Health district exploits its nonprofit status to compete against private-sector clinics
LAS VEGAS — Under federal law, the Southern Nevada Health District can buy drugs and vaccines from manufacturers at much lower prices than private-sector clinics can.
However, that privilege — established by Congress in 1938 when it passed the Non-Profit Institutions Act — is conditional.
It only exists when nonprofit health organizations are performing “safety-net” functions for the “underserved” populations they were established to serve.
That privilege does not exist, according to Supreme Court decisions, if the organization seeks to use the preferential pharmaceutical pricing it gets as a federally qualified nonprofit to compete against private-sector businesses.
Nevertheless, that is exactly what SNHD has been doing for several years, and — when contacted by Nevada Journal — indicates it will continue to do.
Moreover, SNHD and other nonprofits around the U.S. are doing this with the Obama administration’s blessing.
The district’s full-scale marketing drive targeting business, commercial and institutional clients is apparent on multiple SNHD website pages. They advertize the Workplace Vaccination Program, describe the need for employee vaccinations and explain the monthly statements and vaccine records that the district promises to provide clients.
A health-industry source even described a “cold-calling” telephone operation conducted by SNHD out of its now-closed Shadow Lane headquarters.
That operation appears to have been quite successful: Nevada Journal has learned of approximately 40 different contracts with Southern Nevada businesses that SNHD has signed in recent years.
Typical is a letter of agreement between the MGM Resorts Health Plan and the health district signed last November.
“The Southern Nevada Health District is able to provide vaccinations to staff of MGM Resorts Health Plan,” begins the letter.
“These services can be performed at SNHD by appointment, or a site visit can be scheduled at the company’s place of business.”
Each employee in the MGM Resorts Health Plan treated, the letter states, would receive the three-injection Hepatitis-B vaccination series. For each injection, SNHD was to receive $71 — $55 for the dose of vaccine, plus a $16 “administration fee.”
Thus, for each MGM Resorts employee treated, the health district receives $213. That does not count the $100 setup fee SNHD charges for each site visit.
According to a health-industry source, the district pays the drug manufacturer GlaxoSmithKline about $29 for each Hepatitis-B dose. Thus SNHD’s gross profit per shot, under the MGM Resorts agreement, is about $42.
Given the number of employees in the MGM Resorts organization, SNHD’s take from this one contract must be substantial. As of the third quarter of 2011, according to the State of Nevada’s Nevada Workforce Informer website, MGM Resorts’ 10 major hotel-casinos in Las Vegas had at least 42,500 employees.
The health district’s exact revenue under this particular contract depends upon how many of those employees MGM Resorts chooses to have inoculated. Nevada Journal asked the company for that number, but eventually was denied an answer.
But if only 25 percent of employees received the vaccinations, that one agreement alone would yield the health district well over $2.2 million (42,500 x .25 x $213) in revenue.
So far, Nevada Journal is aware of almost 40 Las Vegas area businesses that have signed similar contracts with SNHD.
No private-sector vaccine provider is able to compete in price with the district because the district, as a “federally qualified health provider,” is able to purchase its vaccines for far less than what private-sector doctors or clinics must pay.
The magnitude of that difference is evident on the website of the federal Centers for Disease Control and Prevention, where the CDC’s adult-vaccine price list shows the federal government pays $27.33 per GlaxoSmithKline-manufactured Hepatitis-B vaccine, while a private-sector company pays $52.50 per dose.
Federally anointed safety-net health providers pay prices only slightly higher than the federal government — “sub-ceiling” in the jargon of the federal Health Resources Services Administration.
According to a HRSA glossary, “sub-ceiling” means “discounts lower than the maximum allowable statutory price.”
SNHD and other providers get those hefty discounts through a private firm that holds the federal government’s exclusive contract for administering the “340B Prime Vendor Program.”
That program, named for its location in Section 340B of the Public Health Service Act, was established by Congress in 1992.
It allows “hospitals, community health centers, clinics and other safety net providers to purchase outpatient pharmaceuticals at discounted pricing, thereby expanding access to care to low-income and vulnerable segments of the population.”
Apexus, a firm in Irving, Texas, is HRSA’s exclusive contractor for its 340B Prime Vendor Program.
The company characterizes the program as “a free federal benefit to all eligible entities and requires registration with Apexus to have access to the sub-ceiling pricing.”
With a financial stake in every drug or vaccine purchased under its auspices, Apexus energetically drives to expand the program’s ranks of “covered providers.” Currently over 18,000 health-care safety-net organizations are in the program, the company says.
Apexus also aggressively drives to expand the quantity of drugs and “other pharmacy related products and services” that participating safety-net providers purchase through it.
Among those “other pharmacy related products” are vaccines, and Apexus offers them at massive discounts to 340B program members — even though Congress, when writing the 340B program, specifically chose to exclude vaccines from coverage.
