Scope Maker Olympus Hit With $6.6 Million Verdict In Superbug Outbreak Case

KFF Health News, July 26, 2017

Jurors on Monday also handed the Tokyo-based manufacturer a key win, rejecting claims that its flagship duodenoscope was unsafe as designed.

This article first appeared July 25, 2017 on Kaiser Health News.

By Chad Terhune and JoNel Aleccia

A jury ordered the giant medical scope maker Olympus Corp. to pay a Seattle hospital $6.6 million in damages tied to a deadly superbug outbreak — and told the hospital to pay $1 million to a deceased patient’s family.

But jurors on Monday also handed the Tokyo-based manufacturer a key win, rejecting claims that its flagship duodenoscope was unsafe as designed.

The decision follows an eight-week trial, the first in the U.S. related to gastrointestinal scopes causing outbreaks of drug-resistant infections.

The case was filed by Theresa Bigler, 61, and her four children in connection with the August 2013 death of Richard Bigler, a pancreatic cancer patient who contracted an infection linked to a contaminated Olympus scope. The hospital, Virginia Mason Medical Center, later joined in the suit against Olympus, but the jury found it shared some blame in the case.

An Olympus official offered condolences to the Bigler family in a statement and praised the jury’s decision.

“We are appreciative that the jury recognized that Olympus’ duodenoscope design was not unsafe and did not contribute to Mr. Bigler’s unfortunate passing in 2013,” said Sam Tarry, an attorney for the company.

But the jury also said Olympus failed to provide adequate warnings about the scope or instructions for its use after it was manufactured. The jury said that failure harmed Virginia Mason Medical Center.

Theresa Bigler’s attorneys cast the decision as a win for patient safety.

Theresa Bigler sued Olympus for the death of her 57-year-old husband, Richard, a pancreatic cancer patient who contracted an infection linked to a contaminated Olympus scope. (Courtesy of the Bigler family)

“Olympus hasn’t been playing by the rules for some time and this verdict holds them accountable,” lawyer David Beninger said in a statement.

He said the case should send a broad signal to Olympus and other device manufacturers.

They “must make patient safety a priority and not just a sales pitch,” Beninger’s statement said. “As Olympus’ own expert admitted at trial, lawsuits can change behavior and big lawsuits can make big changes. Hopefully this verdict will convince Olympus and others to listen.”

Medical and legal experts said they were surprised at how well Olympus fared in this case, which was closely watched by other plaintiffs’ lawyers who are waging similar suits against the company.

“In the jury’s opinion, the hospital shared some of the blame,” said Lawrence Muscarella, a hospital-safety consultant in Montgomeryville, Pa.

Muscarella said each case is different and plaintiffs’ attorneys can learn from the evidence presented at this trial. “It remains to be seen what this portends for other cases on the docket,” he said.

More than 25 patients and families, from Pennsylvania to California, have sued Olympus alleging wrongful death, negligence or fraud. Federal prosecutors also are investigating Olympus and two smaller manufacturers over their potential roles in patient infections.

Richard Bigler was one of at least 35 patients in American hospitals to have died since 2013 after developing infections tied to Olympus duodenoscopes — snake-like tubes threaded down a patient’s throat. Doctors use the scope to diagnose and treat problems in the digestive tract, such as gallstones, cancers and blockages in the bile duct. About 700,000 such ERCP procedures are performed annually in the U.S.

Last year, Olympus recalled all 4,400 of its TJF-Q180V duodenoscopes — the model used in Bigler’s case — and made repairs to reduce the risk of bacteria becoming trapped inside after cleaning.

Bigler’s attorneys said Olympus had acted recklessly by not warning U.S. hospitals about previous outbreaks and failing to fix a design flaw that hindered cleaning and allowed dangerous bacteria to become trapped inside these reusable scopes.

Olympus had said its gastrointestinal scopes were safe and effective with proper cleaning and disinfection. At trial, the company said Virginia Mason was to blame for Bigler’s infection because the hospital didn’t follow the company’s cleaning instructions.

Olympus criticized Virginia Mason for not telling Bigler and other families about the scope-related infections, forcing them to find out from a newspaper account about the outbreak.

In his closing argument, Olympus attorney Mark Anderson told the jury that the Seattle outbreak would have occurred regardless of whether Olympus’ or another company’s scopes had been used.

“The proof in this case, from their witnesses, is there is no increased risk with the [Olympus scope],” Anderson told the jury.

Hospital officials said the faulty Olympus scopes were the cause of Bigler’s infection and others, and they implemented an expensive test-and-hold protocol for cleaning the devices that halted the spread.

“We’re sorry for the grief and anguish experienced by the Bigler family,” the hospital said in a brief statement. “This was a complicated trial that lasted more than eight weeks. The verdict includes multiple decisions and we will continue reviewing them over the next few days.”

Theresa Bigler was not available for comment, lawyers said.

Olympus is the industry leader for these devices and other specialty endoscopes, with an 85 percent share of the U.S. market.

One of the largest superbug outbreaks in the nation occurred at Virginia Mason, where 39 people’s infections were linked to Olympus scopes. Eighteen patients died. The Seattle hospital said the patients who died, including Richard Bigler, had other underlying illnesses.

The 12-member jury, which had begun deliberating July 18, said the damages to Virginia Mason amounted to $25.4 million. But jurors agreed the hospital had been negligent, so they sharply reduced the damages owed to Virginia Mason.

The plaintiffs’ attorneys repeatedly reminded jurors that three key Olympus executives declined to testify at trial and instead invoked their Fifth Amendment right against self-incrimination.

The three executives who declined to testify were Susumu Nishina, Hisao Yabe and Hiroki Moriyama. They hold top roles in regulatory affairs, quality assurance or medical manufacturing. All three have declined to comment, citing the pending litigation.

Several of Nishina’s internal company emails were introduced as evidence. In one email exchange in February 2013, Nishina told the company’s U.S. managers not to issue a broad warning to American hospitals despite reports of scope-related infections in Dutch, French and U.S. hospitals, court records show.

In addition to Olympus, device makers Pentax and Fujifilm sell these sorts of duodenoscopes, which can cost up to $40,000 apiece. Overall, as many as 350 patients at 41 medical centers worldwide were infected or exposed to contaminated scopes made by those three manufacturers from 2010 to 2015, according to the U.S. Food and Drug Administration.

Price Transparency In Medicine Faces Stiff Opposition — From Hospitals And Doctors

KFF Health News, July 25, 2017

Ohio’s Healthcare Price Transparency Law stipulated that providers had to give patients a “good faith” estimate of what non-emergency services would cost individuals. Opposition has been formidable, led by the goliath Ohio Hospital Association.

This article first appeared July 25, 2017 on Kaiser Health News.

