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MILLIMAN WHITE PAPERAnalysis of 2020 Commercial Outpatient Drug Spend at 340BParticipating Hospitals September 2022 Michael T. Hunter, PharmDKatie Holcomb, FSA, MAAACarol Kim Commissioned by Pharmaceutical Research and Manufacturers of America (PhRMA) Table of Contents INTRODUCTION............................................................................................................................................................1BACKGROUND.............................................................................................................................................................1RESULTS ......................................................................................................................................................................2DISCUSSION.................................................................................................................................................................4OTHER CONSIDERATIONS AND LIMITATIONS.........................................................................................................4METHODOLOGY AND ASSUMPTIONS.......................................................................................................................5DATA SOURCES ......................................................................................................................................................5INCLUDED DATA .....................................................................................................................................................5IDENTIFYING HOSPITAL TYPES ............................................................................................................................5IDENTIFYING HOSPITAL OUTPATIENT DEPARTMENT MEDICATIONS..............................................................6MEDICARE REPRICING ..........................................................................................................................................6RISK SCORE ANALYSIS..........................................................................................................................................6CAVEATS AND QUALIFICATIONS..............................................................................................................................7APPENDIX A .................................................................................................................................................................8APPENDIX B .................................................................................................................................................................9 Introduction The 340B program, administered by the Health Resources and Services Administration (HRSA) within the U.S.Department of Health and Human Services (HHS), allows participating hospitals to obtain certain outpatientmedications for reduced costs. These hospitals (referred to as 340B hospitals) are generally eligible for the programbased on serving a disproportionate share of low-income Medicare and Medicaid patients and other specified criteria.Because providers keep the spread between reimbursement amount and the drug’s acquisition cost, and loweracquisition costs produce greater spread, there may be financial incentives for 340B participating hospitals to favormore expensive medications, especially if the spread is a percentage of acquisition price. Under thesecircumstances, a hospital may also have incentives to treat more patients who use outpatient medications, which hasbeen discussed elsewhere.1, 2While the reimbursement amount for Medicare beneficiaries is generally lower fordrugs administered at 340B hospitals than non-340B (effective as of 2018), this dynamic does not exist for patientswith commercial insurance coverage. The U.S. Government Accountability Office (GAO) published a study in June 2015 comparing the per Medicarebeneficiary hospital pharmacy outpatient drug spending at 340B hospitals to non-340B hospitals.2The findings of theGAO report showed a significantly higher per beneficiary pharmacy spend by Medicare at 340B hospitals, even whencontrolling for patient health status. In March 2018, Milliman published a white paper to investigate whether the samerelationships exist in a commercially insured population, using 2015 data3. To do this, we used Milliman’s proprietarycommercial claims data set and applied a methodology similar to the 2015 GAO report. This paper is intended toupdate the results of the 2018 Milliman report using 2020 data. Background The 2015 GAO report evaluated per beneficiary drug spend for 340B and non-340B hospitals, for each hospital thatserved at least one beneficiary during the year. The study was performed on the Centers for Medicare and MedicaidServices (CMS) Medicare fee-for-service claims data set separately in 2008 and 2012 for hospitals whose 340Bstatus remain unchanged in both time periods. The results of this study found the same conc