicare. ACOs are one model that many reformers hope will provide a path forward for better coordinated, higher quality, and more affordable care delivery.
The Pioneer ACOs involve organizations and providers that are more experienced in coordinating care, so they are already on the second year of the program and have more ambitious savings targets. The Pioneers may share in savings if they exceed those targets but also face risk if they fail to meet them, unlike most MSSP ACOs. Overall, Pioneer ACOs saved $96 million, $41 million for the Medicare trust funds, and qualified for $68 million of shared savings payments. Eleven of the 23 ACOs qualified for those payments, while 3 had losses.
Earlier in the week, we highlighted a portion of CBO Director Doug Elmendorf's presentation at Cornell University highlighting the increased resources going to health care, Social Security, and interest spending to the detriment of the rest of the budget. In addition, the slideshow contained other helpful charts showing how the federal budget could change over the next decade, the choices policymakers face to alter the trajectory of debt, and a further look at the impacts of the Affordable Care Act. Here are some of the more interesting charts from that presentation.
Putting Debt on a Sustainable Path Requires Significant Changes
With debt set to continue to rise as a percent of GDP, simply maintaining the status quo will require significant changes. Keeping debt stable at its current elevated level of 74 percent of GDP for the next 25 years would require $2 trillion of savings over ten years, twice as much as the savings in the President's budget. Getting debt close to its historical average of 40 percent of GDP in 25 years will require $4 trillion in ten-year savings.
Individual Income Tax Revenue is the Only Growing Revenue Stream
CBO's ten-year projections show only a modest rise in revenue as a share of GDP over the next decade, from 17.5 percent to 18.2 percent, and in fact from 2015 to 2024 revenue will remain roughly flat.