A first-of-its-kind state report shows safety-net hospitals and health care providers in Minnesota saw $630 million in extra revenue last year — and probably much more — from an obscure program funded by large discounts on medications provided by drug manufacturers.
Opaque drug discount program delivered $630 million last year to safety net hospitals, clinics in MN
First-of-its-kind report brings new transparency to a lucrative funding stream for certain health care providers, raising questions about how they use it.
The Minnesota Star Tribune
November 25, 2024 at 6:01AM
The findings, which are being released Monday by the Minnesota Department of Health, have been eagerly anticipated by health policy experts as a window into the vast sums that certain hospitals receive from a program known as “340B,” which Congress created in 1992 to help safety net providers and low-income patients. Drugmakers says it’s not clear that the program is actually helping needy patients, even as it bolsters hospitals’ bottom lines.
The program lets certain pharmacies buy medications at discounted prices, so they lose less money when drugs are dispensed to patients who lack insurance and can’t pay.
In addition, these health care providers are allowed to tap big discounts when dispensing prescriptions to people covered by health plans, thereby generating extra revenue as they charge insurers significantly more than their acquisition costs.
The new report is the first to tally up this extra revenue for health care providers, although researchers say it significantly understates the financial benefits. That’s because many health care providers didn’t provide information about office-administered drugs, which are a big source of spending in the program, said Stefan Gildemeister, state health economist with the Minnesota Department of Health.
Adjusting for this missing data, the extra revenue to health care providers might have been over $1.2 billion, Gildemeister said. The problem will be fixed, he added, in next year’s report.
“Though poorly defined and lacking transparency, the program exists to bring resources” to finance and support safety-net providers, he said. “These resources come to support charity care, deliver services that are low in revenue, [and] enable hospitals to be open 24/7 for patients when they have an emergency. … But it’s too early to know really what incentives the program establishes, whether they’re consistent with the mission and how the program revenues are used.”
The state’s largest hospitals collected about 80% of the extra revenue, according to the report, while small safety net clinics generated a relatively small amount.
It found that hospitals and clinics paid $120 million to contract pharmacies and third-party administrators, which 340B pharmacies hire to help them extend the program to more patients.
Manufacturers provide the discounts to so-called “covered entities” in the 340B program as a condition of selling drugs to the state-federal Medicaid program for low-income patients. Drugmakers have long questioned exactly what happens to all the extra revenue generated by the program.
“The program was put in place to help needy and underserved patients, but the data so far don’t indicate that that’s actually taking place,” said Drew Voytal, senior director of public affairs at PHRMA, the trade group for manufacturers. “Charity care levels are really, really low. Covered entities are getting these massive discounts, but there’s no sort of ... improvement in the charity care levels and the ability for needy and underserved patients to access care at these covered entity sites.”
In 2023, there were about 200 covered entities in Minnesota, the report found, but just 26 of these health care providers accounted for 90% of the extra revenue.
Commercial health insurers provided $343.2 million of the extra revenue, followed by $197 million from Medicare insurers and $86.6 million from private health plans in the state’s Medicaid program.
“The program has grown immensely and has become ingrained into U.S. health care, and thousands of covered entities nationwide rely on the revenue of the program,” the report says. “But much has been unknown to policymakers: the volume of net 340B revenue providers generate; the drivers of these revenues; how entities use the revenue; how the discounts offered through the 340B program possibly impact prescribing patterns, manufacturer pricing decisions, or payer reimbursement rates; and the role and impact of intermediaries.”
This is a developing story. Check back for updates.
Opaque drug discount program delivered $630 million last year to safety net hospitals, clinics in MN
First-of-its-kind report brings new transparency to a lucrative funding stream for certain health care providers, raising questions about how they use it.