By Rachel Bluth

COLUMBUS, Ohio — Two years after it passed unanimously in Ohio’s state Legislature, a law meant to inform patients what health care procedures will cost is in a state of suspended animation.

One of the most stringent in a group of similar state laws being proposed across the country, Ohio’s Healthcare Price Transparency Law stipulated that providers had to give patients a “good faith” estimate of what non-emergency services would cost individuals after insurance before they commenced treatment.

But the law didn’t go into force on Jan. 1 as scheduled. And its troubled odyssey illustrates the political and business forces opposing a common-sense but controversial solution to rein in high health care costs for patients: Let patients see prices.

Many patient advocates say such transparency would be helpful for patients, allowing them to shop around for some services to hold down out-of-pocket costs, as well as adjust their household budgets for upcoming health-related outlays at a time of high-deductible plans.

At the Ohio Statehouse, the law’s greatest champion in state government has been Rep. Jim Butler, a Republican and former Navy fighter pilot whose wife is a physician. He authored the legislation and has beat the drum for it since he got the idea in 2013, as he waited for a garage mechanic to repair his car and absorbed the shop’s posted rates for brake jobs, oil changes and tuneups.

Opposition has been formidable, led by the goliath Ohio Hospital Association. It has filed a court injunction that is currently delaying enactment, peppered local news media with editorials, and lobbied Republican Gov. John Kasich, who has eliminated funding that would allow implementation from the latest state budget.

Joining the hospital association in its legal action are a wide range of provider groups including the Ohio State Medical Association, the Ohio Psychological Association, the Ohio Physical Therapy Association, and the Ohio chapters of the American Academy of Pediatrics, the American College of Surgeons, and the American Osteopathic Association.

These groups say that the law, which applies only to elective procedures, is too broad and that forcing providers to create estimates before procedures would slow down patient care. “The only way to even try to comply with the law is to delay care to patients in order to track down information from insurance companies, who may or may not provide the requested information,” wrote Mike Abrams, the president and CEO of the Ohio Hospital Association, in an op-ed in The Columbus Dispatch in January.

But Jerry Friedman, a retired health policy adviser for the Ohio State University Wexner Medical Center, said the opposition doesn’t stem from genuine concern about patients but from a desire to keep the secret rates that providers have negotiated with insurers under wraps. Transparency would mean explaining to consumers why the hospital charged them $1,000 for a test, he said, adding that providers “don’t want to expose this house of cards they’ve built between hospital physician industry and the insurance industry.”

Ohio State Rep. Jim Butler (Chris Stewart/Courtesy of the Dayton Daily News)

Said Butler on his quest to see the law enacted: “The health care industry has a lot of political power and lots of money. It’s hard to fight on behalf of people against this kind of force.”

The law’s next test will come in August, when the first court hearing on the association’s lawsuit is scheduled. The Kasich administration said it couldn’t comment on the law because of the pending litigation.

Greater price transparency has been a popular policy prescription for America’s high health costs, especially at a time when many patients have high-deductible insurance plans and face larger copayments. Upfront estimates exist in other countries, such as Australia and, for patients facing out-of-pocket expenses, in France.

In Massachusetts, patients can get an estimate within two days of admission if they ask for it. Nebraska requires hospitals and surgical centers to provide a list of the average charges for services. New Hampshire has a website where consumers can compare costs.

Hospitals and doctors often oppose such measures. The American Hospital Association’s position is that health plans — not hospitals — are responsible for telling insured patients about their out-of-pocket costs, according to its website.

Aimee Winteregg, 35, of Troy, Ohio, said she would have liked such information before five miscarriages in four years left her buried in unexpected medical bills. She and her husband became first-time parents in November. Though they are well insured, tests and treatment cost the couple $4,000 out-of-pocket, demanded in bills that were sometimes no more descriptive than for “medical service.”

“We don’t want to deal with this, especially when the doctor tells you stress is bad for the pregnancy,” her husband, J.D., said. But imposing greater transparency has been controversial in both the medical industry and among some health care researchers, who say it puts patients in an untenable position.

The transparency law “was written by someone thinking about health care as a TV, and not as health care,” said Sandra Tanenbaum, a professor of health services management and policy at The Ohio State University College of Public Health.

She said people could not shop for procedures as they would for a TV or car repairs, since they often lack information on the quality of doctors and hospitals, and make health care decisions based on much more than cost.

Consumers are more likely to base their decisions on their doctors’ advice, not on cost alone, according to a report from the Health Policy Institute of Ohio.

Only around 10 percent of health care costs are even “shoppable” expenses — procedures that can be scheduled in advance, like an MRI or elective surgery — according to the HPIO.

Regardless, Butler maintains, the health care industry can give consumers better information upfront. “If you really want patients to be empowered, they really need the information,” he said.

In support of such access, Butler has written letters to the Ohio Hospital Association, the Ohio attorney general and the Dayton Daily News, all in defense of the transparency law.

The Ohio Hospital Association, along with seven other Ohio health organizations, went to court last December to block the law, a month before it was supposed to take effect.

Butler said Gov. Kasich’s administration is helping the hospital association stall by not writing regulations, eliminating funding for the law in the state budget, and declining to meet with Butler to discuss it.

State Rep. Michael Henne, also a Republican, has worked with Butler in the Ohio General Assembly on the transparency law. He called Butler a “driver” on the law, noting: “It’s frustrating. You don’t realize how much [influence] special interests have in the process.”

5 Ways White House Can Use Its Muscle To Undercut Obamacare

KFF Health News, July 25, 2017

The White House can take a number of behind-the-scenes steps to sabotage the exchanges and hasten their undoing. Already, it’s deploying some of those tactics.

This article first appeared July 24, 2017 on Kaiser Health News.

By Shefali Luthra

President Donald Trump has vowed to “let Obamacare fail,” after legislative efforts to undo the Affordable Care Act have stalled.

He and congressional Republicans have repeatedly portrayed the Affordable Care Act insurance marketplaces, also known as exchanges, as being in a “death spiral.” But independent analyses have concluded that such spontaneous disintegration isn’t happening.

In a number of ways, the Trump administration’s policies are pushing Obamacare into the vortex.

Reports from Standard & Poor’s, the Congressional Budget Office and the Kaiser Family Foundation all suggest that the exchanges — where people can shop for coverage, often with the help of a government subsidy — are stabilizing. (Kaiser Health News is an editorially independent program of the foundation.)

But, like every piece of legislation, Obamacare faces a difficult political reality: Its marketplaces require active maintenance and federal support.

The White House can take a number of behind-the-scenes steps to sabotage the exchanges and hasten their undoing. Already, it’s deploying some of those tactics.

“The administration has a lot of power to undermine the markets and make them dysfunctional,” said Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms, who specializes in private insurance markets.

