Congress created the 340B program in 1992 to provide extra funding for hospitals and clinics, especially those serving the poor and elderly, but the law does not require patients to benefit directly, a nuance that has fueled great conflict about how the program works and should be regulated.

This article was published on Tuesday, November 16, 2021 in Kaiser Health News.

By Sarah Jane Tribble and Emily Featherston, InvestigateTV

In early July, as the covid-19 pandemic slammed rural America, the president of a small Kansas hospital sat down on a Friday afternoon and wrote the president of the United States to plead for help.

“I do not intend to add to your burden,” said Brian Williams, a retired Army lieutenant colonel and Desert Storm combat veteran. He said his hospital, Labette Health, was “like a war zone,” inundated with unvaccinated patients. A department head had threatened to resign, saying he could not “watch one more body be carried out.”

But Williams wasn’t seeking pandemic relief.

Instead, he asked President Joe Biden to confront pharmaceutical manufacturers Eli Lilly and Co., Novo Nordisk and others for refusing to honor a federal drug discount program for hospitals and clinics. The program gives Williams millions to pay staff members, ensure remote clinics remain open and provide charity care for patients unable to pay, he said.

“During a global pandemic, I think health care workers deserve a little bit more respect than to have resources taken away,” Williams said in an interview with KHN and InvestigateTV. “Every one of those [drug] companies, I looked them up, and they were not suffering tremendous [financial] losses, as hospitals were.”

Eli Lilly’s stock price increased nearly 40% and the company’s value rose by $59 billion in the first seven months of 2021. In the same period, Labette Health lost $1.2 million in revenue just from the missed savings on prescriptions, Williams said.

Lilly and other manufacturers, though, are holding their ground. They refuse to offer discounts to thousands of hospital-contracted pharmacies, saying the program has grown beyond its intended use and lacks federal checks and balances against duplicate discounts and other abuses. In lawsuits, they contend the billions in discounted sales they provide are rarely passed on to patients and instead are swallowed up by middlemen like contract pharmacies and third-party administrators.

Congress created the so-called 340B program in 1992 to provide extra funding for hospitals and clinics, especially those serving the poor and elderly. The purpose, lawmakers wrote, is to “stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

Companies that want their drugs covered by Medicaid or Medicare Part B are required to offer 340B discounts, typically 25% to 50% off what they might otherwise pay. Hospitals and clinics buy the drugs at the discount and then are reimbursed by an insurance company, Medicare or Medicaid at the higher negotiated rate. The difference is kept by the hospital or clinic to use as it sees fit.

The law does not require patients to benefit directly, a nuance that has fueled great conflict about how the program works and should be regulated.

Hannah Norman/KHN; Getty Images

The 340B program’s reach exploded after federal regulators ruled in 2010 that hospitals and clinics could contract with an unlimited number of retail pharmacies such as Walgreens and CVS, which are paid a fee to dispense the discounted drugs. The growth, coupled with long-held questions about regulatory authority, puts the program at a tipping point, with patients stuck in the middle, industry experts say.

The number of pharmacies contracted to work with 340B hospitals to dispense the discounted drugs has soared. It’s reached more than 31,000 nationwide this year from just over 1,700 in 2010, according to an analysis of federal data by InvestigateTV and KHN.

One eye-popping statistic: The drugs purchased under 340B climbed to $38 billion in 2020 from $5.3 billion in 2010, according to the Health Resources and Services Administration, or HRSA, which oversees the program.

Interests on both sides of the program — hospitals and drugmakers — say they are at the mercy of a program designed with the best of intentions, now run amok, hijacked by for-profit companies and wealthy hospitals trying to profit from its largesse.

Adam J. Fein, chief executive of the industry research organization Drug Channels Institute, estimates that nearly half the nation’s retail, mail and specialty pharmacies now profit from 340B: The program, he said, is “essentially taking over the pharmacy industry.”

Legal fights about the program have landed before the U.S. Supreme Court, which is slated to hear arguments this month in American Hospital Association v. Becerra. The hospital industry is challenging a 2018 rule by the Trump administration to cut reimbursement on certain 340B drugs by 28.5%. As Biden’s HHS secretary, Xavier Becerra has upheld the rule.

Most important, the administration says, is to make sure providers use the savings to benefit patients. In an interview with KHN and InvestigateTV, Rear Adm. Krista Pedley, director of the Office of Special Health Initiatives, which oversees the program within Becerra’s agency, said, “We need legislative changes to help make that happen and require that.”

