Dr James Robinson on the Impact of 340B Programs and Drug Pricing Policies

In the January issue of The New England Journal of Medicine, using 2020 to 2021 Blue Cross Blue Shield data, James Robinson, PhD, MPH, and his fellow investigators published their findings from an analysis of how insurer drug expenditures on infused drugs for patients who have cancer, an inflammatory disease, or a blood-cell deficiency disorder influenced price markups at hospitals and how the share of insurer drug expenditures retained differed among 340B Drug Pricing Program–eligible hospitals and ineligible hospitals vs independent physician practices.

In part 3 of our interview with Robinson, he discusses the need for reforms to commercial insurance that reflect the changes to Medicare under the Inflation Reduction Act (IRA), how the 340B drug pricing program has veered widely from its original goal to get needed medications in the hands of low-income patient populations, and the ongoing cost sharing struggles among patients, insurers, hospitals, and drug companies.

Transcript

With the upcoming cap on Part D drugs for Medicare patients under the IRA, do you foresee a return to increased usage of Part B drugs?

My study focused just on the commercially insured population. And it should be noted that Medicare has solved this problem for itself, because Medicare only pays a markup of 6% over ASP [average sales price]—that’s what it pays to providers for doctors, hospitals, 340B hospitals, other hospitals. You get 6%. Contrast to these markups of 200%, 300%, which we’re seeing in the private sector. So Medicare is able to defend itself, thank you very much. And now Medicare beneficiaries are now further protected because of the Part D changes in the Inflation Reduction Act, which is broadly a very good thing because these drugs are the drugs that land in the catastrophic zone; they were a lot of these drugs.

Even if Medicare was only paying a 6% markup, they’re paying a 6% markup often on a very high price because of these dynamics we’ve been talking about—the insurance companies keep raising the prices and all of that. I would just conclude that the changes, the reforms in consumer cost sharing for Medicare patients is still a good thing, it’s still needed. And we need an analogous thing in the commercial-insured population.

What policy proposals do you see arising from these findings, and how might they address ethics concerns?

One issue is around the overexpansion of the 340B program. The 340B program started out as a way of getting expensive drugs to poor people. It’s now turned into just a massive revenue stream for hospitals, including hospitals that treat mostly nonpoor people. But it’s also got an entrenched political constituency now, and so there’s a big fight over whether can we get the 340B program back to where it was supposed to be, which was for indigent and low-income people—that’s number one.

Number two is, this relates to a larger debate over site-of-care pricing, first in Medicare, but then also in the commercial world. And the hospitals charge a lot more than do independent physicians and other providers for the similar services in drugs, but also in nondrugs.

I actually have a paper coming out in The American Journal of Managed Care^®, if you’ve heard of that journal, in April on this topic, looking at ambulatory surgery—not drugs, but surgery—and it shows, not surprisingly, that the prices in the hospital outpatient surgery are much higher than freestanding ambulatory surgery. We also looked at rates of complications, surgical complications, because it’s sometimes been argued that prices are higher but quality is better in the hospital for the surgery, and we found no differences in quality.

One of the things that attracted me to the drug world as the thing to study was, by definition, there are no quality differences because it’s the exact same drug that comes off the assembly line in manufacturing and some of that ends up in hospitals, some of it ends up in doctors’ offices. It’s the same exact thing. So you can’t say that higher prices are compensated by higher quality in this drug world.

What impact could your findings have on negotiation strategies of 340B hospitals, community oncology practices, and pharmaceutical firms in drug pricing?

I think the primary implications are for the insurance companies, because they’re the ones that are paying these reimbursement prices to the hospitals so much higher than the hospitals’ acquisition price that they pay for the same exact drug. What insurers are actually doing is, I think they feel they don’t have much bargaining leverage with hospitals. The hospitals have successfully consolidated and now the insurers really can’t walk away from hospital systems and local communities. So what they’re trying to do is induce patients to get their care outside of hospital clinics. We see that in the surgery world; we also see it here. And part of that is uncontroversial. Why go to a hospital clinic if you can go to a doctor’s office and it’s all the same drug?

On the other hand, there are parts of the country where the hospitals own all the doctor practices now and there really isn’t much choice left for the patient. And then some of these insurance programs are then going to require the patients to travel more. Some of it’s going to be good, moving it to home infusion. Home infusion can be a good solution for patients—lower cost and also at home. But I think we see this tug-of-war between insurers, hospitals, drug companies, and then actually the patients.

Perversely, they may be helping insurance companies increase the amount of cost sharing to try to keep the patients out of the hospital, and what we don’t want, of course, is for the cost sharing burden and the prior authorization burden to get so high that patients don’t get their drugs at all, which is a problem.