Here’s a look at five ways the White House is already working to weaken the health law, and what that means for consumers.

‘Cost-Sharing Reductions’

Under the ACA, when someone’s income falls between 100 and 250 percent of the federal poverty level — up to about $29,000 for an individual or around $61,000 for a family of four — marketplace carriers must offer a plan with “cost-sharing reductions” (CSRs) that reduce consumers’ out-of-pocket expenses.

Reducing cost-sharing — generally copayments and deductibles — makes plans more expensive for the insurers. The Obama administration used its rule-making power to set up direct payments to carriers to help offset this burden. The Trump White House has inherited that responsibility but also has the power to end the payment program.

The nonpartisan Congressional Budget Office estimated CSR subsidies in 2017 would total about $7 billion. Without that money, analysts say, more insurers might choose to exit, limiting options for consumers, and letting the insurers who remain charge higher prices.

Trump has been committedly noncommittal, publicly indicating he would like to halt the subsidies, but so far — on a month-to-month basis — letting them continue.

The uncertainty makes insurance companies skittish about participating, analysts noted. It’s also one reason some plans say they have had to increase their rates, noted Charles Gaba, a Michigan-based blogger who tracks ACA sign-ups. For instance: When filing plans for the 2018 marketplace, carriers on average raised premiums by about 34 percent — with about 20 points stemming from CSR uncertainty, Gaba said, based on an analysis of 21 states’ initial rate filings. Dropping the subsidies altogether would be even more damaging.

Weaken The Mandate

The White House has already signaled it does not want to enforce the individual mandate — the health law’s requirement that all people have coverage. And administration officials have repeated that position.

Meanwhile, in January, it issued an executive order that encouraged U.S. agencies to grant exemptions and waive or defer health law provisions that could put financial strain on companies or individuals — which could also be applied to the individual mandate.

For 2016 tax returns, though, the Internal Revenue Service continued to impose a financial penalty on people who didn’t have health insurance and who didn’t qualify for an exemption.

But enforcement may be waning. This year, the IRS was supposed to reject tax returns if people didn’t indicate whether they had coverage, flagging them for a potential penalty. Instead, it continued processing them, citing Trump’s executive order.

If the IRS has already processed any tax refunds for consumers, then they “don’t have much leverage” when attempting to collect the mandate fee, said Timothy Jost, emeritus law professor at Washington and Lee University in Virginia and an expert on health reform.

Enforcement of the mandate enforcement, economists note, is crucial to ensuring that enough healthy people buy coverage to balance the costs of sicker beneficiaries.

But even with the mandate in effect, the efforts to defang it bring confusion.

“A lot of people believe the Trump administration is not enforcing it,” Jost said.

As a result, healthy people may become less likely to buy insurance, even as sick ones continue seeking it. That means higher prices, and a shakier pool.

“If they don’t think they’re going to get healthy people in the risk pool, they’re going to increase their rates further to protect themselves,” Jost said. “And as they raise their rates further to protect themselves, people … start to drop out.”

Thus, the president’s position on the mandate is leaving insurance carriers and commissioners “apprehensive,” noted Mike Kreidler, Washington state’s insurance commissioner.

A Bare Market

Skittishness on the part of insurers could lead them to drop out of some marketplaces, leaving consumers in some areas with few or no choices. Those “bare markets” are possible under even stable circumstances — and preventing them requires active federal involvement.

Under the Obama administration, high-level officials were “on the phone daily with insurance company executives … trying to get them to participate,” Corlette said. “It was very much an all-hands-on-deck, ‘we’re going to make it work for you guys’ kind of communication.”

And so far Trump’s Department of Health and Human Services doesn’t appear to be emphasizing this kind of essential outreach, both Corlette and Jost suggested. A few months ago, Kreidler agreed, HHS staffers appeared interested in helping states fill their bare counties — but that support has since dwindled.

“This may be sort of under the radar, but it can have real, lasting effects” for consumer choice, Corlette said.

All Quiet On The Enrollment Front

The administration could further undermine the marketplace by dropping outreach to consumers. It’s already a shorter enrollment period this year — spanning six weeks instead of three months, from Nov. 1 to Dec. 15 — though that change was already slated to eventually take effect.

That shorter period means people may miss the memo on signing up — or at least need an extra push, Corlette said. And that’s another way the administration could undermine the marketplaces: simply choosing not to advertise them.

Last sign-up season, HHS stopped open enrollment advertising in January, pulling ads a few days before the period ended. Enrollment dropped compared with previous years, Jost and Gaba noted, with young, healthy people being more likely not to buy coverage.

The administration also just stopped funding federal contractors that supported efforts by community groups and other organizations in some of the nation’s largest cities to sign up people.

Dropping advertising, shortening open enrollment or simply scaling back on technical maintenance for the marketplace website could all have significant impact, Corlette said. People who are sick and need insurance will likely seek it out, but those who are healthier — for whom health insurance is a less pressing priority — could miss the boat.

Again, Jost said, that affects insurer participation.

“Insurance is a product that need to be sold,” he said. “If the insurers believe they’re not going to get any help at all in marketing their product,” he added, fewer will want to enter the marketplace.

Word of (Bad) Mouth

HHS has taken an active role in criticizing the health law — pushing press releases and videos that argue it has helped more than hurt. That strategy could do a lot of harm, experts said.

If consumers keep hearing the law is failing, Jost noted, some will ultimately believe it, buying coverage only if they need it and thereby skewing the insurance risk pool.

Perceived hostility also has an effect on insurers, steering them away from marketplace participation.

“When you undermine confidence in the marketplace, you don’t need a Ph.D. in economics to know it’s not good long term,” Corlette said.

In Appalachia, Two Hospital Giants Seek State-Sanctioned Monopoly

KFF Health News, July 24, 2017

In exchange for approval, Mountain States Health Alliance and Wellmont Health System promise to use money saved from the merger to offer mental health and addiction treatment services and attack public health concerns.

This article first appeared July 08, 2017 on Kaiser Health News.

By Phil Galewitz

JOHNSON CITY, Tenn. — Looking out a fourth-floor window of his hospital system’s headquarters, Alan Levine can see the Appalachian Mountains that have defined this hardscrabble region for generations.

What gets the CEO’s attention, though, is neither the steep hills in the distance nor one of his Mountain States Health Alliance hospitals across the parking lot. Rather, it’s a nearby shopping center where his main rival ­— Wellmont Health System, which owns seven area hospitals — runs an urgent care and outpatient cancer center. Mountain States offers the same services just up the road.

“Money is being wasted,” Levine said, noting that duplication of medical services is common throughout northeastern Tennessee and southwestern Virginia where Mountain States and Wellmont have been in a health care “arms race” for years, each trying to outduel the other for the doctors and services that will bring in business.

