December 7, 2010

Children’s Hospitals Lose Some Drug Discounts

By ROBERT PEAR

WASHINGTON — In an unintended consequence of the new health care law, drug companies have begun notifying children’s hospitals around the country that they no longer qualify for large discounts on drugs used to treat rare medical conditions.
As a result, prices are going up for these specialized “orphan drugs,” some of which are also used to treat more common conditions.
Over the last 18 years, Congress has required drug manufacturers to provide discounts to a variety of health care providers, including community health centers, AIDS clinics and hospitals that care for large numbers of low-income people.
Several years ago, Congress broadened the program to include children’s hospitals. But this year Congress, in revising the drug discount program as part of the new health care law, blocked these hospitals from continuing to receive price cuts on orphan drugs intended for treatment of diseases affecting fewer than 200,000 people in the United States.
The reason behind the change is murky, though some drug makers had opposed expansion of the drug discount program. The discounts typically range from 30 percent to 50 percent, and children’s hospitals say the change is costing them hundreds of millions of dollars.
Under the new law, hundreds of rural hospitals became eligible for discounts for the first time, but the discounts are not available on orphan drugs, which account for a surprisingly large share of their outpatient pharmacy costs. At the same time, children’s hospitals lost access to discounts on the drugs.
In a typical letter to a children’s hospital, one company, Genentech, said that, because of the new law, it would not offer discounts on certain cancer medicines like Avastin, Herceptin, Rituxan and Tarceva, or on Activase, which is used to dissolve blood clots in heart attack and stroke patients.
Another drug maker, Allergan, cited the new law as a reason for denying discounts on Botox, which, besides removing wrinkles from the face, is used to reduce spasticity in patients with cerebral palsy and other neurological disorders.
Joshua D. Greenberg, vice president of Children’s Hospital Boston, said that loss of the discounts “jeopardizes our ability to care for some of the sickest children with the most complex health care needs.”
Robert A. Nordin, the pharmacy manager at Gillette Children’s Specialty Healthcare in St. Paul, said his hospital was losing hundreds of thousands of dollars’ worth of discounts on drugs like Botox and Rituxan.
Christina M. Barnes, the pharmacy director at Galion Community Hospital in rural Galion, Ohio, said she was excited when her hospital qualified for the discount program earlier his year. But, she said, she was dismayed to learn that many drugs would be excluded.
“We were given an advantage with one hand, and it was taken away with the other hand,” Ms. Barnes said.
William A. Sarraille, a lawyer at Sidley Austin in Washington who represents drug makers, said, “The discounts are huge and can have a very significant, very negative impact on the ability of manufacturers to develop new, better products that meet patients’ needs.”
The Food and Drug Administration classifies more than 350 medicines as orphan drug products. Manufacturers said they could not recover the costs of developing such drugs if they were required to sell them at deeply discounted prices.
A House Democrat who worked on the health care law said the situation had resulted from “an honest mistake in drafting,” and he added, “No one intended to take away any of the drug discounts that children’s hospitals already had.”
The discount program is widely known as the 340B program, after the relevant section of the Public Health Service Act.
Mary K. Wakefield, the administrator of the Health Resources and Services Administration, the federal agency that manages the program, said she shared the concerns of children’s hospitals. “We support a technical correction by Congress that will preserve access to discounted medications for more vulnerable Americans,” Ms. Wakefield said.
The House has voted to restore discounts for children’s hospitals. Similar legislation has been bottled up in the Senate, despite support from Republicans like Senator Scott P. Brown of Massachusetts and Democrats like Senator Sherrod Brown of Ohio. A version of the proposal was included in bipartisan health care legislation unveiled Tuesday by Senate leaders.
When Congress created the drug discount program in 1992, it said the purpose was to enable clinics and hospitals to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”
In a last-minute change sought by some drug manufacturers, Congress stipulated in the new health care law that rural hospitals, children’s hospitals and certain free-standing cancer centers could not get discounts on orphan drugs through the 340B program. Ms. Barnes, at Galion Hospital in Ohio, said: “The list of orphan drugs is small, but it involves big dollars. Many, perhaps most, of our cancer patients receive at least one orphan drug during their treatment.”
Leonard M. Gulino of Cape Elizabeth, Me., said the discount program had substantially reduced the cost of Botox treatments for his son, Gregory, who has had multiple strokes and severe tightening of leg muscles because of a rare disease.
Elimination of the discounts for orphan drugs at children’s hospitals came as a surprise to federal health officials who work on the program. They said they learned of it only after President Obama signed the legislation in March.
Terence J. Hurley, a spokesman for Genentech, said the company was waiting for guidance from federal officials because “there remains significant lack of clarity regarding the orphan drug provisions” of the new law. Allergan and the Biotechnology Industry Organization, whose members produce many orphan drugs, declined to comment.
Drug companies said that the discount program was intended to help hospitals care for the uninsured, and that this need would diminish as millions of the uninsured gained coverage under Mr. Obama’s health care overhaul.
But Ted Slafsky, the executive director of Safety Net Hospitals for Pharmaceutical Access, a nonprofit group, said, “The exemption for orphan drugs undermines the mission and purpose of the drug discount program.”