A new OIG report reviews Medicare Part B spending on drugs purchased by eligible health care providers through the 340B drug discount program.  The OIG describes the report as “an independent analysis to inform the ongoing discussion” among policymakers about the nature of 340B discounts and whether statutory changes should be made to enable Medicare and/or Medicaid to share in savings associated with 340B-purchased drugs.

According to the OIG, Medicare Part B spent $3.5 billion for 340B-purchased drugs in 2013.  Medicare Part B payments for these drugs, based on 106% of average sales prices (ASP), totaled 58% more than the statutorily based 340B ceiling prices that year, enabling covered entities to retain approximately $1.3 billion.  The OIG described three “shared-savings arrangement” options that would have resulted in Medicare Part B savings between $162 million to $1.1 billion in 2013 “while still providing covered entities with incentives to purchase those drugs through the 340B Program”:

  1. Pay 340B-purchased 100% of ASP.  Eliminating the current 6% add-on to ASP for 340B-purchased drugs would have reduced Medicare expenditures by $162 million (5%) in 2013, while covered entities would have retained $1.1 billion in the “spread” between acquisition costs and Part B payments.
  2. Equally shared savings (ASP-14.4%). Paying for 340B-purchased drugs at ASP minus 14.4% would have allowed Medicare and covered entities to have equally shared the 340B discount in 2013.  That is, Medicare expenditures would have been reduced by $638 million (18%) while covered entities would have retained $638 million.
  3. 340B ceiling price plus 6% of ASP.  Paying entities for 340B-purchased drugs at the 340B ceiling price plus 6% of ASP would provide covered entities with approximately the same spread as on drugs purchased outside of the 340B Program, according to the OIG.  Such a policy would have reduced Medicare expenditures by $1.1 billion (31%) in 2013, while covered entities would have retained $211 million in the spread between acquisition costs and Part B payments.

The OIG did not recommend a particular change in policy.  Moreover, the OIG emphasized that while it conducted a financial analysis, it “did not examine the effect these changes would have on covered entities’ ability to serve their communities.”  The OIG believes that “it would be essential for any payment methodology to provide enough financial incentives to ensure that covered entities continue to purchase Part B drugs through the 340B Program.”