'Deeply Troubling'

When Sen. Joe Manchin (D-W.Va.) asked during a June appropriations hearing about pharmaceutical companies denying the discounts, Becerra said the drugmakers are violating the law.

“I hope what you’ll do is give us more authority” to regulate the program, Becerra said.

Manchin responded: “I really think we could do that in a bipartisan way, because I’ll tell ya, we’re all being affected.”

As California’s attorney general, Becerra led a coalition of national lawmakers calling for the federal government to hold the manufacturers accountable for their “deeply troubling” actions to undermine the program. At HHS, Becerra put the companies on notice.

Drugmakers — Lilly, AstraZeneca, Novo Nordisk, Sanofi, Novartis and United Therapeutics — took the matter to court, filing several lawsuits. This month, a federal judge ruled that the companies are not required to provide the discounts. A judge in Lilly’s case criticized the “unilateral” action by drugmakers but ruled that the U.S. government’s effort to force them to honor the discounts was invalid.

Notably, U.S. District Court Judge Sarah Evans Barker in Indianapolis wrote that manufacturers believe they are “at the mercy of a system run amok” and that the program “can no longer be held together and implemented fairly” solely through the agency’s guidance and inconsistent messaging.

Becerra requested $17 million annually for 340B program oversight, a $7 million bump. The money would establish a dispute review panel and increase the audits the agency does on manufacturers as well as the providers.

Williams — at his small hospital in rural Parsons, Kansas — said the nearly $4.3 million the hospital gains each year from 340B has allowed him to add a full-time position for case management, increase staffing hours, develop after-school programs and open clinics in impoverished towns that lacked health care.

The hospital has about 20 pharmacies under active contracts, according to the federal database. Williams said it includes locally owned shops like Bowen Pharmacy as well as corporate giants like Walgreens and Walmart, sites that are convenient for patients. A pharmacy added in 2019 is in Frisco, Texas — a mail-order facility that ships specialty drugs directly to patients’ homes.

Patients, Williams said, directly benefit from the federal program: “I’d love to have the CEO of Eli Lilly come here and I’ll take him around and I’ll show him a town of 1,200 where 40% of the population live below the poverty level.”

“Some of our patients come there on a bicycle or in a wheelchair,” Williams said. “I can go 30 minutes in any direction and find pretty tough people living in pretty … pretty austere circumstances.”

One Hospital, 300 Pharmacies

Vanderbilt University Medical Center, based in Nashville, has added three regional hospitals, clinics and providers in recent years — growth that has fueled its rise in contract pharmacies from zero in 2010 to 300 this year. The pharmacies, which reach across Tennessee and all the way to California, “in each instance serve VUMC patients,” Vanderbilt spokesperson John Howser said.

Financial filings do not disclose how much Vanderbilt gains annually from the 340B program, and Howser declined to disclose the amount. The medical system’s operating revenue grew $649 million, or 13%, to $5.5 billion in fiscal year 2021 compared with 2020, according to its latest financial disclosure. Its operating profit rose 25% to $177 million in 2021 compared with 2020.

According to an amicus brief filed in March for the American Hospital Association v. Becerra case, Vanderbilt spends more than $500 million annually on community benefits, such as charity care. Revenue from the 340B program supports low-income programs including medication assistance, home infusion medications and a pharmacy program at a health clinic run by students.

In the brief, Vanderbilt states the government’s cut in Medicare reimbursement has cost the system $12.4 million in 340B savings and will “impact VUMC’s ability to continue to fund community benefit programs at historic levels.”

Large regional health systems have been particularly active in expanding their contract pharmacy networks. The top three — University of Michigan Hospitals and Health Centers, Cambridge Public Health Commission in Massachusetts and Henry Ford Hospital in Detroit — had zero contracts with outside pharmacies in 2010, and each now has more than 500.

InvestigateTV and KHN contacted the 10 providers with the most contract pharmacies and asked why they saw such growth, how much revenue 340B generates and how the money was used.

While some said the money went for charity care and community programs, others did not respond.

Why not require hospitals to report precisely how they use the savings to benefit patients?

It would be “burdensome,” said Maureen Testoni, chief executive of 340B Health, which represents health systems.

She said her organization does not support mandating new reporting for nonprofit hospitals, which are required to submit annual cost reports and tax filings. The advocacy group has funded research that shows the savings from discounts go to patients. Hospitals enrolled in the program are much more likely to provide free care and specialty services, such as transportation, that are “typically not the ones you can use to pad your pockets,” she said.

