The 340B Program, which is administered and overseen by HRSA, within HHS, is named for the statutory provision authorizing it, which was added Eligibility for the program is to the Public Health Service Act in 1992.statutorily defined and is limited to entities that participate in specified federal programs and hospital types that meet certain eligibility criteria. A clinic or other site affiliated with a hospital, but not located in the main hospital building, is eligible to participate in the 340B program if it is an integral part of the hospital, which HRSA has defined as a reimbursable facility, included on the eligible hospital’s most recently filed Medicare cost report.participate in the qualifying federal programs are not eligible to participate in the 340B Program. Independent physician-based practices that do not Covered entities may use 340B drugs for patients whether or not they are low-income, uninsured, or underinsured, and covered entities may receive payments from health insurers, such as Medicare, that are higher than the drug’s discounted price, generating revenue through the program. A statutory pricing formula determines the 340B price of a drug. The amount of the 340B discount ranges from an estimated 20 to 50 percent off what the entity would have otherwise paid. Throughout calendar year 2012, there were 10,622 unique covered entities that participated in the 340B program—an increase of 20 percent since 2008. Approximately half of the increase in unique covered entities was among entities that became eligible for the program based on expanded eligibility criteria enacted by the Patient Protection and Affordable Care Act in 2010. The remaining increase was among entity types that were eligible for the program in both 2008 and 2012, including 340B DSH hospitals. In 1992, the House Energy and Commerce Committee estimated that approximately 90 DSH hospitals would have been eligible to participate in a 340B Program, had it been in effect at that time. In 2012, 1,057 DSH hospitals participated in the program. Medicare pays most hospitals through both the acute care inpatient prospective payment system (IPPS), which is covered by Medicare Part A, and the outpatient prospective payment system (OPPS), which is covered by Medicare Part B. Under these systems, Medicare pays providers a predetermined rate for a given service that is expected to cover the costs incurred by efficient providers. Within the OPPS, certain services, including most Part B drugs, are paid separately. Payments under the IPPS are adjusted to account for the beneficiary’s clinical condition and related treatment costs relative to the average Medicare case and payments under both the IPPS and the OPPS are adjusted for the market conditions in the hospital’s location relative to national conditions. Hospitals may receive additional payments if they qualify for certain adjustments, such as: DSH adjustment: The DSH adjustment generally provides supplemental payments for inpatient services to hospitals that treat a disproportionate number of low-income inpatients. To qualify for this adjustment, a hospital’s disproportionate patient percentage—the share of low-income patients treated by the hospital—must generally equal or exceed a specific threshold level determined by a statutory formula. The amount of the DSH payment adjustment varies by hospital location and size. GME and IME adjustments: Medicare reimburses teaching hospitals and academic medical centers for both the direct and indirect costs of their residency training programs. GME payments cover the direct costs of resident training, such as salaries and benefits, for both inpatient and outpatient services. The IME adjustment applies only to inpatient services, and reflects the higher patient care costs associated with resident education. The size of the IME adjustment depends on the hospital’s teaching intensity, which is generally measured by a hospital’s number of residents per bed. Outlier case payment: The outlier case payment protects hospitals from large financial losses due to unusually costly inpatient and outpatient cases. A hospital’s costs for the case must exceed a certain threshold amount and additional payments are based on a percentage of the costs above this threshold. MDH classification: The MDH classification allows small rural hospitals for which Medicare patients make up a significant percentage of inpatient days or discharges to receive adjustments to their IPPS rates. To qualify as an MDH, a hospital has to meet various criteria regarding location, size, and patient mix. In 2012, the Medicare program and its beneficiaries spent a total of $6 billion for Part B drugs in the hospital outpatient setting. Part B drugs are typically administered by a physician or under a physician’s close supervision in physicians’ offices or hospital outpatient departments. Under the OPPS, Medicare reimburses all hospitals for separately payable Part B drugs at rates determined by a statutorily defined formula regardless of the price the hospital pays for the drug. Medicare pays 80 percent of the payment rate for Part B drugs and the beneficiary is responsible for the remaining 20 percent. Typically, Part