A new study published in the New England Journal of Medicine demonstrates a stunning lack of understanding of the 340B drug pricing program and the overall landscape of drug pricing. This is unsurprising given that the sources of the funding for the study, Arnold Ventures and the National Institute for Health Care Management, are by no means neutral. Time and again, these organizations have demonstrated that they are intent on promoting flawed research critical of hospitals and health systems. Below are some of the study’s most egregious errors:
- High drug prices are NOT hospitals’ fault. The authors begin their study with an entirely flawed premise that attempts to shift the responsibility of high drug prices onto hospitals. They suggest that hospitals, specifically 340B hospitals, are making too much money off prescribing drugs and not passing the savings to drug companies to help fund their innovation costs. But it is drug companies that are solely responsible for setting drug prices and making decisions of when and how much to raise those prices, not hospitals and health systems.
- Congress did NOT create the 340B program for price discounts to be passed to insurance companies. The authors state that their results show that “[340B] eligible hospitals are not passing on to insurers the value of the acquisition price discounts.” This is a breathtaking misunderstanding of the 340B program. Padding insurer profits was not — and never will be — the purpose of the 340B program. When Congress created the program in 1992, it clearly stated that the purpose of the program was to allow eligible providers to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” 340B hospitals are doing exactly that. The price savings they achieve through the 340B program are used to support a variety of programs, initiatives and services that are directly targeted to improve community access, not boost the billion-dollar bottom lines of highly-profitable commercial insurance companies.
- The authors do NOT address how 340B acquisition price works. The authors estimate that the 340B discount that hospitals receive is 35% off the average sales price (ASP) of the drug under Medicare. What the authors fail to mention, however, is that the statutory requirement is only a 23.1% discount (Note: the 340B discount is calculated based off the average manufacturer price, not ASP, but is similar). The only ways that the discount can go from 23.1% to 35% are both due to drug company decisions. First, if drug companies offer a lower price than the 340B price to another entity in the drug market, they are required to honor that lower price to 340B hospitals. Second, when drug companies raise the prices of the drugs faster than the rate of inflation, a penalty is imposed that pushes that discount from 23.1% to a higher number (such as the 35% figure the authors use). But again, the discount increases only if the drug company makes the choice to raise its own prices. Drug companies make this choice to increase prices all the time, for many 340B drugs. In fact, a recent government report found that the companies raised prices faster than inflation for nearly 2,000 drugs, with a median price increase of 15.2%. This is why Medicare and others have estimated the average 340B discount to be higher than the 23.1% required under statute. So, if the authors want to blame somebody for this phenomenon, they should turn their focus to drug companies instead of hospitals.
- The authors did NOT calculate the savings 340B hospitals achieve correctly and grossly overstate it. They examine the difference between the reimbursement amount and the acquisition price for 340B hospitals, and they suggest that 340B hospitals are marking up drugs at excessive amounts and not passing on any of the savings. But the reimbursement amount is largely the same, whether the hospital is 340B or not 340B. The savings that hospitals derive from participating in the 340B program are from the cost savings they generate by purchasing the drug at a lower price relative to the price they would have paid for the same drug had they not been in the 340B program. This basic misunderstanding of the 340B program results in the authors grossly overstating the amount of money 340B hospitals save and completely undermines the authors’ attempt to paint 340B hospitals as bad actors.
- The study’s sample size is NOT large enough, and that alone undermines its validity. The study’s findings are based on a limited set of 57 drugs provided to commercially insured patients. It ignores both the full complement of outpatient drugs provided to patients and entire patient populations, including Medicare fee-for-service (FFS), Medicare Advantage, and Medicaid patients. Further, not only are the study’s findings based on a narrow patient population, but that population is comprised of only about 400,000 patients across hospitals and physician offices in 2020 and 2021. By comparison, according to an AHA analysis of 2020-2021 Medicare fee-for-service hospital and physician office claims data, there were approximately 1.6 million Medicare FFS patients that received at least one of those 57 drugs. This does not even account for the many more Medicare Advantage and Medicaid patients that received one of those drugs. All three of these patient populations are also known to be 1) on average sicker than commercially insured patients; 2) require more intensive care than commercially insured patients; and 3) are seen in high numbers at 340B hospitals.
Bharath Krishnamurthy is AHA’s director, health analytics and policy. Aimee Kuhlman is AHA’s vice president of advocacy and grassroots.