Testoni said program growth is good because it means more care can be provided in outpatient settings and by safety-net providers for low-income populations. The bigger sales numbers, she said, could stem from more prescriptions or from higher drug prices. Detailed information about either metric is not public.

“Are we concerned that somehow pharmaceutical companies are being hurt by this?” Testoni said. “Because I’ve never seen any evidence of that in terms of their revenue going down or them having trouble keeping their doors open.”

'Essentially Taking Over'

Hospitals aren’t required to prove that the large pharmacy networks serve uninsured or needy patients. The larger networks enrich the hospitals and the pharmacies, said Fein of Drug Channels.

A 2018 Government Accountability Office report found that a hospital or clinic generally pays a flat dispensing fee — typically from $6 to $15 — for each eligible prescription a pharmacy processed. And pharmacies can contract with multiple health care providers: One Walmart central fill facility in Spring, Texas, contracted with 1,842 340B hospitals and clinics, the InvestigateTV and KHN analysis found.

Recent securities filings for Walmart, Walgreens and CVS Health — the biggest players in the contract pharmacy market —- do not provide line-item detail on how many 340B prescriptions are processed or the revenue those transactions generate. Walmart did not respond to requests for comment. CVS declined to comment.

CVS reported in an August financial filing that operating income increased by a third between March and June compared with a year ago and noted that 340B business contributed to that increase but provided no further detail. The company acquired 340B contract pharmacy administrator Wellpartner in 2017.

Walgreens mentioned the program in its 2020 annual financial filing, noting that changes to government pricing and regulations “could also significantly reduce our profitability.” Walgreens spokesperson Rebekah Pajak said that many of the company’s stores are in underserved areas and that it is proud to help fulfill the program’s goals. She declined to disclose the dispensing fees or terms of its contracts with hospitals and clinics.

Karyn Schwartz, vice president of policy and research at PhRMA, called the 340B program a “black box” and said drug companies would like more transparency because they “really have no way of knowing” how hospitals and pharmacies use their discounts.

Drugmakers said they continue to participate in the program by sending direct discounts to the hospitals but have eliminated some or all of the discounts passed through contract pharmacies because they didn’t trust the transactions, according to emails the companies sent to KHN and InvestigateTV. Novartis, which announced last year that it would sell drugs at a discount only for pharmacies within 40 miles of a hospital, said there is a “complete absence of transparency” in the contracts between hospitals and pharmacies.

“Contract pharmacy arrangements benefit for-profit pharmacies, third-party administrators, other middlemen and hospitals,” Novartis spokesperson Caryn Marshall wrote in an email.

“Lilly welcomes reforms where patients are identified as 340B eligible at the point-of-sale and share in discounts under the program,” said Tarsis Lopez, Eli Lilly spokesperson.

Getting By on 'Half a Dose'

Meanwhile, as businesses wage war over profits, patients are stuck. Andrew Kosowski, a 75-year-old retired police officer with diabetes, was shocked last year when he lost access to discounted drugs from 340B.

Kosowski is a patient at UnityPoint Health in Peoria, Illinois, which uses funds from the program to supplement the prescription costs of low-income and Medicare patients. Under 340B, many of his prescriptions were $15 each.

Without the discount, Kosowski’s insulin and other drugs had cost more each month than his Social Security check delivered. “I wasn’t going to spend that kind of money,” he said. He took “half a dose to get me by.”

He recalled how his feet hurt and his mind was affected without his full prescriptions.

PhRMA’s Schwartz declined to speak to Kosowski’s crisis but said the industry participates in 340B and would like to see direct patient benefit. “We hope policymakers step in and really clarify the role that for-profit pharmacies are supposed to be playing in this program and ensure that patients benefit,” Schwartz said.

Kosowski was fortunate to have an ally in Anne Webster, a nurse practitioner at UnityPoint who guided him through months of filling out forms to eventually qualify for financial assistance directly from Novo Nordisk.

The assistance, though, does not cover medications from other companies that he had gotten at the 340B discount price — medications that had helped him better manage his diabetes.

Webster said pharma’s standoff came at the worst possible time: “A Type 2 diabetic is so high-risk for mortality from coronavirus. And they require more insulin if they are ill with the virus.”

Kosowski is not her only patient missing prescriptions.

