03 Oct Moody’s: Proposed changes to 340B program will hurt the finances of nonprofit hospitals
“Inpatient drug costs will continue to rise for nonprofit and public U.S. hospitals, but the pace of drug price increases will likely slow down amid growing scrutiny of drug manufacturers’ pricing practices.
But even with the slowing rate of price increases, the rising drug costs and potential changes to Medicare 340B payments for outpatient drugs would further reduce hospital margins, according to a new report from Moody’s Investors Service.
Pharmaceutical costs have outpaced hospital revenue growth in recent years, contributing to weaker operating margins, Moody’s finds. ‘Price increases in recent years were extraordinarily high for certain branded hospital inpatient drugs, but drug manufacturers are pulling back on these increases,’ said Diana Lee, a Moody’s vice president. ‘On the generic drug side, we expect that some of the pressure will ease as the U.S. Food and Drug Administration approves more generic drugs for the first time.’
However, the government’s proposed reduction of Medicare Part B outpatient drug reimbursement to 340B hospitals by roughly 30% would hurt hospital margins.
‘Hospitals and health systems of varying size and across the rating spectrum have noted anecdotally that they have benefited from cost savings from this discount drug program,’ Lee says. ‘In some instances, the savings and income gained from this program can be meaningful relative to total operating cash flow. While about half of hospitals in the nation are 340B providers, those that have limited financial flexibility would be most exposed to possible changes to the 340B program.'”