The companies now want to merge, which would create a monopoly on hospital care in a 13-county region that studies have placed among the nation’s least healthy places. The merger’s savings would pay for a range of public health services that they can’t afford now, the companies project. And they are trying to pull it off without Washington regulators’ approval, breaking with hospitals’ usual path to consolidation.

In a typical case, a plan that eliminates so much competition in a market would almost certainly provoke a court battle with the Federal Trade Commission, which enforces antitrust laws and challenges anti-competitive behavior in the health industry.

To avert such a fight, the hospitals are using an obscure legal maneuver available in Tennessee and Virginia and some other states.

The view of mountains is everywhere in Johnson City, Tenn. (Phil Galewitz/KHN)

Generally known as a Certificate of Public Agreement (COPA), the process works like this: If regulators in Virginia and Tennessee agree that the merger is in the public interest, Wellmont and Mountain States would operate as one company under a state-supervised agreement governing key parts of their operations, including setting prices. The states’ approval would prevent the FTC from challenging the merger under federal antitrust law.

Their decisions could come as soon as this month.

In exchange for approval, Mountain States and Wellmont promise to use money saved from the merger to offer mental health and addiction treatment services and attack public health concerns, such as obesity and smoking — areas previously neglected by the systems that don’t increase hospital admissions and bring in big revenue, hospital officials said

“The question that needs to be asked is whether tight state oversight of a monopoly is better than failed competition,” said Robert Berenson, a health policy expert at the Urban Institute.

Little-Used And Rarely Challenged Mechanism

The federal antitrust exemption made possible under a COPA dates to a Supreme Court ruling in the 1940s used only about a dozen times to allow hospital mergers. One was an hour away from here, in Asheville, N.C.

There’s little scholarly research on COPAs’ results.

Last summer, the FTC dropped its challenge to a merger of two West Virginia hospitals after the state adopted a COPA law and permitted the deal.

In recent years, hospital mergers and acquisitions have created behemoth health systems that have used their status to demand high payments from insurers and patients. Studies by health economists have repeatedly found that consolidation means higher prices.

But the same calculus may not apply here and in other regions where a preponderance of patients are poor or uninsured, officials from both Mountain States and Wellmont say.

While President Donald Trump and Republicans in Congress stress the value of free-market principles in health care, both hospitals argue that in their part of Appalachia the market has led to unnecessary spending, driven up health costs and forced them to focus on services that produce the highest profits rather than meet the community’s most pressing health needs. In this deeply conservative region where death rates from cancer and heart disease are among the nation’s highest, the hospitals say only a state-sanctioned monopoly can help them control rising prices and improve their population’s health.

Without their proposed merger, Levine said, both hospital systems would likely have to sell to an out-of-market chain. That would likely eliminate local control of the facilities and could lead to massive layoffs and the closure of hospitals and services, he said. Together, the two hospital systems employ about 17,000 people.

Alan Levine, CEO of Mountain States Health Alliance, outside his Johnson City, Tenn., office. (Phil Galewitz/KHN)

The FTC, which is urging the states to reject the hospitals’ plan, contends the hospitals could form an alliance or take other steps short of a merger to accomplish the benefits they say one will bring. The agency says the hospitals’ market probably would be no worse off if one chain merged with a company outside the area.

Feds Wary Of Promises

The hospitals are making big promises to sell their deal. They say no hospitals would close for at least five years, although some could be converted to specialized health facilities to treat problems such as mental health or drug addiction. After the merger, all qualified doctors would have staff privileges at all hospitals to treat patients. No insurer would pay lower rates than others. The new hospital system would spend at least $160 million over 10 years to improve public health, expand medical research and support graduate medical education for work in rural areas.

The FTC maintains the hospitals’ pledges are unreliable and dismissed them as having “significant shortcomings, gaps and ambiguities” in an analysis filed with state regulators in January.

Levine said the plan is the best deal for the community given the factors that handicap the hospitals. Those include declining populations and Medicare reimbursement rates that are lower here than other parts of the country because of lower average wages. Another concern is the cost of caring for uninsured people — neither Virginia nor Tennessee expanded Medicaid under the health law, which would have lowered uninsured rates.

“Competition is and should be the first choice, but in an area where competition becomes irrational and there are limited choices, there has to be a Plan B. If not this, then what?” he said.

Blue Cross and Blue Shield of Tennessee, the state’s largest health insurer, is not opposing the hospitals’ combination, a spokesman said. But its counterpart in Virginia, Anthem, hasn’t been persuaded.

“Anthem does not believe that there are any commitments that will protect Southwest Virginia and Northeast Tennessee health care consumers from the negative impact of a state-sanctioned monopoly,” the company said in a statement.

Wanted: Better Job Prospects

The proposed COPA has strong support among large employers in the region, including Eastman, a Kingsport, Tenn., chemical company with $9 billion in annual revenue that employs more than 7,000 people locally. “We get local governance, input and control … and that’s a lot better situation for us,” said David Golden, a senior vice president at Eastman.

Still, walking around Johnson City — the region’s largest city with almost 67,000 people — it’s easy to feel an unease among small employers and residents about a merger. Many worry about possible job cuts.

“Eliminating duplication of services means eliminating people,” said Dick Nelson, 60, who runs a coffee and art shop downtown and has lived here for 27 years. “I don’t care how much health care costs because my insurance will pay it,” he said.

In Kingsport, where Wellmont and Mountain States each has a hospital, Thorp is leery about a merger, too. “It’s an economic move, not an enhancement of medical care,” said Thorp, who runs a newsstand downtown. “We pride ourselves here for having good education and health care. They say there won’t be any services or jobs cut, but if that’s the case then what’s the point of the merger?”

Tom Throp owns Wallace News, a staple in downtown Kingsport, Tenn. Of the hospital consolidation plan, he says: “They say there won’t be any services or jobs cut, but if that’s the case then what’s the point of the merger?” (Phil Galewitz/KHN)

Levine said no place better supports the case for a hospital merger than Wise County in southwestern Virginia, a scenic area with about 40,000 people whose three hospitals all operate below half their capacity. Mountain States and Wellmont each own a hospital in Norton, the county seat with 4,000 residents. Despite few patients, the hospitals still bear hard-to-cut costs for buildings, equipment and adequate staffing levels, Levine said.

On a recent weekday morning, Lonesome Pine Hospital, a Wellmont facility in Big Stone Gap, Va., looked nearly deserted. No volunteers or staffers were visible inside its main entrance and fewer than a fifth of its 70 acute-care beds were being used.

A five-minute drive away, Mountain States’ Norton Community Hospital’s 129 beds are about a quarter filled. Its maternity unit delivers fewer than five babies a week. The hospital offers hyperbaric oxygen therapy — a treatment that pays well under Medicare’s reimbursement rates — to help diabetics heal their wounds. But it has no endocrinologists to help diabetics manage their disease to avoid such complications. Despite a high rate of heart disease in the community, there’s no cardiologist on staff.