“I think I prescribed over 2,000 prescriptions in one year to the 340B program for my patients who are underinsured, not insured and are financially challenged,” Webster said.

KHN data editor Holly Hacker contributed to this report.

Independent pharmacies are struggling due to the vertical integration among drugstore chains, insurance companies and pharmaceutical benefit managers, which gives those companies market power that community drugstores can’t match.

This article was published on Monday, November 15, 2021 in Kaiser Health News.

By Markian Hawryluk

Batson’s Drug Store seems like a throwback to a simpler time. The independently owned pharmacy in Howard, Kansas, still runs an old-fashioned soda counter and hand-dips ice cream. But the drugstore, the only one in the entire county, teeters on the edge between nostalgia and extinction.

Julie Perkins, pharmacist and owner of Batson’s, graduated from the local high school and returned after pharmacy school to buy the drugstore more than two decades ago. She and her husband bought the grocery store next door in 2006 to help diversify revenue and put the pharmacy on firmer footing.

But with the pandemic exacerbating the competitive pressures from large retail chains, which can operate at lower prices, and from pharmaceutical intermediaries, which can impose high fees retroactively, Perkins wonders how long her business can remain viable.

She worries about what will happen to her customers if she can’t keep the pharmacy running. Elk County, with a population of 2,500, has no hospital and only a couple of doctors, so residents must travel more than an hour to Wichita for anything beyond primary care.

“That’s why I hang on,” Perkins said. “These people have relied on the store from way before I was even here.”

Corner pharmacies, once widespread in large cities and rural hamlets alike, are disappearing from many areas of the country, leaving an estimated 41 million Americans in what are known as drugstore deserts, without easy access to pharmacies. An analysis by GoodRx, an online drug price comparison tool, found that 12% of Americans have to drive more than 15 minutes to reach the closest pharmacy or don’t have enough pharmacies nearby to meet demand. That includes majorities of people in more than 40% of counties.

From 2003 to 2018, 1,231 of the nation’s 7,624 independent rural pharmacies closed, according to the University of Iowa’s Rural Policy Research Institute, leaving 630 communities with no independent or chain retail drugstore.

Independent pharmacies are struggling due to the vertical integration among drugstore chains, insurance companies and pharmaceutical benefit managers, which gives those companies market power that community drugstores can’t match.

Insurers also have ratcheted down what they will pay for prescription drugs, squeezing margins to levels that pharmacists call unsustainable. As the insurers’ drug plans steered patients to their affiliated drugstores, independent shops watched their customers drift away. They find themselves at the mercy of pharmaceutical intermediaries, which claw back pharmacy revenue through retroactive fees and aggressive audits, leaving local pharmacists unsure if they’ll end the year in the black.

That has a direct impact on customers, particularly older ones, who face higher copays for prescription medications if they have a drug plan, and higher list prices if they don’t. If their local pharmacy can’t survive, they may be forced to travel long distances to the nearest drugstore or endure waits to get their prescriptions from understaffed pharmacies serving more and more patients.

“Living in an area with low pharmacy density could increase wait times, decrease supply, and make it harder to shop around for prescription medications,” said Tori Marsh, GoodRx’s lead researcher on the drugstore desert study.

The financial pressures on independent drugstores began mounting two decades ago when Medicare instituted its Part D program using private insurance plans: Pharmacies’ most frequent customers went from paying cash for list prices to using insurance coverage that paid lower negotiated rates.

“A market clearance occurred, a big bolus of pharmacy closures,” said Keith Mueller, director of the Rural Policy Research Institute.

Independent pharmacies saw their margins shrink. On average, a pharmacy’s cost of dispensing a single prescription, factoring in labor, rent, utilities and other overhead, ranges from $9 to $15. But the reimbursement is often far less.

Multiple pharmacists said that about half of drug plan reimbursements fail to cover the costs of drugs and their overhead.

“What you’re left with is that 50% of claims that you can make some money on, and really, the tiny percentage of claims where you make an extremely high amount of money,” said Nate Hux, who owns an independent pharmacy in Pickerington, Ohio.

It’s that tiny sliver of wildly overpaid drugs, especially generics, that determines whether a pharmacy can survive. A generic drug that costs $4 might get reimbursed by a drug plan at $4,000.

“Filling a generic prescription, from a financial standpoint, is like pulling the slots at a casino,” said Ben Jolley, an independent pharmacist in Salt Lake City. “Sometimes you lose a quarter, sometimes you lose a buck, and sometimes you make $500. But you have to have those prescriptions that you make $500 on to make up for the losses on the rest of your meds.”

