What I Told HHS Secretary Tom Price About the 340B Drug Pricing Program

Last Friday, I had the privilege of meeting with Secretary of Health and Human Services (HHS) Tom Price. I was invited to meet with Secretary Price for one of his listening sessions with industry experts and stakeholders. I appreciated the opportunity to share my perspectives.

In our meeting, I highlighted four ways that the 340B Drug Pricing Program is raising drug costs. I then offered eight specific recommendations for improving the program by addressing the widespread channel distortions the program has caused.

Read on for the recommendations and a summary of my comments to Dr. Price.

I have no idea if my suggestions will have any impact. Regardless, your friendly neighborhood blogger enjoyed spending time among some Washington insiders.

HOW 340B RAISES DRUG COSTS

Regular readers are familiar with my assessment of the 340B Drug Pricing Program. (Click here to read all Drug Channels articles on the topic.)

As I see it, the program contributes to higher drug costs by:

1. Encouraging a shift in site of care from lower-cost physician offices to higher-cost hospital outpatient settings. See The Decline and Fall of Physician Buy-and-Bill For Specialty Drugs and Latest Data Show That Hospitals Are Still Specialty Drug Profiteers.
2. Reducing manufacturers’ rebates to Medicare Part D and commercial payers. Nearly one in four pharmacy locations is aligned with the hospitals and other healthcare providers that participate in the federal 340B Drug Pricing Program. (See Six Retail Chains Now Dominate the Still-Booming 340B Contract Pharmacy Business.) Pharmaceutical manufacturers may be paying managed care and Part D formulary rebates on 340B prescriptions dispensed by 340B contract pharmacies. To compensate for this undetectable double-dipping, manufacturers pull back on commercial and Medicare Part D rebates. See Challenges for Managed Care from 340B Contract Pharmacies.
3. Raising out-of-pocket costs for uninsured patients. According to an Office of Inspector General (OIG) study, two out of three hospitals did not offer the 340B discounted prescription price to uninsured patients. See New OIG Report Confirms Our Worst Fears About 340B Contract Pharmacy Abuses. What’s more, out-of-pocket coinsurance for some Medicare beneficiaries was greater than a 340B-eligible hospital’s acquisition cost. See New OIG Report Shows Hospitals’ Huge 340B Profits from Medicare-Paid Cancer Drugs.
4. Reducing the generic dispensing rate and slowing the adoption of biosimilars. Covered entities’ profits from 340B prescriptions appear to be reducing generic dispensing rates, which would raise costs for third-party payers. (See New Walgreens Data Verifies That 340B Reduces Retail Generic Dispensing Rates.) The 340B profits also reduce hospitals’ already-weak economic incentives for adopting biosimilars. (See the Remicade example in Latest Data Show That Hospitals Are Still Specialty Drug Profiteers.)

HOW TO ADDRESS CHANNEL DISTORTIONS FROM THE 340B DRUG PRICING PROGRAM

I shared the following eight recommendations with Secretary Price and his senior staff. Click here to download the summary that I submitted before my meeting.

• Require that covered entities share financial savings from the 340B program with uninsured and vulnerable patients. We estimate that hospitals now receive 340B discounts on nearly half of their drug purchases. The limited available evidence suggests that 340B savings are not always shared with patients and their insurance providers, including Medicare.
• Revise hospital eligibility for the 340B program to create a clearer patient definition. The program should target benefits towards needy patients and true safety-net providers.
• Remove incentives for extraordinary hospital profits and site-of-care consolidations. Hospital outpatient facilities earn tremendous profits from spreads between reimbursements and acquisition costs. To payers, enormous hospital markups make drug prices look much higher than they really are. When buying at 340B prices, hospitals can earn thousands of dollars more from a drug than the drug’s manufacturer earns. Hospitals’ extraordinary profits are partly responsible for hospitals’ acquisitions of oncology practices. These acquisitions have shifted care from lower-cost community practices to higher-cost hospital outpatient departments.
• Require HRSA and Apexus (the Prime Vendor) to report the size and scope of the 340B program. For example, data on annual purchases are disclosed inconsistently—or not at all—to the public.
• Mandate that contract pharmacies for 340B hospitals charge no more than the discounted 340B price to uninsured, underinsured, and vulnerable patients. Nearly one of every four retail, mail, and specialty pharmacies now acts as a contract pharmacy for hospitals and other healthcare providers that participate in the federal 340B Drug Pricing Program.
• Require contract pharmacies to identify 340B prescriptions at the time of adjudication (payer prescription approval). Manufacturers cannot identify 340B prescriptions dispensed by contract pharmacies. Manufacturers therefore offer smaller formulary rebates to Part D plans and commercial payers so as to offset potential double-dipping on these claims.
• Require the disclosure of and transparency into the fees and profits generated by 340B contract pharmacies. Six retail chains—Walgreens, Walmart, CVS, Rite Aid, Kroger, and Albertsons—account for two-thirds of the 18,000 340B contract pharmacies. Require that fees be based on existing CMS fair market value standards.
• Limit the number and geographic scope of contract pharmacy arrangements. Some 340B covered entities operate unusually large networks of more than 200 contract pharmacies. Smaller, more controlled networks will ensure that only eligible patients use the pharmacy.