Whether a state-sanctioned merger will resolve the incongruities — here or in other poor regions — depends on how firmly regulators hold the hospitals to their pre-merger commitments. If the merger plan gets rejected, Mountain States and Wellmont will resume arch-competitive business practices that do not always put community interests first, said Bart Hove, Wellmont’s CEO.

“It’s about competing for the dollar in any way you can and extracting a dollar from your competition,” Hove said. “You do what you can to drive patients to your hospital.”

Senate Parliamentarian Upends GOP Hopes For Health Bill

KFF Health News, July 24, 2017

The Senate is using a budget process called “reconciliation” that allows Republicans to pass a bill with only 50 votes. But there are strict rules about what can and cannot be included, and those rules are enforced by the parliamentarian.

This article first appeared July 21, 2017 on Kaiser Health News.

By Julie Rovner

The official rules keeper in the Senate Friday tossed a bucket of cold water on the Senate Republican health bill by advising that major parts of the bill cannot be passed with a simple majority, but rather would require 60 votes. Republicans hold only 52 seats in the Senate.

Senate Parliamentarian Elizabeth MacDonough said that a super-majority is needed for the temporary defunding of Planned Parenthood, abortion coverage restrictions to health plans purchased with tax credits and the requirement that people with breaks in coverage wait six months before they can purchase new plans.

The Senate is using a budget process called “reconciliation” that allows Republicans to pass a bill with only 50 votes (and the potential tie to be broken by Vice President Mike Pence). But there are strict rules about what can and cannot be included, and those rules are enforced by the parliamentarian. Those rules can be waived, but that requires 60 votes, and all the chamber’s Democrats have vowed to fight every version of the bill to “repeal and replace” the Affordable Care Act, which is set for a possible vote next week.

The list was released by Democrats on the Senate Budget Committee and later confirmed by a spokesman for the committee Republicans. It is the result of what is called the “Byrd Bath,” a process in which the parliamentarian hears arguments from Democrats and Republicans and then advises on which provisions comply with the Byrd Rule. That rule requires that only matters directly pertaining to the federal budget are included. The rule is named for former Senate Majority Leader Robert Byrd (D-W.Va.), who first wrote it.

Senate Republicans were quick to point out that the document is “guidance” that they can use to try to rewrite impermissible language. The guidance “will help inform action on the legislation going forward,” said a spokesman for Senate Budget Committee Chairman Mike Enzi (R-Wyo.).

Among the other provisions that the parliamentarian has advised should require 60 votes are ones that would eliminate Medicaid requirements to provide 10 “essential health benefits.” Also on the list is a provision to repeal a requirement that insurers spend a minimum amount of each premium dollar on direct medical services, rather than administration or profits.

The determination also pertains to a part of the bill that would continue payments for “cost-sharing subsidies” to insurers for two more years. Those subsidies help lower-income people afford out-of-pocket costs like deductibles. The parliamentarian said that duplicated existing law.

MacDonough also said that a provision in the House version of the bill that pertains directly to New York violates the Byrd Rule. That measure would change the way the state collects money for Medicaid. That could suggest efforts by Senate Majority Leader Mitch McConnell (R-Ky.) to offer state-specific changes to gain support for the bill might meet the same fate.

Minority Leader Chuck Schumer (D-N.Y.) said that decision could have “the greatest effect on Republicans’ ability to pass this bill.” He predicted it would “tie the majority leader’s hands as he tries to win over reluctant Republicans.”

Some of the provisions that didn’t pass muster with MacDonough were key to getting the bill through the House. And if they are dropped, it might make it difficult for the House to approve a final version of the bill.

Not all the decisions went the Democrats’ way. MacDonough found that only a simple majority is needed for language allowing states to impose work requirements for Medicaid recipients. She also said that a provision that will ban abortions if the services are paid through a new fund provided to states would be allowed. That’s because that fund will be governed by existing rules that already ban abortion in most cases.

A few provisions remain under review, according to the list. Those include allowing states to waive a long list of insurance protections, including the ACA’s essential health benefits and preexisting coverage guarantees. Also still under review is language allowing small businesses to pool together to purchase insurance as well as a provision changing requirements related to how much more insurers can charge older adults.

Drugmakers Deploy Political Cash As Prices And Anger Mount

KFF Health News, July 24, 2017

This year, a critical and risky one for drug companies, the industry as a whole is ratcheting up campaign donations and its presence on Capitol Hill. Congressional donations from pharmaceutical PACs rose 11 percent in the first quarter.

This article first appeared July 24, 2017 on Kaiser Health News.

By Jay Hancock and Elizabeth Lucas and Sydney Lupkin

Two federal investigations — one examining opioid sales, another about a multiple sclerosis drug whose price had soared to $34,000 a vial — were only part of the troubles Mallinckrodt faced as the year began.

The stock of the drugmaker, whose United States headquarters are in St. Louis, was tanking. Wall Street worried that Medicare might reduce the half-billion dollars it was spending yearly on a Mallinckrodt drug with limited evidence of effectiveness.

This year, the company left the industry trade group Pharmaceutical Research and Manufacturers of America, or PhRMA, after the group threatened to kick out companies that did not spend enough on research.

Mallinckrodt, however, has been increasing its spending in another area: It has been writing checks to politicians.

After making meager donations in 2015, the company’s political action committee began raising its contributions for congressional campaigns last year. Lawmakers in both the House and Senate collected $44,000 from Mallinckrodt in 2017’s first quarter, nearly nine times what they got from the company in the same period two years ago.

Mallinckrodt also spent $610,000 lobbying Congress, triple the amount of 2015’s first quarter. The company, which makes pain-control drugs as well as H.P. Acthar, an injectable gel prescribed for multiple sclerosis and other diseases, has lobbied on issues related to opioids, patents, Medicare and other matters, regulatory filings show.

Mallinckrodt is far from unique. This year, a critical and risky one for drug companies, the industry as a whole is ratcheting up campaign donations and its presence on Capitol Hill, a new database compiled by Kaiser Health News shows.

“The stakes are really high right now,” said David Maris, who follows pharmaceutical stocks for Wells Fargo, given that President Donald Trump has joined Democrats to demand action on drug costs.

Mallinckrodt acknowledges that it has increased its political spending to help its particular causes. “We actively participate in the political process on issues that matter to us and our patients,” Rhonda Sciarra, a Mallinckrodt spokeswoman, said by email. “Our PAC’s absolute spend remains small in relation to other companies in our industry.”

