The Impact of a Federal Drug Pricing Program on Cancer Care Site and Spending in Medicare

The federal 340B drug pricing program mandates manufacturers give certain types of safety-net providers substantial discounts for outpatient prescription drugs. This program is intended to give financial support to providers serving low-income or uninsured patients. The program began with a small number of providers offering care to the poor, but it has grown significantly for the past decade. As 340B expands, a concern has been raised that the program may increase health care costs without necessarily benefiting poor patients. 340B hospitals generate revenue when treating insured patients with discounted drugs because payers’ payments for outpatient drugs are not based on drug acquisition prices. However, the program does not regulate how hospitals use the revenue created from 340B. Thus, 340B hospitals have incentives to change their practice, such as increasing use of 340B drugs or shifting the site of care to hospital outpatient departments from physician offices.

We provide empirical evidence on this issue in Medicare using 2010-2013 Medicare claims data for a random sample of Medicare Fee-for-Service beneficiaries with cancer. We identified the 340B effect using variation in the availability of newly covered 340B hospitals by the Affordable Care Act expansion across markets. We used a difference-in-differences approach with market and time fixed effects.

We found that the program had a significant effect on the change in the site of cancer drug administration: the probability of a patient receiving cancer drug administration in hospital outpatient department versus physician offices increased 7.8 percentage points more in new 340B markets than in markets with no 340B hospital (a 34.8 percent increase). The program had no significant effect on spending on cancer drugs, probably due to the same Medicare payments for provider-administered drugs in the two settings. However, the program increased spending on other cancer care: a patient receiving cancer drug administration spent $1,162 more on other cancer care in markets newly gaining a 340B hospital than in markets with no 340B hospital (a 8.4 percent increase). This is consistent with the concern that the program increases care spending by moving patients to hospital outpatient departments. Medicare payments for those services are higher in hospital outpatient departments than in physician offices.