As the ACA Stands Up, Can Programs for the Uninsured Stand Down?

March 25th, 2014

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It is clear that HealthCare.Gov is working better. Enrollment figures are climbing. Over 5 million Americans have selected a plan through the federal and state marketplaces, and another 6.3 million are getting coverage through Medicaid. While problems remain, the level of interest in getting coverage has grown—to as many as 2 million visits to the federal website in one day.

But amid these public proof points will be another less obvious measure of success—a decline in the need for a patchwork of programs designed to help the poor who continue to lack coverage despite the Affordable Care Act (ACA).

One of those programs, called the 340B Drug Pricing Program, however, shows no signs of slowing down. The 340B program supports clinics and hospitals that serve a high proportion of low-income and elderly patients. 340B requires drug manufacturers to provide discounts to hospitals and clinics that generally serve low-income patients or other groups like HIV-AIDS patients. The program allows hospitals and clinics to dispense the drugs purchased through 340B to their patients who may have their own private insurance coverage and pocket the difference between their deeply discounted purchase price and the amount that a health plan reimburses for the drug. For example, hospitals like Denver Health, which is the public safety-net provider for the city, have used 340B to expand services for at-risk patients. The discounts range from 20% to 50% off the cost of drugs. Those discounts are often bigger than the discounts required of drug manufacturers for Medicaid patients. Federal auditors have found that Denver Health is compliant with program requirements. But they also have found many other facilities to be out of compliance under current federal policy. Moreover, current law and regulations may be inadequate to ensure 340B is truly helping vulnerable Americans.

The potential for revenue from the 340B program has attracted a growing number of health care providers. The number of hospitals participating has grown from 591 in 2005 to 1,673 in 2011 according to the General Accountability Office (GAO). Provider interest in the program as well as expansions through legislation and regulation have increased the size of the program well beyond the original group of about 90 hospitals in the initial legislation in 1992. Today, the program is built on complex, profit-splitting arrangements between hospitals and their clinics, pharmacies, and private companies that facilitate the technology and arrangements.

The size of 340B has also grown in terms of dollars. The value of these drugs sold under the 340B program amounted to $6 billion in 2011 and is projected to grow rapidly.  Because providers – not the federal government – purchase these drugs, the cost does not appear in the federal budget. But if the cost of the drugs were part of the federal budget, the 340B program would be larger than the Low Income Energy Assistance Program.

Consultants are also facilitating the growth of the program. The New York Times has written about the rise of a cottage industry devoted to helping hospitals generate revenue from the 340B program. Large conferences attract hundreds of hospitals eager to learn about the revenue potential.

The ACA called for a GAO investigation of the program. The 2011 study found that many 340B participating facilities are generating revenue from the program and using this revenue for patient care, as required by the law. However, there are also numerous cases of abuse, and GAO found that the responsible federal agency, the Health Resources and Services Administration (HRSA), has provided poor oversight.

More recently, however, HRSA has stepped up its oversight with audits of participating facilities, which found problems in the books of nearly two-thirds of the hospitals and other providers audited. Congress has signaled its support for stronger oversight with $6 million in funding for a program integrity initiative in the recent budget deal. In addition, HRSA plans to issue a major regulation this year to improve the program’s integrity. This would be a welcome step, and the agency has an opportunity to help assure lawmakers and the public that the program is not out of control. For example, the new rule could update the definition of a patient to prevent unintended uses of the 340B program and require transparency for the use of 340B revenue, which are two points on which critics and advocates of 340B agree.

As the ACA is implemented, it is critical to ensure that care for the most vulnerable is not threatened. Because of that, the pace for winding down the patchwork of programs for the uninsured depends in part on how fast the network of coverage expands. In red states where officials have stymied attempts to expand Medicaid, hospitals in particular are vulnerable to cuts in funding through other federal programs. A Medicare program known as “disproportionate share,” which boosts payments to hospitals that care for the poor and uninsured, is slated for cuts to help cover the costs of coverage expansion under the ACA. When the Supreme Court ruled that states have the option to decide whether or not to expand Medicaid, it left many hospitals vulnerable to staff cuts and even closures in states that are not expanding Medicaid.

Given the uncertainty facing safety net hospitals, no one is proposing to end programs like disproportionate share and 340B. In fact, it is very likely that some version of these programs will be needed for the foreseeable future because, under the best-case scenario, the ACA will still leave millions without adequate coverage. But the Administration has an opportunity to bolster the oversight of programs like 340B to ensure the most vulnerable are protected and no one is abusing the program. That will make it easier when the time comes to recalibrate safety net programs for a level of services appropriate to the number of remaining uninsured.

Updated on March 25, 2014 for the latest ACA enrollment numbers and to clarify the description of the 340B program, its relationship with the federal budget, and the potential for agreement in the forthcoming regulation from HRSA.