B drugs are provided with a physician service, which is also paid for by both Medicare and the patient. In general, spending for Part B drugs and other services has a financial impact on Medicare beneficiaries because monthly Part B premiums are set to cover 25 percent of total Part B expenditures. In 2012, 340B DSH hospitals were generally larger and more likely to be teaching hospitals—especially major teaching hospitals—compared with non-340B hospitals. Although 340B DSH hospitals tended to have lower total facility margins compared with non-340B hospitals, they tended to have higher total Medicare margins. Lower total facility margins among 340B DSH hospitals could be partly attributable to the tendency for these hospitals to provide more charity care and uncompensated care compared with non-340B hospitals, although there were notable exceptions. Higher total Medicare margins among 340B DSH hospitals could be partly attributable to the receipt of more Medicare payment adjustments by these hospitals. Compared with non-340B hospitals—including both non-340B DSH hospitals and other non-340B hospitals—340B DSH hospitals in our analysis tended to be larger in terms of annual total facility revenue, annual Medicare revenue, and the number of inpatient beds in 2012.The differences between 340B DSH hospitals and non-340B hospitals were most pronounced among major teaching hospitals, and among the 279 major teaching hospitals, 189 (or nearly 70 percent) were 340B DSH hospitals (see table 1). Further, the median DSH adjustment percentage among 340B DSH hospitals in our analysis was twice as high as the median DSH adjustment percentage among non-340B DSH hospitals— 18 percent compared with 9 percent. Among major teaching hospitals, the median DSH adjustment percentage was over three times as high— 28 percent compared with 8 percent. Compared with non-340B hospitals, in 2012, 340B DSH hospitals generally provided more charity care and uncompensated care, as a proportion of total facility revenue—although there were notable exceptions. In addition, we found that higher DSH adjustment percentages were often, but not always, associated with provision of greater amounts of charity care and uncompensated care by hospitals. Across all hospitals in our analysis, as hospitals’ DSH adjustment percentages increased, the average amount of charity care and uncompensated care they provided, as a proportion of total facility revenue, generally increased. (See fig. 1.) The median amount of uncompensated care provided by 340B DSH hospitals was 1.4 percentage points greater than the median amount provided by non-340B DSH hospitals, and 3.6 percentage points greater than the median amount provided by other non-340B hospitals. The median amount of charity care provided by 340B DSH hospitals was 0.8 percentage points greater than the median amount provided by non- 340B DSH hospitals, and 1.4 percentage points greater than the median amount provided by other non-340B hospitals. (See table 2.) However, there were notable numbers of 340B DSH hospitals that provided low amounts of uncompensated care and charity care. For example, while we found that 340B DSH hospitals tended to provide a larger amount of charity and uncompensated care compared with non- 340B hospitals, 12 percent of 340B DSH hospitals in our analysis were among the hospitals that provided the lowest amounts of charity care. We also found that 14 percent were among the hospitals that provided the lowest amounts of uncompensated care across all hospitals in our analysis. Additionally, among 340B DSH hospitals, the median amount of uncompensated care provided by major teaching hospitals was less than the median amount provided by all hospitals in the group, despite the fact that the major teaching hospitals in this group tended to have the highest DSH adjustment percentages. Additionally, nearly one quarter of 340B DSH hospitals that were major teaching hospitals provided low amounts of uncompensated care. (See table 3.) Compared with non-340B hospitals, 340B DSH hospitals in our analysis generally had lower overall financial margins in 2012, as measured by their total facility margins. Specifically, the median annual total facility margin among 340B DSH hospitals (3.7) was 1.8 percentage points lower than the median annual total facility margin among non-340B DSH hospitals (5.5), and 3.3 percentage points lower than the median annual total facility margin among other non-340B hospitals (7.0). This finding was generally consistent when we looked at hospitals by characteristics such as teaching status (major teaching, other teaching, or nonteaching), ownership type (public, nonprofit, or for profit), and location (urban or rural). The lower total facility margins among 340B DSH hospitals could be attributable, in part, to the tendency for 340B DSH hospitals to provide a larger amount of charity care and uncompensated care, as a proportion of total facility revenue, compared with non-340B hospitals. Compared with non-340B hospitals, 340B DSH hospitals in our analysis generally had substantially higher (i.e., less negative) total Medicare margins and inpatient Medicare margins in 2012 (see table 4).