In this episode, we’re pleased to welcome Fatimah Muhammad, 340B Pharmaceutical Services Program Director at St. Peters University Hospital, to discuss unpacking the Inflation Reduction Act and assessing the financial impact on healthcare providers.
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Learn how to listen to The Hospital Finance Podcast® on your mobile device.Highlights of this episode include:
- How the Inflation Reduction Act aims to reduce inflation
- How the financial impact of the Inflation Reduction Act varies among different types of healthcare providers
- Potential challenges that healthcare providers may face
- How pharmacy services are impacted
- Oversight of the 340B program
Kelly Wisness: Hi, this is Kelly Wisness. Welcome back to the award-winning Hospital Finance Podcast. We’re pleased to welcome Fatimah Muhammad. Fatimah is a highly experienced professional in the fields of pharmacy, public health, and professional research. Currently serving as the 340B Pharmaceutical Services Program Director at St. Peters University Hospital, she oversees all projects related to the 340B program and drug reimbursement. Fatimah is also an active member of the Opioid Task Force at St. Peters University Hospital, demonstrating her commitment to addressing the urgent challenges related to opioid use and addiction. She recently received the New Jersey HFMA President Award for her outstanding contributions to the field. This prestigious recognition highlights her expertise and dedication to driving positive change in healthcare. In this episode, we’re discussing Unpacking the Inflation Reduction Act, Assessing the Financial Impact on Healthcare Providers. Thank you for joining us, Fatimah.
Fatimah Muhammad: Thank you for having me.
Kelly: Well, let’s go ahead and jump in. How does the Inflation Reduction Act aim to reduce inflation in the healthcare sector?
Fatimah: So, the primary goal of the Inflation Reduction Act is to decrease inflation rates within the healthcare sector. It was enacted in 2022 by the Biden administration to address challenges arising from inflation, particularly in the areas of climate change and public health. So, what this means for Medicare and drug pricing is the Inflation Reduction Act has three main components that aim to address the rising pricings of drugs and make healthcare more affordable. The first component would be the drug price control. Under this Act, drug companies will be prohibited from increasing their prices beyond the rate of inflation. This measure is crucial because drug prices have been notorious for skyrocketing well above inflation rates. By capping pricing increases, this provision will keep drug prices down and make them more affordable for consumers. An example of this would be capping the cost of insulin at $35 per month for Medicare patients, implementing penalties for drug companies that raise prices for Medicare medications. So, Medicare negotiation would be the second component. The Act allows Medicare to directly negotiate prices for a subset of expensive drugs, right? This negotiation power will result in significant cost savings, potentially saving billions of dollars for the Medicare program. And the third would be the out-of-pocket expense limit. Previously, Medicare fee-for-service beneficiaries, they had an unlimited out-of-pocket expense, right?
So, however, the Inflation Reduction Act, there will be a cap on these expenses at $2,000 per year. This limit ensures that beneficiaries are protected from exorbitant costs and provides financial relief, especially in these challenging times. In addition to these key components, the Inflation Reduction Act includes several other provisions aimed at addressing the issues of rising healthcare costs. The impact of the Act is significant. The Congressional Budget Office estimates that it will result in $290 billion in savings over 10 years. For consumers, this translates to lower premiums for Medicare and Part B and Part D, which are the monthly costs for Medicare drug coverage and physician coverage respectfully. Additionally, for the individuals who require expensive medications, the Act limits their annual out-of-pocket expenses, as I said before, to the maximum of $2,000. This change can lead to substantial savings as some individuals were previously paying $20,000 or more per year for their medications. So overall, the Act aims to reduce healthcare costs and increase affordability for Medicare beneficiaries. One of the key focuses of the Inflation Reduction Act is to reduce the healthcare costs for millions of Americans. Additionally, the Inflation Reduction Act has eliminated the out-of-pocket expenses for vaccines under Medicare Part D, including vaccines for shingles, Tdap, hepatitis A, and hepatitis B.
And as far as 2023, there’s been a significant increase in financial assistance for consumers across the country. Approximately 4.6 million additional individuals are receiving financial aid compared to 2021, representing 90% of all plan selections for 2023. This means that 90% of people selecting plans are receiving assistance to cover their premiums.
Kelly: Thank you for that explanation. How will the financial impact of the Inflation Reduction Act vary among different types of healthcare providers, such as hospitals, private clinics, and nursing homes?
