A CT hospital will receive $90 million. There’s a group that doubts it deserves it.

A federal program in which hospitals can buy drugs at discounted prices is benefiting large cancer centers and other hospitals, including Yale New Haven Hospital, but is hurting small community hospitals, according to the Community Oncology Alliance, which advocates for cancer patients’ access and care.

The large hospitals will receive “remedy payments” from the Centers for Medicare and Medicaid Services, according to alliance spokesman Drew Lovejoy. But small, rural hospitals will have money taken from them in order to maintain a neutral Medicare budget.

The program, known as 340B, administered by the Health Resources and Services Administration, allows hospitals to buy drugs from manufacturers at a discount while charging insurers higher rates. The intent, according to the alliance, was to be able to treat uninsured and underinsured patients in low-income and rural communities.

But the alliance contends that there is not enough oversight on the use of 340B money.

In its letter to Centers for Medicare and Medicaid Services, the alliance claims, “340B has grown astronomically in the hospital sector and has mutated far from its original congressional intent, creating perverse and enormous financial incentives for 340B hospitals that bear not the faintest similarity to the original program’s true mission. The 340B program has fueled significant consolidation of the nation’s cancer care system, driving independent community oncology practices to close or merge with hospital outpatient departments.”

With the implementation of the Affordable Care Act, “340B exploded, so much so that now well over 50% of the hospitals in the country have 340B,” said Ted Okon, executive director of the Community Oncology Alliance. The program is available only to nonprofit hospitals.

A 2022 New York Times article described a case in which Richmond Community Hospital in Virginia, which serves a mostly Black neighborhood, had its intensive care unit closed after it was bought by Bon Secours Mercy Health. The list of remedy payments, or repayments, from the Centers for Medicare and Medicaid Services for 2018-21 shows Richmond Community Hospital receiving $29.05 million in 340B payments.

$90 million to Yale New Haven and disagreement

Yale New Haven Hospital, which the alliance does not accuse of misusing funds, is listed at No. 4, at $90.41 million, after NYU Langone Hospitals, University of Kansas Hospital and Northside Hospital in Georgia. Yale New Haven is the only Connecticut hospital in the top 100 on the payments list.

While Yale New Haven serves a large urban, uninsured population, Okon questioned why it will receive $90 million under the 340B program.

“Yale isn’t the fourth-largest hospital in the country. So the question is, where’s the $90 million going to go? Because this is supposed to be going to help patients or communities in need,” he said.

“And then the question becomes also, why is Yale No. 4 in terms of getting $90 million back, but they’re not the fourth-largest hospital by any other means the last time I looked in the country?,” he said.

“I vehemently disagree” that Yale New Haven is using its 340B money as profit, said Paul Kidwell, senior vice president for policy of the Connecticut Hospital Association. “The amount of free and uncompensated care that our 340B hospitals are providing is a real benefit to the community. So I absolutely disagree with that premise.”

Kidwell said, “it makes perfect sense in that that’s where the 340B program is most useful, because those discounts allow for the free care, allow for the free clinics, allow for that care to be in their community. I don’t think in Connecticut we see smaller hospitals being disadvantaged in that way.”

Dana Marnane, a spokeswoman for Yale New Haven, said in a statement that the hospital “is one of the largest hospitals in the nation and the largest in the state of Connecticut. As such, we care for a disproportionately large share of uninsured and underinsured patients.

“As the Supreme Court decision stated, CMS has been under reimbursing us for years and has been mandated to repay the funds,” she continued. “Through the 340B program, YNHH is able to offer a reduction in the cost of prescription drugs to uninsured and underinsured patients of the Emergency Department, outpatient offices and home infusion. In addition, the 340B savings allow us to provide substantial support for programs that promote health and wellness in our local communities.”

Budget neutrality

Another issue is that CMS must operate according to budget neutrality, which means that any money given to a large cancer center must come from a smaller hospital, Okon said.

“Any money that they give a group of hospitals or any hospitals has to be taken away from hospitals,” he said. “They’re getting $9.1 billion that they’re giving back to these hospitals, including Yale. They have to take that away from all hospitals, which they’re proposing to do over a 16-year period, because if you did it in one fell swoop” the small hospitals would close.

The payments are based on a unanimous Supreme Court decision, which ruled a 2018 change in 340B payments was illegal.

“In 2018, Medicare changed the reimbursement rate for hospitals that participate in 340B from the average sales price of a drug plus 6% — it’s called ASP — they changed that to ASP minus 22.5,” Okon said. That was challenged by the American Hospital Association and others.

The Supreme Court ruled that CMS’s first option was to use survey data to set the reimbursement rates. Otherwise, all hospitals would have to be paid the same. Okon said survey data is available, and the rate should be set at average sales price minus 28.7%. Yet CMS kept it at ASP minus 22.5%

“So if you’re a Medicare patient, and you have any kind of copay, any kind of assistance in Medicare, you have to pay 20%,” Okon said. Without a good secondary insurance policy, a patient would be paying based on average sales price plus 6% rather than minus 28.7%, he said.

Paying 50% more

Giving an example, Okon said, based on a $100 doctor’s bill, “if you think about the math, you’re paying off of $106, when you should be paying off of $71.30,” he said. “You’re actually paying 50% more than we believe that patients should be paying on that copay piece.”

The Connecticut Hospital Association’s issue with the new rule is budget neutrality. “By paying the 340B hospitals less, they created a pool of money that they were no longer going to have to pay those hospitals, and they had to redistribute that across all hospitals,” Kidwell said.

“So when the Supreme Court said that was illegal, and CMS says, well, we have to repay you because we weren’t paying you enough for those years. … So now that they’re giving money to certain hospitals, they have to take it out of the system, and the whole argument is they don’t need to do that,” he said.

“There’s precedent that says when the court says you must do something, you don’t have to apply budget neutrality or claw back money from hospitals that you’ve already paid,” he said.

Kidwell said the pandemic is another factor arguing against taking money away from small hospitals. “We think there’s a legal precedent that the Supreme Court told them they had to do this. They had to fix it. We think there’s precedent that says in that instance, they don’t have to claw back those funds from the other hospitals,” he said.

Okon disagreed. “I don’t know how you get around that statute of budget neutrality because you understand the dollars have to come from somewhere,” he said.

“It comes out of the Medicare program and you put more strain on the Medicare program,” he said. “And what happens when you put more strain on Part B of the Medicare program is seniors’ premiums go up. So someone pays for it. It doesn’t just come out of thin air.”

Ed Stannard can be reached at estannard@courant.com .