Drug Industry-Funded Consultant Swings and Misses

Another week, another drug industry-funded consultant attempting to divert attention away from the high and rising costs of prescription drugs by attacking the 340B drug pricing program. Such efforts are intended to not only shift attention away from manufacturers’ bad pricing behavior, but also to reduce the size of the program. A smaller 340B program means manufacturers get to put more dollars in their own pockets.

Congress created the 340B program so that providers serving vulnerable populations would have additional resources to improve access to care in their communities. Specifically, drug manufacturers are required to provide 340B entities with discounts on certain outpatient drugs. These discounts allow hospitals to spend the money they save to expand access to care. To be clear: drug companies, not taxpayers, finance these discounts. Federal law and guidance permits participating providers, which include hospitals and community clinics, to determine how best to use these savings to serve their communities. 340B providers use the savings to expand access to a wide range of health care services, including immunizations, community outreach programs, home visits, transportation to appointments, and increasing access to pharmacists in primary care and specialty clinics to help patients manage their chronic diseases. And, in many instances, they use the savings to provide free or reduced-cost prescriptions for lower-income individuals

Recent commentary from a drug manufacturer consultant (Drug Channel’s Adam Fein, Ph.D., “Market Distortions from the 340B Drug Pricing Program”) attempts, once again, to direct attention away from high drug prices by raising questions about the 340B program (a program that, by the way, accounts for a very small percent of total U.S. drug sales – roughly 3.6 percent[1]). The industry consultant’s recycled claims have all been heard and debunked before -- particularly as they relate to growth in the program and the role of 340B in driving mergers and acquisitions among hospitals and oncology practices.

The consultant is right that the 340B program has grown in recent years; he simply fails to acknowledge a likely driver of that growth: high and rising drug prices. While the percentage 340B discount may remain the same, the total dollar value of the program grows as manufacturers raise drug prices. For example, cancer pills approved in 2000 cost an average of $1,869 per month compared to $11,325 for those approved in 2014. The 340B discount for an $11,325 drug is going to be bigger than the discount off a $1,869 drug.[2] It’s simple math: a larger denominator results in a larger numerator. With drug costs rising faster than any other component of the health care system, failure to acknowledge or examine the relationship between drug prices and 340B program growth underscores the consultant’s bias. 

The consultant attempts to obfuscate this point by suggesting that overall net revenues for drug manufacturers have grown much more slowly than the 340B program. However, he fails to fully disclose what constitutes “net revenue,” except to note that he did not consider drugs that providers directly purchase from manufacturers (as opposed to through a group purchasing organization (GPO)). Such an exclusion undoubtedly skewed the results. Providers use GPOs for most drug purchases. There are a few scenarios when they don’t, including when a manufacturer is unwilling to negotiate a discount with the GPO. By excluding direct sales, the consultant excludes drugs for which the manufacturer provided no rebates or other discounts and which would, presumably, result in higher margins for the manufacturer.

In other apparently compelling data points, he points to evidence that hospital charity care costs have dropped between 2012 and 2016. This should surprise no one. Since implementation of the Affordable Care Act (ACA), more than 20 million individuals gained health coverage, resulting in a decrease in uncompensated care. Despite these coverage gains, however, approximately 10 percent of the population still lacks coverage, and in 2016, hospitals and health systems provided more than $38 billion in charity care. In addition, an American Hospital Association analysis released in March spotlighted that 340B tax-exempt hospitals provided more than $50 billion in total benefits to their communities in 2015 alone, the most recent year for which data is available. This figure far outstrips drug manufacturers’ approximate $6 billion in contributions to the social safety net through the 340B program. Again, this should surprise no one. Hospitals play a unique role in the health care system, and federal law requires hospitals to care for everyone who comes through their emergency department doors. Drug manufacturers have no such obligation to make sure that everyone who needs their therapies can access them.

Finally, the industry consultant draws a huge leap suggesting that expansion of the 340B program is what has driven closer integration between hospitals and health systems and oncologists citing a study published in Health Affairs. The leap is so large that the industry consultant does not even land in the same place as the study’s authors. The authors concluded that the expansion in eligibility for the 340B program under the ACA as well as Medicare payment policy for chemotherapy drugs were not the primary causes for recent oncology practice consolidation with hospital and health systems.[3] In fact, they conclude that vertical integration in the oncology market is more likely explained by broad market trends in medical specialties.[4] Other economists have echoed this point: mergers in the oncology industry are not driven primarily as a way for hospitals to get access to discounted drugs.[5]

The 340B program is too important to improving access to care in vulnerable communities across the nation to let this “fake news” commentary discredit it. Instead, we need to focus on the real problem at hand: high and rising drug prices that threaten patients’ ability to heal and manage their health.