Fatimah: The implementation of the Inflation Reduction Act will have varying financial impacts on different types of healthcare providers. Smaller practices are expected to experience greater financial security due to the Inflation Reduction Act’s efforts to lower medical expenses for the patients. The buy-and-bill model, where providers purchase drugs and vaccines and bill for them post administration, may be altered with the Inflation Reduction Act. Instead, the Inflation Reduction Act involves the Department of Health and Human Services negotiating a predetermined list of drugs with manufacturers. Under the Inflation Reduction Act, hospital systems will continue to benefit from reduced costs of 340B drugs, and their reimbursement will remain at average sales price more. However, non-eligible providers will be subject to negotiated pricing and reimbursement levels based on the Medicare fee schedule. So, the Inflation Reduction Act also extends enhanced financial assistance for the purchase of HealthCare.gov and state-based marketplace plans.
Kelly: Very interesting. So, what are some of the potential challenges or concerns that healthcare providers may face in implementing the financial changes mandated by the Inflation Reduction Act?
Fatimah: So, while the Inflation Reduction Act brings many positive changes, there are potential challenges and concerns for healthcare providers in implementing the financial adjustments mandated by the Act. One such concern is the lack of clarity in the Inflation Reduction Act prices negotiation process for determining maximum fair prices on selected drugs. There’s a need for more transparency in this regard. Additionally, the Inflation Reduction Act price negotiation provisions may weaken incentives for new indications in post-launch evidence generation. However, the overall impact of the Inflation Reduction Act is expected to limit out-of-pocket drug spending growth and put downward pressure on premiums, discouraging drug companies from increasing prices faster than inflation.
Kelly: So how does the Inflation Reduction Act specifically impact pharmacy services that participate in the 340B drug pricing program?
Fatimah: Oh, this is such a great question. For pharmacies participating in the 340B program, the Inflation Reduction Act specifically establishes a Medicare Part B inflation rebate for manufacturers and excludes discounted drugs under the 340B program from the rebate liability. This results in the utilization of 340B modifiers, JG and TB, on Medicare claims by 340B-covered entities to track and account for these discounted drugs. So, by January 1st, 2024, CMS will require all 340B entities, including those not paid under OPPS, to use JG and TB modifiers.
Kelly: Okay. Thank you. And so what mechanisms are in place to monitor the effectiveness of the Inflation Reduction Act in reducing healthcare costs for providers?
Fatimah: Great question. The effectiveness of the Inflation Reduction Act in reducing healthcare costs for providers is monitored through various mechanisms. The law is projected to decrease the federal deficit by $290 billion over the next decade. I believe I mentioned this early on. And drug companies are required to pay rebates to Medicare on drug prices that rise faster than inflation rates. Eligibility for full benefits under Medicare Part D will be expanded by 2024. And the Congressional Budget Office estimates $98.5 billion in Medicare savings over the next decade as well.
Kelly: That makes sense. And so are there any provisions in the Inflation Reduction Act that aim to address concerns or challenges related to the administration and oversight of the 340B program?
Fatimah: So, provisions within the Inflation Reduction Act aim to address concerns and challenges related to the administration and oversight of the 340B program. These provisions focus on preventing duplicate discounts and improving the tracking system for 340B-acquired drugs. This increased transparency and clarity can enhance the relationship between covered entities and manufacturers.
Kelly: Sounds good. And so how are pharmacies participating in the 340B program expected to adjust their financial strategies and operations in response to the implementation of the Inflation Reduction Act?
Fatimah: And this is a really big concern, especially regarding the 340B program, right? So, pharmacies that are participating in the 340B program are expected to adjust their financial strategies and operations in response to the implementation of the Inflation Reduction Act. So, while hospitals using participating 340B drugs will benefit from lowering filling prices, physician practices will not have access to these lower prices. Commercial health plans will also be required to pay more for provider-administered drugs compared to the current rates. Additionally, 340B hospitals will experience lower margins on negotiated drugs, giving larger hospitals an advantage over community providers. It is important to note that the Inflation Reduction Act may unintentionally lead to certain consequences, as outlined in a September 22 publication that I read. So furthermore, the Act will have an impact on healthcare investors. This has also been a huge discussion in several articles that came out earlier this year. So it’s something that a lot of 340B programs that are in smaller hospitals are very concerned about. But we’re just waiting to see how we will be impacted, especially considering all the other challenges we’re dealing with, with drug manufacturers and 340B programs currently.
Kelly: Most definitely. Thank you so much for joining us today, Fatimah, and for sharing your insights on Unpacking the Inflation Reduction Act, Assessing the Financial Impact on Healthcare Providers.
Fatimah: Thank you so much for having me. This has been great.
Kelly: Wonderful. And if a listener wants to learn more or contact you to discuss this topic further, how best can they do that?
Fatimah: They can find me on LinkedIn. I also am at St. Peters University Hospital. Email address fmuhammad@saintpetersuh.com. That’s F-M-U-H-A-M-M-A-D at saintpetersuh.com.
Kelly: Wonderful. Thank you. And thank you all for joining us for this episode of The Hospital Finance Podcast. Until next time…
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