NC hospitals reap profits from discount drugs

aalexander@charlotteobserver.com, jneff@newsobserver.com, kgarloch@charlotteobserver.comApril 2, 2013 

  • The story so far

    Last April, The News & Observer and The Charlotte Observer published a five-part investigation showing that North Carolina nonprofit hospitals had recently generated record profits, inflated prices on drugs and procedures, paid two dozen executives more than $1 million a year and sued poor patients who were having trouble paying their bills or sent their accounts to collection agencies.

    A subsequent investigation showed that hospitals had dramatically inflated prices on chemotherapy drugs. That report led to Sen. Chuck Grassley’s inquiry into the 340B program.

An inquiry by a U.S. senator has found that three nonprofit hospitals in North Carolina have made millions from a discount drug program intended to help the poor and uninsured.

Hundreds of hospitals nationally, including more than 40 in North Carolina, obtain deep discounts on outpatient drugs under a rapidly growing federal program called 340B. The plan requires drug manufacturers to cut prices to hospitals that treat large numbers of financially needy patients.

But U.S. Sen. Chuck Grassley, an Iowa Republican, says information he obtained from Durham-based Duke University Hospital, UNC Hospitals in Chapel Hill and Carolinas Medical Center in Charlotte has added to his questions about whether the program is functioning as intended.

Last year, Duke University Hospital purchased $65.8 million in drugs through the program and received $135.5 million in revenue. Duke says it saved $48.3 million buying the drugs through the 340B program. That means the hospital made a profit of $69.7 million instead of $21.4 million if it had not participated in the program.

But 67 percent of Duke patients who received those discount drugs were covered by commercial insurance companies, which often pay hospitals many times over cost for medications. Only 5 percent of the Duke patients were uninsured.

Nonprofit hospitals are exempt from property, sales and income taxes. In exchange, federal officials expect them to provide a benefit to their communities, in part by providing care to those who can’t afford it. In this case, Duke’s savings on the discounted drugs were significantly more than the free or reduced-price care that the hospital provided to the poor during 2011: $35.2 million.

340B called into question

“These numbers paint a very stark picture of how hospitals are reaping sizeable 340B discounts on drugs and then turning around and upselling them to fully insured patients … in order to maximize their spread,” Grassley wrote in a letter last week to the administrator of the Health Resources and Services Administration, the federal agency that oversees the drug program.

Grassley, Congress’ leading critic of nonprofit abuses, requested information from the three North Carolina hospitals in September in response to an investigation by The News & Observer and The Charlotte Observer. Those stories found that large nonprofit hospitals were dramatically inflating prices on chemotherapy drugs – often two to 10 times over cost – at a time when they are cornering more of the market on cancer care.

“If ‘non-profit’ hospitals are essentially profiting from the 340B program without passing those savings to its patients, then the 340B program is not functioning as intended,” Grassley wrote in his letters to the hospitals.

UNC Hospitals reported receiving $65.4 million in revenue from drugs bought through the program. UNC officials said they were unable to calculate the profit figures for the drugs.

Carolinas Medical Center has not yet answered Grassley’s questions about how much revenue it has generated from the program. But in response to the senator’s inquiry, the Charlotte hospital said it was able to save about $21 million from its participation in the program in 2011 – up from about $13 million in 2008.

About 42 percent of CMC’s 340B patients were covered by commercial insurance in 2011, and about 11 percent were uninsured. The rest were covered by Medicare and Medicaid.

The hospitals respond

The three North Carolina hospitals say they’ve used savings from the discount drug program to better serve those in need.

Duke said 340B has helped it operate several programs that benefit the needy. Among them: the Hospital Sponsorship Program, which in 2012 provided more than 8,000 free or discounted medications to people with limited financial means. The savings from the discount drug program have also helped fund a “patient assistance program,” staffed by five pharmacy technicians who help uninsured and low-income patients get access to free medications, Duke said.

Duke patients with few means also receive free intravenous drugs when they’re discharged so that they can safely transition to home care.

“Revenues generated through the 340B program are important to supporting our nonprofit patient care mission,” spokesman Doug Stokke said in a statement. “Available revenue is reinvested into facilities, technology upgrades and service expansion that benefit all patients, including those who are financially disadvantaged.”

UNC said it has invested the 340B savings to provide “free drugs to our thousands of charity care and uninsured inpatients and outpatients and extend limited resources to a broad patient population.”

Carolinas HealthCare System, the hospital chain that owns the Charlotte hospital, said it passes the savings on to many uninsured patients, including those who visit its community clinics. There, patients are charged no more than $10 for all prescriptions. Those savings have also helped increase access to cancer infusion centers for the poor and uninsured, the system said.

“It has been CMC’s longstanding mission to provide access to high quality services for all patients, regardless of their ability to pay,” the statement said.

Grassley: little oversight

Hospitals typically save 20 percent or more on drugs bought through the program, experts say. Drugs given to inpatients don’t qualify for the program.

Congress set up the program to offset the cost of treating Medicaid patients, but hospitals can buy discounted drugs for all outpatients, including those with private insurance.

In a 2011 report, the U.S. Government Accountability Office found that the program got inadequate oversight. The GAO also found that “the 340B program has increasingly been used in settings, such as hospitals, where the risk of improper purchase of 340B drugs is greater.”

The number of U.S. hospitals participating in the 340B program has increased dramatically in recent years, from 591 in 2005 to 1,673 last year, according to the GAO. Some drug manufacturers have questioned whether all those hospitals need a discount drug program.

In January, a coalition of pharmaceutical organizations published a study that questioned whether the program actually benefited uninsured, poor patients and pointed how hospitals profit from insured patients who get no benefit from the program.

In his recent letter, Grassley said the federal oversight agency has “conducted virtually no oversight” and asked whether it is collecting sufficient information “to ensure that covered entities are fulfilling their mission.”

A spokesman for HRSA said the agency would respond to Grassley, but would not comment further.

Grassley has repeatedly questioned whether hospitals and other nonprofits earn their tax-free status. Last year, in response to the newspapers’ five-part series on nonprofit hospitals in North Carolina, Grassley said most of those hospitals need to do more to help poor and uninsured patients.

Duke University Hospital spent about 2.5 percent of its budget on charity care in recent years. Duke Raleigh spent 5.4 percent on charity care, and Duke Durham spent 7 percent; Duke Raleigh and Duke Durham do not participate in the 340B program.

Carolinas Medical Center spends more than 5 percent of its budget on charity care – a larger percentage than most N.C. hospitals. But Carolinas HealthCare has filed thousands of lawsuits against patients who don’t pay their bills, and the newspapers’ investigation found that some of those patients appeared to qualify for charity care.

Neff: 919-829-4516

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