Congressional donations from pharmaceutical PACs rose 11 percent in this year’s first quarter, compared with the first three months of 2015 (the comparable point in the previous election cycle), according to a Kaiser Health News analysis. The increase accompanied a spike in pharma lobbying for the period.

Contributions to powerful committee members who handle health policy matters also increased in the face of public anger over the opioid crisis as well as anticipated renewal of legislation that determines the “user fees” companies pay for regulatory drug approval.

A dozen Republican committee heads and ranking Democrats on health-related panels collected $281,600 from pharma-related PACs in the first quarter, up 80 percent from what people in the same positions collected in the first quarter of 2015, the data show. Such initial donations often set the pace for a two-year election cycle, and suggest whom corporate interests are trying to cultivate in a new Congress, with implied promises of more to come, analysts say.

For pharma companies, “now would be the time to give out the money, ahead of a piece of legislation that may come down the road,” said Kent Cooper, a former Federal Election Commission official who has tracked political money for decades. “You want to get your name out there and make a connection with these members’ legislative assistants — so you are known to them and you can get in their door.”

Other drugmakers increasing their congressional donations include AbbVie — whose blockbuster rheumatoid arthritis injection, Humira, faces threats from competition — and Alexion Pharmaceuticals. A six-figure price tag for Soliris, Alexion’s treatment for a rare blood disorder, makes it one of the world’s most expensive drugs.

Pfizer, the No. 2 pharma donor in the first quarter after Sanofi, gave $130,900 to congressional campaigns, three times its contribution for the same period two years ago. So far this year, the company has raised the price of dozens of drugs by an average of 20 percent, The Financial Times reported.

PhRMA, a big giver in the past, has not yet joined individual companies in increasing donations for this election cycle. Congressional campaigns collected $7,000 in the first quarter from PhRMA, which Politico reported had raised member dues to prepare for the drug-price fight. They got $31,500 two years ago.

The totals do not include contributions from individual executives and lobbyists, or donations to leadership PACs. Leadership PACs associated with a particular member of Congress often spend money on other members’ campaigns, as well as on things that a campaign committee cannot finance. Details on contributions to leadership PACs take longer to become available.

Outrage was still bubbling last year over moves by Turing Pharmaceuticals and Mylan to raise prices of cheap-to-make, lifesaving drugs to hundreds of dollars a dose, when the country elected a Republican president who vowed: “I’m going to bring down drug prices.” Nearly 8 in 10 Americans said in a September poll they believed prescription drug prices were unreasonable.

Evidence has grown that pharma companies helped fuel the nation’s addiction and overdose crisis with sales of powerful painkillers, prompting calls for an overhaul. Drug developers are also preparing for renewal of the Prescription Drug User Fee Act, which generates revenue to pay for government review and approval of drugs.

At the same time, drug companies anticipated Republican efforts to repeal and replace the Affordable Care Act, which finances billions in drug sales. That process has stalled in the Senate. All of this gives drugmakers the most powerful incentives in years to cultivate policymakers, analysts say.

Tense politics may also be prompting members of Congress to be energetic about soliciting donations.

“My sense is that Republicans are nervous in the House — especially given the long-term record of the presidential party losing seats in the midterm,” said David Magleby, a political scientist at Brigham Young University who studies campaign finance. “I would be surprised if Republican incumbents across the board aren’t more aggressive in raising money in the first and second quarters.”

In the past six months, Mallinckrodt has come under pressure for both painkiller sales and price increases for non-narcotic drugs. Earlier this month, the Justice Department announced the company would pay $35 million to resolve an investigation into whether it ignored enormous volumes of its oxycodone moving through distributors and pharmacies. Over several years, The Washington Post reported, Mallinckrodt was responsible for two-thirds of all the oxycodone sold in Florida.

Mallinckrodt denied it violated the law and said the settlement was not an acknowledgment of liability.

In January, it agreed to pay $100 million to settle Federal Trade Commission allegations that a company it bought three years ago had illegally quashed competition, enabling it to raise the price of Acthar, the multiple sclerosis drug, which the FTC said cost only $40 per vial in 2001, to $34,000. Mallinckrodt disputed the agency’s complaint but said it settled to put the matter to rest.

The drug is prescribed to treat a rare form of epilepsy as well as multiple sclerosis and other ailments. Even Mallinckrodt acknowledges that “clinical trials demonstrating the efficacy for Acthar are limited.”

But in part because of price increases, global sales of the drug soared from $123 million in the 2014 fiscal year to $1.2 billion in the 2016 fiscal year. It was Medicare’s most expensive drug per patient in 2015 — $162,371 for the year — and now makes up a third of the company’s revenue.

Company shareholders have worried that Medicare will crack down on sales of Acthar. Mallinckrodt has pledged to keep future price increases for all drugs to single-digit percentages per year, though that could still be well above the current inflation rate of less than 3 percent.

Mallinckrodt’s biggest donations on Capitol Hill, of $5,000 each, went to Ann Wagner, a House member from its home state, Missouri, and Sen. Orrin Hatch, the powerful chairman of the Senate Finance Committee. That amount is the maximum a PAC can give to a campaign committee for each primary and general election.

Ever since it was spun off as an independent company in 2013, Mallinckrodt has made its legal home in Ireland, which allows it to take advantage of lower income tax rates. Hatch favors cutting U.S. corporate taxes to eliminate incentives to make such moves.

Mallinckrodt gave lesser amounts to 16 other congressional campaigns, including that of Paul Ryan, the House speaker. Ryan, who has played down Trump’s attacks on the pharmaceutical industry, was the top recipient of industry money in the first quarter, with $82,750 collected, the data show.

The White House has made no proposals on drug costs. Trump has said little about the issue since January, when he said drug sellers were “getting away with murder.”

Drug companies are hedging their bets, writing checks to individual Democrats and Republicans. With Trump breaking ranks with Republicans to favor reform, “you can’t tell who’s your friend and who’s not,” said Maris, the Wells Fargo analyst. “So you have to go to a ground game — a more one-on-one legislator basis.”

Naema Ahmed contributed to this report.

KHN’s coverage of prescription drug development, costs and pricing is supported in part by the Laura and John Arnold Foundation.

Fraud And Billing Mistakes Cost Medicare Tens Of Billions Last Year

KFF Health News, July 20, 2017

The Medicare Advantage improper payment rate was 10 percent in 2016, which comes to $16.2 billion, a GAO official has testified.

This article first appeared July 08, 2017 on Kaiser Health News.

By Fred Schulte

Federal health officials made more than $16 billion in improper payments to private Medicare Advantage health plans last year and need to crack down on billing errors by the insurers, a top congressional auditor testified Wednesday.

James Cosgrove, who directs health care reviews for the Government Accountability Office, told the House Ways and Means oversight subcommittee that the Medicare Advantage improper payment rate was 10 percent in 2016, which comes to $16.2 billion.