Some pharmacies increase their list prices to ensure they capture the highest reimbursements that drug plans are willing to pay. But that raises prices for patients paying cash.

Jolley, who also works as a consultant for pharmacies across the country, said some pharmacists game the system by billing excessive charges for drugs they mix on-site or calling physicians to switch patients to more profitable drugs.

“Pharmacies that play this game get exceptionally wealthy,” he said. “Most pharmacies either don’t feel comfortable playing this game or aren’t aware that that’s how the system works, so they get left behind. That’s why you see all these pharmacies closing.”

Pharmacy benefit managers, brokers known as PBMs, also steer customers away from independent pharmacies to affiliated chain, mail-order or specialty pharmacies with lower out-of-pockets costs. Some PBMs prevent local pharmacies from offering the most expensive drugs at all.

The benefit managers counter that there are more independent pharmacies today than there were 10 years ago. An analysis conducted on behalf of the Pharmaceutical Care Management Association, a trade group that represents pharmacy benefit managers, showed a 13% increase in the number of independently owned pharmacies from 2010 to 2019. However, many of those new stores opened in communities that already had pharmacies.

“PBMs are not seeking to put independent pharmacies out of business,” said Greg Lopes, a spokesperson for the trade group. “PBMs are trying and often succeeding in lowering drug costs.”

The insurers’ trade group, AHIP, formerly America’s Health Insurance Plans, declined to comment.

Katie Koziara, a spokesperson for the Pharmaceutical Research and Manufacturers of America, an industry group representing drugmakers, said the large market power of PBMs can leave patients with fewer choices.

“The system might work well for health plans and these middlemen, but it creates difficult access barriers for vulnerable patients,” Koziara said. “We’re concerned about the emerging issue of ‘pharmacy deserts’ where patients, particularly among communities of color, cannot readily access a community pharmacy for their medications.”

Independent pharmacists routinely identify those middle-manager companies as the leading cause of their troubles. At Batson’s drugstore in rural Kansas, Perkins recently had a customer who had been taking Emgality, an injectable monoclonal antibody treatment for migraines made by Eli Lilly and Co., that typically retails for up to $760 a month. But the customer’s drug plan wouldn’t pay Batson’s to fill it, forcing her to wait until it could be mailed from a specialty pharmacy.

Frustratingly, Perkins said, patients who get pushed to order drugs by mail often bring them to her when they need help deciphering how to use them.

Even when pharmacies make money on a prescription, there’s no guarantee they can keep much of the profit. Drug plans charge pharmacies fees every time they need to interact with the PBM’s claims database. While those fees average only 10 to 15 cents per transaction, a busy pharmacy might need to check the database hundreds of times a day.

PBMs also have implemented retroactive fees based on performance metrics they set. Pharmacies can wind up losing money on a prescription filled months earlier. PBMs describe these as quality measures, but pharmacists complain they are more about sales volume. Many of the metrics track how diligently patients take their medication, which pharmacies can hardly control.

One PBM’s contract, obtained by Axios, showed only 1% of pharmacies are able to avoid retroactive fees.

Jeff Olson, who owns three rural pharmacies in Iowa, said he paid $52,000 in retroactive fees on revenue of $6 million in 2015. While his annual revenue remained flat through 2020, those retroactive fees last year totaled $225,000.

“That’s money that can’t be used for payroll, that can’t be used to add those other services that your community needs,” Olson said.

Moreover, Olson said, he doesn’t know what metrics insurance plans use to evaluate his performance and calculate the fees.

“They define quality themselves,” said Ronna Hauser, vice president of pharmacy affairs for the National Community Pharmacists Association. “If you have 20 Part D plans you contract with, that’s 20 different quality programs that you’re supposed to be aware of and keep up with.”

According to the Centers for Medicare and Medicaid Services, such retroactive fees were 915 times as high in 2019 as in 2010. The resulting higher prices mean Medicare beneficiaries burn through their initial coverage period faster and enter a coverage gap, or “doughnut hole,” sooner.

At Olson’s pharmacy in St. Charles, Iowa, a town of fewer than 1,000 people, fees and other financial pressures forced Olson to scale back and operate the store as a telepharmacy. Technicians fill prescriptions under the eye of an off-site pharmacist, and customers see a pharmacist only one day a week.

For a town with no other health care provider, that means six days when no one can provide vaccinations or test for strep throat.

