Report: State employees being overcharged for cancer drugs

A damning new report released Wednesday by North Carolina State Treasurer Dale Folwell shows hospitals in the 340B Program in North Carolina are overcharging cancer patients in the State Health Plan at an average rate greater than five times the cost of cancer drugs. 

“It doesn’t matter what political party you are a member of, what race you are, what gender you are, or how you feel about any particular topic in our society right now, everyone knows that something is wrong with higher drug costs,” Folwell said at the press conference Wednesday.

The 340B Program was originally created to help safety-net providers serve low-income and rural communities, but it has become the second-largest federal prescription drug program in the nation. Under the 340B program, hospitals can purchase most outpatient drugs with an average 34.7% discount from drug manufacturers. Under current law, 340B hospitals have no legal obligation to pass these discounts on to patients or to invest the savings in vulnerable communities.

The report only adds to the unwanted distinction that the Tar Heel State received last October when Forbes ranked North Carolina as the third worst state for healthcare and the worst state in the country for healthcare costs. 

“This is just the latest report of us trying to put sunshine on a serious situation that’s facing us at the State Health Plan,” Folwell said.

He said this is one of the many reasons that the State Health Plan (SHP) is going insolvent.

“When you see reports like this you understand just when the General Assembly only funds us at a 4% rate and does not reimburse us for COVID-related expenses, you can see why it’s becoming more and more difficult and healthcare and prescription drug costs are going up in the double digits,” Folwell said.

State Employees Health Care Policy Analyst Julie Havlak said the SHP faces a $32 billion unfunded healthcare liability.

Havlak said state employees have to work one week out of every month just to afford the family premium on the SHP, one in five families is in collections for medical debt in North Carolina, and hospitals in the state have sued almost 8000 patients to collect medical bills.

The SHP contacted Christopher Whaley, economist and associate professor in the Department of Health Services, Policy and Practice at the Brown University School of Public Health, and Sayeh Nikpay, associate professor at the University of Minnesota School of Public Health’s Division of Health Policy and Management, to research the costs for the report.

Havlak explained how lucrative the drug price markups are for 340B hospitals. 

“For example, for one treatment with a cancer drug used to treat Melanoma, 340B hospitals acquired the drug for roughly $8000 but billed the State Health Plan almost $22,000, yielding an average price markup, the average profit of nearly $14,000 per claim,” she said. “State employees and taxpayers are all paying for that price markup with premiums, taxpayer dollars, and loss of wages. On average, 340B hospitals, compared to hospitals outside of the program, collected an 85% higher price markup.”

In another example, Havlak said for Atrium Health, which sued thousands of patients and put liens on the homes of cancer survivors. The 340B discounts alone were worth nearly $693 million from 2018 to 2020 and don’t include the price markups charged to patients.

She also mentioned Atrium High Point Medical Center. For the SHP, it billed roughly $5000 on a drug that it acquired for about $500 — ten times the price markup.

“If patients are paying the full freight and being sued for the full freight of drugs despite the fact that hospitals are buying them at steep discounts, that’s deeply concerning,” Havlak said.

In addition to Atrium Health, Cape Fear Valley Health, Vidant Health, and Duke University Health systems billed the highest average price markups to state employees and taxpayers for cancer treatment.

The report cites, as an example, Duke University Hospital, which acquired oncology drugs for an average of $1,108 but billed state employees an average of $7,134 allowed amount — or a gross profit of $6,026.

Havlak said that while many 340B hospitals and other healthcare providers fulfill their mission and provide life-saving care to those who could not otherwise afford it, federal data shows that, on average, North Carolina 340B hospitals have increasingly expanded into wealthier neighborhoods with a higher percentage of insured patients who can pay more for drugs, and the vast majority of those 340B hospitals did not provide enough charity care to equal to the estimated value of their tax exemptions.

“For patients, especially cancer patients, the bills for prescription drugs can be crushing,” she said. “One cancer survivor who was sued by Atrium Health for $74,000 told me, ‘I worry I won’t be able to make my payments and keep my home. I’m middle class, and I don’t have $1 million to pay medical bills”.

Both Whaley and Nikpay agreed that issues with the program are occurring across the country and not just in North Carolina.

“Hospitals tend to be relatively sophisticated at placing those contract pharmacy agreements in communities where they’re going to make the most money from dispensing,” Nikpay added. “The contract pharmacy piece of this analysis really demonstrates that 340B hospitals have a great reach into communities that sometimes are quite far away from the hospital. So anytime a citizen of North Carolina goes to their local CVS, if they’ve got a contract with the 340B pharmacy, they are contributing to 340B profits whether they knew it or not.”

Folwell said costs like this to the SHP will prohibit lowering or freezing premiums and possibly give cause to raise them (health insurance premiums for the average person increase every single year). He thinks the General Assembly could fix several of the issues facing the plan. 

“The North Carolina General Assembly, in a snap of a finger, could take care of many of these issues basically in an afternoon because of the recipes about how to reform the Certificate of Need process, to increase the supply of healthcare, how to catapult North Carolina to number two in the country in terms of protecting people from medical debt,” he said. “That law is already in the General Assembly, and they could pass it in a matter of minutes.”

Folwell also pointed out that no one from the hospitals or the North Carolina Hospital Association (NCHA) has ever had the “courage” to show up at any of the press conferences over the last seven years.

“They don’t care about any of this, that’s why they don’t have to show up for press conferences,” he said. “That’s why they don’t have to show up and actually answer questions in front of the media. That’s why they don’t have to show their compensation program packages which will clearly demonstrate my opinion that they always put profits over patients.”

NCHA replied to Folwell’s report with a press release on its website.

“Once again, the Treasurer is painting a false picture about the mission-driven care provided by North Carolina hospitals,” the statement read. “Congress did NOT create the 340B program for price discounts to be passed to insurance companies.  Padding insurer profits was not — and never will be — the purpose of the 340B program. The Treasurer should engage in honest policy discussions about the rising costs of pharmaceutical drugs and the cost burden for patients with insurance instead of issuing half-baked theories funded by special interest group Arnold Ventures.”

NCHA added that the 340B program is not funded by taxpayers or appropriated tax dollars.

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