Adding in the overpayments for standard Medicare programs, the tally for last year approached $60 billion — which is almost twice as much as the National Institutes of Health spends on medical research each year.

“Fundamental changes are necessary” to improve how the federal Centers for Medicare and Medicaid Services ferrets out billing mistakes and recoups overpayments from health insurers, he said.

Medicare serves about 56 million people, both those 65 and older and disabled people of any age. About 19 million have chosen to enroll in Medicare Advantage plans as an alternative to standard Medicare.

Federal officials predict the Medicare Advantage option will grow further as massive numbers of baby boomers retire in coming years.

Standard Medicare has a similar problem making accurate payments to doctors, hospitals and other health care providers, according to statistics presented at the hearing. Standard Medicare’s payment error rate was cited at 11 percent, or $41 billion for 2016.

Last week, Attorney General Jeff Sessions announced the arrest of 412 people, some 100 doctors among them, in a scattershot of health care fraud schemes that allegedly ripped off the government for about $1.3 billion, mostly from Medicare.

CMS official Jonathan Morse said that the “largest contributors” to billing mistakes in standard Medicare were claims from home health care and inpatient rehabilitation facilities.

Some lawmakers appeared frustrated that CMS cannot say for sure how much of the “improper payments” in both Medicare options are caused by fraud. The agency uses the term broadly to cover billing fraud, waste and abuse, as well as simply overcharges and underpayments.

“When trying to understand how much fraud is in Medicare, the answer is simply we don’t know,” subcommittee Chairman Vern Buchanan (R-Fla.) said.

Yet he added that “it doesn’t take a big percentage [of fraud] to get a giant number” of dollars.

CMS official Morse did little to clear up any confusion over billing mistakes. In his written testimony, he said that improper payments are “most often payments for which there is no or insufficient supporting documentation to determine whether the service … was medically necessary.”

In his testimony, GAO official Cosgrove focused on the Medicare Advantage program. He took aim at a little-known government audit process called Risk Adjustment Data Validation, or RADV. These audits require health plans to submit a sample of patient records for review.

Cosgrove said that the RADV audits take too long to complete and failed to focus on health plans with the greatest potential for recovery of overcharges. He also said that CMS officials had not done enough to make sure the payment data they use are accurate. As a result, “the soundness of billions of dollars in Medicare expenditures remains unsubstantiated,” according to written testimony.

The GAO, the watchdog arm of Congress, has previously criticized CMS for its failure to ferret out overcharges in Medicare Advantage. In an April report, GAO found that CMS has spent about $117 million on the Medicare Advantage audits since 2010 but recouped just under $14 million in total.

Payment errors and overcharges by Medicare Advantage plans were the subject of a lengthy investigation by Kaiser Health News and the Center for Public Integrity. Federal officials have struggled for years to weed out billing irregularities by Medicare Advantage plans, according to CMS records obtained through a Freedom of Information Act lawsuit filed by the Center for Public Integrity.

The investigation found that Medicare Advantage payment errors result mostly from flaws in a billing formula called a risk score. Congress expected risk scores would pay higher amounts for sicker patients and less for people in good health when it began phasing in the billing scales in 2004.

But since then, a wide range of CMS audits and other reviews have found that Medicare wastes billions of tax dollars annually because some health plans inflate risk scores by exaggerating how sick their patients are. One CMS memo made public through the FOIA lawsuit referred to risk-based payments as essentially an “honor system,” with few audits to curtail fraud and abuse.

Even when RADV audits have detected widespread overpayments, CMS officials have failed to recoup money after years of haggling with the health plans.

In January, Kaiser Health News reported that Medicare had potentially overpaid five Medicare Advantage health plans by $128 million in 2007, but under pressure from the insurance industry collected just $3.4 million and settled the cases.

Morse testified on Wednesday that CMS is still in the process of completing appeals of RADV audits from 2007. He said that payment errors have been calculated for 2011 and that reviews for 2012 and 2013 were underway.

These results are years behind schedule, according to CMS documents, which show the results were expected in early 2014. In the past, officials have said that they expected to collect as much as $370 million from the 2011 audits.

Morse said on Wednesday he didn’t know when the 2011 audit results would be released. “Hopefully soon,” he said after the hearing. “I actually don’t know.”

Read the CBO Score of GOP Repeal-Only Bill

KFF Health News, July 20, 2017

The CBO estimate released on Wednesday shows that a repeal of Obamacare would would raise the number of uninsured by 32 million by 2026.

This article first appeared July 08, 2017 on Kaiser Health News.

By Kaiser Health News

On Wednesday, the Congressional Budget Office released its estimates on an amendment to H.R. 1628 that would repeal the Affordable Care Act outright.

This is the CBO’s fourth review of repeal-and-replace-related legislative drafts. Below are past scores from the Senate’s Better Care Reconciliation Act, released June 26, and the House-passed American Health Care Act, released May 24.

Details of Cruz Plan ‘A Bit Dicey’

KFF Health News, July 20, 2017

A draft report forecasting lower premiums for everyone who buys their own health insurance under a controversial amendment proposed by Sen. Ted Cruz drew immediate criticism Wednesday from health policy experts.

This article first appeared July 19, 2017 on Kaiser Health News.

By draft surfaced just as Republican senators were lunching with President Donald Trump on Wednesday to talk about the next steps in the health care debate.

“The Republicans never discuss how good their healthcare bill is, & it will get even better at lunchtime,” tweeted Trump, before the group convened.

But findings from the draft report drew immediate criticism from health policy experts as opaque and misleading.

“The details get a bit dicey,” said Craig Garthwaite, director of the health care program at Northwestern University’s Kellogg School of Management. “No one I’ve talked to thinks [the analysis] is well done.”

The forecasts in a draft analysis by the Department of Health and Human Services are exactly opposite from what many experts predict.

Still, the HHS analysis did provide some insight into how HHS envisioned that the Cruz plan, part of the Senate bill that appeared to die this week, could have worked. Particularly notable: The analysis assumes annual deductibles of $12,000, which means consumers would have to pay that amount — which is far higher than allowed under the ACA — before most benefits are covered.

On Wednesday, health care developments continued to unfold at a breakneck pace, and with a zigzagging trajectory, when the Senate Budget Committee posted on its website yet another bill. This one is an updated version of the 2015 “repeal and delay” bill, which is likely the measure the Senate will consider next week if a vote to start debate succeeds.

It would repeal all of the taxes that paid for the Affordable Care Act’s benefits, roll back the expansion of Medicaid (but not cap the underlying program), nullify the requirement for most people to have insurance and rescind the financial aid for low- and moderate-income Americans.