Back in Howard, Debbie Lane, 70, likes the personal service Perkins offers at Batson’s.

“It’s a lot easier to go down to a local store, and if it happens to be after hours or an emergency, she’ll open up for us,” Lane said.

Perkins will tell her if Lane can save money by driving to a chain drugstore in Wichita instead. And, recently, Perkins ran the numbers to help Lane decide which Medicare plan would be the least expensive given the medications she takes. Lane knows it’s a struggle to keep a small-town pharmacy open and fears what might happen if Batson’s closed.

“It’d be devastating,” Lane said. “There are a lot of us like me, who will sometimes pay a little extra to make sure that Julie stays in business.”

Nearly $34 billion of new spending came during 2018 and 2019, the latest payment period available.

This article was published on Thursday, November 11, 2021 in Kaiser Health News.

By Fred Schulte  

Switching seniors to Medicare Advantage plans has cost taxpayers tens of billions of dollars more than keeping them in original Medicare, a cost that has exploded since 2018 and is likely to rise even higher, new research has found.

Richard Kronick, a former federal health policy researcher and a professor at the University of California-San Diego, said his analysis of newly released Medicare Advantage billing data estimates that Medicare overpaid the private health plans by more than $106 billion from 2010 through 2019 because of the way the private plans charge for sicker patients.

Nearly $34 billion of that new spending came during 2018 and 2019, the latest payment period available, according to Kronick. The Centers for Medicare & Medicaid Services made the 2019 billing data public for the first time in late September.

"They are paying [Medicare Advantage plans] way more than they should," said Kronick, who served as deputy assistant secretary for health policy in the Department of Health and Human Services during the Obama administration.

Medicare Advantage, a fast-growing alternative to original Medicare, is run primarily by major insurance companies. The health plans have enrolled nearly 27 million members, or about 45% of people eligible for Medicare, according to AHIP, an industry trade group formerly known as America's Health Insurance Plans.

The industry argues that the plans generally offer extra benefits, such as eyeglasses and dental care, not available under original Medicare and that most seniors who join the health plans are happy they did so.

"Seniors and taxpayers alike have come to expect high-quality, high-value health coverage from MA [Medicare Advantage] plans," said AHIP spokesperson David Allen.

Yet critics have argued for years that Medicare Advantage costs taxpayers too much. The industry also has been the target of multiple government investigations and Department of Justice lawsuits that allege widespread billing abuse by some plans.

The payment issue has been getting a closer look as some Democrats in Congress search for ways to finance the Biden administration's social spending agenda. Medicare Advantage plans also are scrambling to attract new members by advertising widely during the fall open-enrollment period, which ends next month.

"It's hard to miss the big red flag that Medicare is grossly overpaying these plans when you see that beneficiaries have more than 30 plans available in their area and are being bombarded daily by TV, magazine and billboard ads," said Cristina Boccuti, director of health policy at West Health, a group that seeks to cut healthcare costs and has supported Kronick's research.

Kronick called the growth in Medicare Advantage costs a "systemic problem across the industry," which CMS has failed to rein in. He said some plans saw "eye-popping" revenue gains, while others had more modest increases. Giant insurer UnitedHealthcare, which in 2019 had about 6 million Medicare Advantage members, received excess payments of some $6 billion, according to Kronick. The company had no comment.

"This is not small change," said Joshua Gordon, director of health policy for the Committee for a Responsible Federal Budget, a nonpartisan group. "The problem is just getting worse and worse."

Responding to written questions, a CMS spokesperson said the agency "is committed to ensuring that payments to Medicare Advantage plans are appropriate. It is CMS's responsibility to make sure that Medicare Advantage plans are living up to their role, and the agency will certainly hold the plans to the standards that they should meet."

Making any cuts to Medicare Advantage payments faces stiff opposition, however.

On Oct. 15, 13 U.S. senators, including Sen. Kyrsten Sinema (D-Ariz.) sent a letter to CMS opposing any payment reductions, which they said "could lead to higher costs and premiums, reduce vital benefits, and undermine advances made to improve health outcomes and health equity" for people enrolled in the plans.

Much of the debate centers on the complex method used to pay the health plans.

In original Medicare, medical providers bill for each service they provide. By contrast, Medicare Advantage plans are paid using a coding formula called a "risk score" that pays higher rates for sicker patients and less for those in good health.

That means the more serious medical conditions the plans diagnose the more money they get — sometimes thousands of dollars more per patient over the course of a year with little monitoring by CMS to make sure the higher fees are justified.

