NORTH CAROLINA — A new study carried out by the state treasurer and North Carolina State Health Plan found nonprofit hospitals overcharged for oncology drugs they purchased through a federal discount program meant to help impoverished patients.
READ MORE: Novant NHRMC gets ‘B’ safety grade per new report
ALSO: NC treasurer supports FTC’s Novant antitrust suit, argues merger would increase costs for taxpayers
The federal 340B drug-pricing program is meant to assist uninsured and low-income patients with medical expenses. It requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at a discount to eligible entities, including nonprofit hospitals providing charity care.
State treasurer Dale Folwell released the report last week, carried out in coordination with the State Health Plan, which provides healthcare to 750,000 active and retired state employees. It found hospitals collected 1.7 to 3.7 times the acquisition cost of six common cancer drugs. State Health Plan members were charged $21,512 for melanoma drug pembrolizumab, whereas the estimated cost was $7,895.
The study detailed 340B cancer drugs provided by New Hanover Regional Medical Center, acquired by Novant in 2021, were sold to patients 70% above average sale price.
As a systemwide hospital network, Novant had the fifth highest average oncology drug markups among 15 listed providers to the State Health Plan. Cape Fear Valley Health, Atrium Health, Duke University Health System, and Vidant Health had average markups more than four times higher than the average sale price.
Brown University healthcare policy expert Christopher Whaley, who worked on the recent study, said Novant Health had a 260% profit margin on cancer drugs acquired through the discounted program.
“This is another example of why healthcare quality is so poor and healthcare costs are so high in North Carolina,” Folwell told Port City Daily. “This is one of the many things these nonprofits do in the dark night that ends up gouging people who are just sick.”
There is no legal requirement for hospitals to share 340B cost savings with patients or reinvest them in vulnerable communities. Last year, United States Health and Human Services secretary Xavier Becarra criticized the program’s limited transparency and requested policy reforms.
The study found 340B drugs were purchased at an average 34.7% discount, and researchers argued evidence suggests hospitals made significant profits from markups to cancer patients.
“It’s like this low-hanging arbitrage opportunity,” Whaley told PCD.
340B policy has been the focus of major legal and lobbying battles in recent years. Pharmaceutical manufacturers argue the discounts are excessively burdensome and savings are improperly used, and have pushed to restrict drug sales to hospitals that contract with third-party pharmacies.
The majority of NC hospitals’ 340B contracts are held by pharmacy chains such as Walgreens and CVS Health. Pharmaceutical manufacturers have argued some contracting pharmacies improperly share profits from discount savings with hospitals. In January, Sen. Bill Cassidy (R-LA) requested information on the Walgreens and CVS’ profits from 340B contracts.
Alternatively, groups like the American Hospital Association — the country’s most influential hospital trade group — have lobbied to maintain 340B benefits and opposed additional reporting requirements. In a May report, the AHA argued the 340B program is necessary to assist with growing operational costs.
Its affiliate — the North Carolina Healthcare Association — is one of the biggest lobbying groups in the state. The group, which includes Novant as a member, described the treasurer’s 340B report as misleading in a recent statement. A Novant spokesperson similarly argued the study misrepresented the hospital network’s community contributions, noting Novant provides a cost-estimator tool and financial assistance to give patients cost transparency:
“The most recent claims published by the North Carolina Treasurer’s office fundamentally misrepresent the value hospitals and health systems provide to the community, dismissing the hundreds of millions of dollars of investment we provide each year and overlooking the role of pharmaceutical companies and health plans in care delivery.”
In an April interview with 340B Insight podcast, Novant pharmacy business director Matt Webber said the hospital network uses a multidisciplinary team — finance and data analytics experts, accountants, and pharmaceutical specialists — to optimize compliance with the program’s rules.
Novant’s system-wide clinical database is supplied by Vizient, a company that provides healthcare services including 340B consulting. Vizient is also the biggest of the three largest “group purchasing organizations,” or GPOs, which handle bulk purchasing of medical supplies for 90% of the country’s health systems. GPOs provide contracts to hospitals to gain discounts on healthcare products, as they use aggregate purchasing volume as leverage in negotiations with vendors.
The Senate Finance Committee has recently criticized GPO control of the generic drug market, including cancer drugs, for contributing to shortages. Earlier this month, Senate Finance Committee Chair Ron Wyden (D-Oregon) described GPOs as “monopolistic middlemen” causing market disruptions and driving up costs.
Novant CEO Carl Armato is on Vizient’s board of directors and the companies are in a group purchasing organization together, according to a Novant spokesperson. Vizient’s contract portfolio constitutes more than $130 billion in annual purchasing volume.
Apexus LLC, which is a wholly owned subsidiary of Vizient, has an exclusive contract with the Health Resources and Services Administration to administer the 340B program and negotiate sub-ceiling prices — prices below the HRSA’s statutory 340B costs — with pharmaceutical companies.
Port City Daily asked Vizient for information about Apexus’ finances, including if Apexus is paid for its role negotiating 340B prices with individual manufacturers, but was told the companies did not have a comment on the inquiry.
Vizient cited 340B policy as a top focus in its $270,000 federal lobbying disclosure for the first quarter of 2024. This includes lobbying on the “SUSTAIN 340B Act,” a bipartisan discussion draft submitted by six senators in February. It puts new transparency requirements on hospitals to report how they use 340B savings and mandates pharmaceutical companies sell drugs to eligible entities at 340B prices without conditions.
Vizient wrote in an April letter regarding the bill’s draft that it supported provisions that would prevent manufacturers from refusing or placing conditions on 340B drug deliveries. However, it opposed putting new requirements on how 340B recipients use savings from discounted drugs.
“Policies that narrow how 340B Program savings could be used, such as directing them solely to the provision of pharmaceuticals to vulnerable populations, would result in fewer services being provided more broadly, including in underserved communities,” Vizient wrote in the letter.
Sayeh Nikpay, a University of Minnesota health policy researcher who contributed to the recent State Health Plan study, told PCD there is evidence 340B status incentivizes hospitals to carry out acquisitions. She cited a 2018 New England Journal of Medicine study associating the 340B program with hospital-physician consolidation in hematology-oncology, but found hospitals’ financial gains from the program did not improve care among low-income patients.
Novant has expanded rapidly in recent years, although its recent attempt to acquire two hospitals in Iredell County hit a roadblock after the Federal Trade Commission filed an antitrust suit to block the purchase in January.
The state treasurer submitted a brief in support of the FTC’s motion last month, arguing the consolidation would increase costs for taxpayers contributing to the state health plan. The treasurer and State Health Plan have worked together on past studies raising concerns about inadequate oversight of the state’s nonprofit hospitals to ensure charitable spending justifies tax exemptions.
“When it comes to these multi-billion dollar corporations that are gouging people and disguising themselves as nonprofits, we’re not going to look the other way,” Folwell said.
Tips or comments? Email journalist Peter Castagno at peter@localdailymedia.com.
Want to read more from PCD? Subscribe now and then sign up for our morning newsletter, Wilmington Wire, and get the headlines delivered to your inbox every morning.