Nevertheless, Apexus touts vaccines to 340B program participants as a “value-added pharmacy-related product and service” benefit that it, as their unstinting champion, has graciously procured for them.
The Texas firm also regularly advises program participants that restrictions that lawmakers wrote into the 340B program on the use of preferentially priced pharmaceutical do not cover vaccines, since vaccines were excluded from the 340B program.
The Obama administration’s HRSA advises participants similarly.
Nevada Journal acquired a copy of an e-mail sent by HRSA’s Pharmacy Services Support Center to a Nevada Health Department employee, in answer to an enquiry.
“If your organization is a Community health center or other HRSA grantee treating only outpatients,” stated boilerplate language clearly pasted into the e-mail, “it may use vaccines purchased through the 340B PVP for the entire patient population.”
It continued:
Vaccines are classified as “value added products” under the PVP (not an “outpatient covered drug”) and are only restricted by the terms and conditions of the contract between the PVP and supplier. The existing PVP vaccine suppliers do not restrict their use to CHC/HRSA grantee patients meeting the “definition of patient” under the 340B regulations. Therefore, vaccine purchased through the PVP contracts may be utilized for any patient treated by the clinic. (Emphasis added.)
The language of SNHD’s response to Nevada Journal, in an email from district spokesperson Stephanie Bethel, was virtually the same:
Vaccines are classified as “value added products” under the Prime Vendor Program, not as an “outpatient covered drug”. As such, unless otherwise restricted by the terms and conditions of the contract between the Prime Vendor Program and the Health District, vaccines purchased may be used for any population served by the Health District.
However, the 340B Prime Vendor Program restrictions referred to by Apexis, HRSA and SNHD are not the only ones existing in federal law.
Older and better-established ones are part of the Non-Profit Institutions Act, passed by Congress in 1938 to amend the Robinson-Patman antitrust act.
In the NPIA, the federally enabled discounts available to nonprofit organizations are limited to cases where such organizations are making purchases “for their own use.”
Moreover, two major U.S. Supreme Court decisions have specifically held that the “own use” language prohibits government nonprofits from using such preferentially discounted goods or services to compete against private-sector businesses.
In Abbott Labs v. Portland Retail Druggists, a 1976 case, the high court agreed with the U.S. Court of Appeals for the Ninth Circuit that “own use” could not include “cases of resale by [a] hospital to a private consumer.”
In a concurring opinion, Justice Thurgood Marshall wrote that:
…as I understand it, the purpose of the limitation is generally to preclude the institution from taking advantage of its antitrust exemption by buying low-cost supplies solely for the purpose of reselling them at a profit. That is, Congress was primarily interested in directly aiding nonprofit institutions by lowering their operating expenses, but not interested in indirectly aiding such institutions by providing them with the means of raising additional money — particularly when such resales of supplies would put the institution in competition with retail businesses not eligible for the exemption.
In Jefferson County Pharmaceutical Association v. Abbott Labs, a 1983 case, the Supreme Court held that “The sale of pharmaceutical products to state and local government hospitals for resale in competition with private pharmacies is not exempt from the [Robinson-Patman] Act’s proscriptions.”
Said the Court, the “plain language” of the act “strongly suggests that there is no exemption for state purchases to compete with private enterprise,” while the act “does not reveal any legislative intention to enable a State … to enter private competitive markets with congressionally approved price advantages.”
Given those Supreme Court decisions, Nevada Journal asked the U.S. Department of Health and Human Services for the legal authority under which its HRSA arm and HRSA’s contractor, Apexus, were advising health-care organizations that they could use vaccines purchased through the 340B PVP for anyone in sight.
HHS did not answer the question. Instead, it forwarded the e-mail to HRSA’s Office of Communication, which merely repeated that:
…a 340B covered entity may purchase vaccines and use them for their entire patient population (consistent with any other applicable laws and regulations) as purchase of vaccines occurs outside of the requirements of the 340B Program.
In regard to the Supreme Court rulings, that question was likewise ducked:
You also referenced the Robinson-Patman Act. Violations of the Robinson-Patman Act do not fall under the purview of HRSA and its oversight of the 340B Program, but they fall under the purview of the Federal Trade Commission (FTC). Questions regarding that Act should be referred to the FTC.
The Southern Nevada Health District is not the only 340B entity in Nevada.
Both the Southern Nevada University Medical Center and the Washoe County Health District are federally qualified health safety-net providers.
Neither of them seek to resell in the retail market drugs or vaccines available to them at massive discounts through the federal government’s 340B program.
Steven Miller is the managing editor of Nevada Journal, a publication of the Nevada Policy Research Institute. For more in-depth reporting, visit http://nevadajournal.com/ and http://npri.org/.