Congress recognized the problem in 2005 and directed CMS to set an annual "coding intensity adjustment" to reduce Medicare Advantage risk scores and keep them more in line with original Medicare.

But since 2018, CMS has set the coding adjustment at 5.9%, the minimum amount required by law. Boccuti said that adjustment is "too low," adding that health plans "are inventing new ways to increase their enrollees' risk scores, which gain them higher monthly payments from Medicare."

Some of these coding strategies have been the target of whistleblower lawsuits and government investigations that allege health plans illegally manipulated risk scores by making patients appear sicker than they were, or by billing for medical conditions patients did not have. In one recent case, the Justice Department accused Kaiser Permanente health plans of obtaining about $1 billion by inflating risk scores. In a statement, the insurer disputed the allegations. (KHN is not affiliated with Kaiser Permanente.)

Legal or not, the rise in Medicare Advantage coding means taxpayers pay much more for similar patients who join the health plans than for those in original Medicare, according to Kronick. He said there is "little evidence" that higher payments to Medicare Advantage are justified because their enrollees are sicker than the average senior.

Kronick, who has studied the coding issue for years, both inside government and out, said that risk scores in 2019 were 19% higher across Medicare Advantage plans than in original Medicare. The Medicare Advantage scores rose by 4 percentage points between 2017 and 2019, faster than the average in past years, he said.

Kronick said that if CMS keeps the current coding adjustment in place, spending on Medicare Advantage will increase by $600 billion from 2023 through 2031. While some of that money would provide patients with extra health benefits, Kronick estimates that as much as two-thirds of it could be going toward profits for insurance companies.

AHIP, the industry trade group, did not respond to questions about the coding controversy. But a report prepared for AHIP warned in September that payments tied to risk scores are a "key component" in how health plans calculate benefits they provide and that even a slight increase in the coding adjustment would prompt plans to cut benefits or charge patients more.

That threat sounds alarms for many lawmakers, according to Kronick. "Under pressure from Congress, CMS is not doing the job it should do," he said. "If they do what the law tells them to do, they will get yelled at loudly, and not too many people will applaud."

Fred Schulte: fschulte@kff.org, @fredschulte

There are two nearly identical drugs made by Endo Pharmaceuticals, both containing 50 milligrams of the hormone blocker histrelin. One cost more than eight times more than the other.

This article was published on Wednesday, November 10, 2021 in Kaiser Health News.

By Sydney Lupkin, NPR News  

Sudeep Taksali thought he'd won his battle to avoid a steep price tag on a medicine for his daughter. He was wrong.

In 2020, he'd fought to get insurance to cover a lower-priced version of a drug his then-8-year-old needed. She'd been diagnosed with central precocious puberty, a rare condition marked by early onset of sexual development — often years earlier than one's peers. KHN and NPR wrote about Taksali and his family as part of the Bill of the Month series.

The girl's doctors and the Taksalis decided to put her puberty on pause with a hormone-blocking drug implant that would be placed under the skin in her arm and release a little bit of the medication each day.

Taksali, an orthopedic surgeon, learned there were two nearly identical drug products made by Endo Pharmaceuticals, both containing 50 milligrams of the hormone blocker histrelin. One cost more than eight times more than the other. He wanted to use the cheaper one, Vantas, which costs about $4,800 per implant. But his insurer would not initially cover it, instead preferring Supprelin LA, which is approved by the Food and Drug Administration to treat central precocious puberty, and costs about $43,000.

Vantas can be prescribed off-label for the condition, and after much back-and-forth dialogue, Taksali finally got the insurer to cover it.

Then this summer, it was time to replace the implant.

"I thought we would just get a Vantas replacement," Taksali said. "In my mind, I was like, 'Well, she got it the first time, and we've already kind of fought the battle with the insurance company and, you know, got it approved."

But during a virtual appointment with his daughter's doctor, he learned they couldn't get Vantas. No one could. There was a Vantas shortage.

Endo cited a manufacturing problem. Batches of Vantas weren't coming out right and couldn't be released to the public, the company's vice president of corporate affairs, Heather Zoumas Lubeski, told NPR in an email. Vantas and Supprelin were made in the same facility, but the problem affected only Vantas, she wrote, stressing that the drugs are "not identical products."

