PORT ANGELES — In the first six months of 2017, Olympic Medical Center reported a $1.1 million loss in revenue, and it could face more financial setbacks next year if Medicare weakens a discount drug program, Chief Executive Officer Eric Lewis said.

The Centers for Medicare and Medicaid Service’s (CMS) proposed 2018 changes to the 340B program would reduce Medicare’s payment rate to hospitals for drugs purchased under the program by 28.5 percent, Lewis told the hospital’s commissioners at a meeting Wednesday.

“I can tell you this is not good news,” Lewis said.

The 340B program mandates that pharmaceutical manufacturers provide outpatient drugs at reduced rates to qualifying hospitals and clinics — those that serve a largely low-income population.

Currently, Medicare reimburses hospitals the average sales price plus 6 percent under its outpatient prospective payment system (OPPS).

In theory, the difference should go back to patient care, but hospitals and clinics can simply pocket the money into their general fund, members of the U.S. House Energy and Commerce Subcommittee on Oversight and Investigations noted in a hearing last Tuesday.

Lewis said OMC’s annual savings from the reimbursements total $1.5 million. OMC has been participating in the 340B program since Oct. 1, 2015.

The savings go to offset the cost of uninsured patients, he said. In 2016, OMC’s uncompensated care costs were $4 million, Lewis said.

“We’re already getting paid less than it costs, so that’s concerning,” he said.

Under proposed changes, Medicare would reimburse the average sales price minus 22.5 percent. CMS based this figure on the Medicare Payment Advisory Commission’s (MedPAC’s) estimate of the average minimum discount — 22.5 percent — hospitals received for drugs acquired under the program, according to CMS’s proposal fact sheet.

Covered outpatient drugs include FDA-approved prescription drugs, over-the-counter drugs written on a prescription, biological products that can be dispensed only by a prescription (other than vaccines) and FDA-approved insulin.

Approximately 40 percent of U.S. hospitals and 1,200 pharmaceutical manufacturers participate in the 340B program, according to a July 14 background memo.

The savings incurred by the 22.5 percent cut would be redistributed to all hospitals paid under OPPS generally, increasing those payments by 1.75 percent.

“It’s somewhat like taking from poor hospitals and giving to hospitals with a better payer mix that don’t qualify for the 340B program,” Lewis said. “In my mind, it’s kind of the reverse of Robin Hood — taking from the poor and giving to the better-to-do hospitals.”

In particular, proposed changes to the 340B program would be “really bad news” for OMC’s cancer center, Lewis said.

He said the cancer center would continue to provide care, but would be doing so for less reimbursement. The center serves a high percentage of Medicare and Medicaid beneficiaries, he said.

Comments on the proposed changes are due by Sept. 11. OMC plans to send a letter by the end of August and discuss the outcome with legislators at the Rural Advocacy Days in Washington, D.C., from Sept. 20-21.

“We hope it won’t be implemented,” Lewis said. “For the team going to Washington, D.C., this will be a big topic.”

The ruling will be decided Nov. 1, and if approved, changes will take effect Jan. 1.

The American Hospital Association (AHA) wrote a letter opposing the proposal on behalf of its 5,000 member hospitals, of which about 1,900 participate in the 340B program.

AHA Executive Vice President Thomas P. Nickels wrote, “This policy punitively targets 340B safety-net hospitals serving vulnerable patients, including those in rural areas, rather than addressing the real issue: the skyrocketing cost of pharmaceuticals.”

The AHA also refuted the concern that hospitals pocket the 340B savings. Nickels enumerated a list of ways hospitals use the savings from discounted drugs to benefit vulnerable patient populations.

Congress implemented the 340B program in 1992 to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

Other criticisms of the program include weak oversight on the part of the Health Resources and Services Administration and the potential for hospitals to prescribe more and more expensive drugs as a financial incentive.

In response to the latter, Lewis said: “Physicians have significant ethical and legal reasons not to prescribe more drugs. The physicians have no financial incentive. The physicians order what’s best for the patient.”

Despite the concerns of oversight and abuse, committee members on both sides of the aisle expressed support for the intent of the program: providing more services to vulnerable patients.

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Reporter Sarah Sharp can be reached at 360-452-2345, ext. 56650, or at ssharp@peninsula dailynews.com.