Late in the afternoon, the Congressional Budget Office released an updated estimate of an earlier analysis concluding that the new “repeal and delay” measure could result in 32 million fewer Americans having coverage and premiums doubling by 2026. By 2020, according to CBO, “about half the nation’s population would live in areas having no insurer participating in the non-group market.” The new bill does not include the Cruz amendment, the subject of the HHS report.

Opposition to the Cruz amendment from powerful health care sectors, like the insurance industry, is cited as one reason why the Senate was unable to muster enough votes to move the whole Senate bill forward for debate this week.

Last Friday, the insurance industry trade lobby sent a harsh warning to Congress, saying the Cruz amendment “is simply unworkable in any form and would undermine protections for those with pre-existing medical conditions, increase premiums and lead to widespread terminations of coverage.”

Today, the HHS report took a very different view.

First reported in the right-leaning Washington Examiner, it forecasts far more people covered by insurance in 2024 if the Cruz plan were adopted, as compared with how many would be insured under the Affordable Care Act.

It also projects premiums would fall, both in plans that meet all the rules of the ACA, and in plans Cruz proposes, which would not have to follow the rules. The Cruz plans would have lower premiums, however, because they could come with far fewer benefits — and could reject people with medical problems or charge them more.

Insurers and actuaries said the Cruz proposal would result in a segmented market, with younger and healthier people drawn to the skimpier, less expensive plans. That, in turn, would leave older or sicker enrollees in the ACA-compliant plans, causing their premiums to spiral upward.

But the analysis by HHS shows premium costs for ACA-compliant plans would go down by more than $250 a month in 2024 when compared with what they would be under current law. The Cruz plans would be super cheap, at under $200 a month under the rosiest scenario outlined.

Experts today immediately pounced on the department’s methods — in as much as they could be determined, since the full report was not released.

(HHS did not respond to requests for comment or for the release of the full report.)

For starters, the draft report, they say, compares premiums for a 40-year-old with the “weighted average” of all people of all ages purchasing ACA plans now.

“It’s not apples to apples,” said Matt Fiedler, a fellow at the USC-Brookings Schaeffer Initiative for Innovation in Health Policy.

It cited its own “proprietary model” used to determine how many people would switch from ACA plans to the new Cruz plans, without spelling out its assumptions. Not including such details is highly unusual and makes the results difficult to analyze, said Garthwaite, adding: “There’s nothing in this that gives me any hope that the entire report will be any more accurate, complete or unbiased.”

Meanwhile, over lunch at the White House, President Trump asked senators to skip all or part of their August recess in order to work on another proposal to repeal and replace the ACA. He promised premiums that would be significantly lower, without citing details on how that would occur.

Congress Squares Off Over Drug Pricing And A Controversial Drug Discount Program

KFF Health News, July 19, 2017

Advocates of the program say the discounts — and the money hospitals make on payments from Medicare — are necessary to combat skyrocketing drug prices. But federal reports in recent years have raised concerns about oversight and abuse of the 340B program.

This article first appeared July 18, 2017 on Kaiser Health News.

By Sarah Jane Tribble

House Democrats are calling foul on Republican assertions that cuts to a little-known discount drug program will eventually reduce skyrocketing drug prices.

At a hearing Tuesday, Rep. Diana DeGette (D-Colo.) said high drug prices should be investigated separately from the focus on oversight of the drug discount program, known as 340B.

“I think we need an investigation, a robust investigation, and a series of hearings that explore in-depth the reasons for exorbitant cost of drugs and why the prices continue to rise,” DeGette said.

Last week, Health and Human Services Secretary Tom Price proposed steep cuts in what Medicare reimburses some hospitals for outpatient drugs under the 340B program. In a release, Price said such cuts would be “a significant step toward fulfilling President [Donald] Trump’s promise to address rising drug prices.”

DeGette countered Tuesday that the proposal “would do nothing” to address high drug prices and said making that connection “seems more like fantasy than reality.”

Also on Tuesday, there were other hints at Trump Administration efforts to address drug pricing. Food and Drug Administration Commissioner Scott Gottlieb talked in a public meeting about lowering drug prices on a different front — saying that the agency needs to increase generic drug competition.

Trump routinely criticized high drug prices on the campaign trail last year and promised to take action during his presidency. In June, a leaked draft of an executive order on drug prices, first reported by The New York Times, spoke of facilitating more drug competition but also targeted the 340B program. That strategy immediately drew criticism from Sen. Al Franken (D-Minn.), who said scaling back the program would drive up what hospital patients pay for drugs and force Americans “to choose between health and other basic life necessities, like putting food on the table and a roof overhead for the family.”

The federal 340B program requires pharmaceutical manufacturers to provide outpatient drugs at a significant discount to hospitals and clinics that serve a largely low-income population.

After buying the discounted drugs, the hospitals and clinics can bill Medicare or other insurers at their regular rate, pocketing the difference.

About 40 percent of hospitals nationwide participate in the program and, as House members pointed out Tuesday, the program has grown dramatically in recent years to become a significant force in the pharmaceutical marketplace. The Medicare Payment Advisory Commission estimated that hospitals and other participating entities spent more than $7 billion to buy 340B drugs in 2013, three times the amount spent in 2005.

Advocates of the program say the discounts — and the money hospitals make on payments from Medicare — are necessary to combat skyrocketing drug prices.

But federal reports in recent years from the Medicare advisory board, as well as the Government Accountability Office and the Office of Inspector General, have raised concerns about oversight and abuse of the 340B program.

Rep. Joe Barton (R-Texas) noted “this is a difficult hearing” because while the program was created with good intent, its complexity makes it challenging to understand. For example, hospitals and clinics aren’t required to pass any discounts they receive on to patients — they can direct the money to their general fund.

Looking at his colleagues, Barton said: “We all support the program but it has grown topsy-turvy. We need to put the best minds on this.”

Republican lawmakers are not the only ones raising concerns about 340B oversight. The Pharmaceutical Research and Manufacturers of America, which represents drugmakers, advocates ensuring hospitals are “good stewards” of the money they gain from the program’s discounts.

Peggy Tighe, who represents hospitals in the 340B program as a principal at the D.C. law firm Powers, said “PhRMA has done a particularly good job of getting the attention of the administration …. They haven’t let up on 340B.”

The rule that Price proposed last week would cut what hospitals are paid for drugs from the Medicare Part B program, which covers outpatient drugs including those delivered through infusion.

Currently, Medicare pays hospitals an average sales price plus 6 percent for most of the Part B drugs they purchase. The administration’s proposal is to cut that to average sales price minus 22.5 percent.

340B Health, a coalition that represents hospitals, immediately responded to the proposal saying the cuts would be “devastating” to hospitals and would “lead to cuts in patient services.”

KHN’s coverage of prescription drug development, costs and pricing is supported in part by the Laura and John Arnold Foundation.

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