In August, Endo's president and CEO, Blaise Coleman, told investors Supprelin was doing particularly well for the company. Revenue had grown by 79% compared with the same quarter the year before. The growth was driven in part, Coleman explained, "by stronger-than-expected demand resulting from expanded patient awareness and a competitor product shortage," he said.

What competitor product shortage? Could that be Vantas?

Asked about this, Zoumas Lubeski said Coleman wasn't referring to Vantas. Since Vantas isn't approved to treat central precocious puberty, it can't technically be considered a competitor to Supprelin. Coleman was referring to the rival product Lupron Depot-Ped, not an implant, but an injection made by AbbVie, Zoumas Lubeski said.

Taksali was skeptical.

"It's all very curious, like, huh, you know, when this particular option went away and your profits went up nearly 80% from the more expensive drug," he said.

Then, in September, Endo told the FDA it stopped making Vantas for good.

Zoumas Lubeski said that when Endo investigated its Vantas manufacturing problem, it wasn't able to find "a suitable corrective action that resolves the issue."

"As a result, and after analysis of the market for the availability of alternative therapies, we made the difficult decision to discontinue the supply of this product," she said via email. "Endo is committed to maintaining the highest quality standards for all of its products."

Taksali said he felt resigned to giving his daughter Supprelin even before the shortage turned into a discontinuation. Ultimately, he won't pay much more out-of-pocket, but his insurance will pay the rest. And that could raise his business's premiums.

The FDA cannot force Endo to keep making the drug or set a lower price for the remaining one. It doesn't have the authority. That decision lies with Endo Pharmaceuticals. A drugmaker discontinuing a product isn't anything new, said Erin Fox, who directs drug information and support services at University of Utah Health hospitals.

"The FDA has very little leverage because there is no requirement for any company to make any drug, no matter how lifesaving," she said. "We have a capitalist society. We have a free market. And so any company can discontinue anything … at any time for any reason."

Still, companies are supposed to tell the FDA about potential shortages and discontinuations ahead of time so it can minimize the impact on public health. It can help a firm resolve a manufacturing issue, decide whether it's safe to extend an expiration date or help a company making an alternative product to ramp up production.

"The FDA expects that manufacturers will notify the agency before a meaningful disruption in their own supply occurs," FDA spokesperson Jeremy Kahn wrote in an email. "When the FDA does not receive timely, informative notifications, the agency's ability to respond appropriately is limited."

But the rules are somewhat flexible. A company is required to notify the FDA of an upcoming drug supply disruption six months before it affects consumers or "as soon as practicable" after that. But their true deadline is five business days after manufacturing stops, according to the FDA website.

"They're supposed to tell the FDA, but even if they don't, there's no penalty," Fox said. "There's no teeth in that law. … Their name can go on the FDA naughty list. That's pretty much it."

In rare cases, the FDA will send a noncompliance letter to the drugmaker and require it to explain itself. This has happened only five times since 2015. There is no such letter about Vantas, suggesting that Endo met the FDA's requirements for notification.

Concerned about potential drug shortages caused by COVID-19 in March 2020, a bipartisan group of legislators introduced the Preventing Drug Shortages Act, which aimed to increase transparency around shortages. But the legislation gained no traction.

As a result of limited FDA power, the intricacies of drug shortages remain opaque, Fox said. Companies don't have to make the reasons for shortages public. That sets the Vantas shortage and discontinuation apart from many others. The company is saying more about what happened than most do.

"Many companies will actually just put drugs on temporarily unavailable or long-term backorder, and sometimes that can last years before the company finally makes a decision" on whether to discontinue a product, she said. "It can take a long time, and so it can be frustrating to not know — or to kind of stake your hopes on a product coming back to the market once it's been in shortage for so long."

It's hard to know exactly how many children will be affected by the Vantas discontinuation because data about off-label use is hard to come by.

Dr. Erica Eugster, a professor of pediatrics at the Indiana University School of Medicine, said central precocious puberty patients weren't her first thought when she learned of the Vantas discontinuation.

"I immediately thought about our our transgender population," she said. "They're the ones that are really going to suffer from this."

No medications have been FDA-approved to treat patients with gender dysphoria, the medical term for when the sex assigned at birth doesn't match someone's gender identity, causing them psychological distress. As a result, any drug to stop puberty in this population would be off-label, making it difficult for families to get health insurance coverage. Vantas had been a lower-cost option.

The number of transgender patients receiving histrelin implants rose significantly from 2004 to 2016, according to a study published in the Journal of Pediatric Endocrinology and Metabolism.

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