How 340B Fits Into the Drug Pricing World

The Presenter (00:03): Welcome to 340B Insight from 340B Health. David Glendenning (00:11): Hello from Washington, DC, and welcome back to 340B Insight, the podcast about the 340B drug pricing program. I'm David Glendenning with 340B Health. David Glendenning (00:22): Our guest today is Sean Dickson, Director of Health Policy at the Washington, DC-based West Health Policy Center. Sean is a nationally recognized expert on the U.S. drug system with a particular focus on policies aimed at reducing prescription drug costs. With a new Congress and a new administration actively considering drug pricing measures, Sean's take on the key factors at play and what his research findings mean for 340B is quite timely. David Glendenning (00:52): But before we go to that interview, let's take a minute to cover some of the latest news about 340B. David Glendenning (01:05): Democratic and Republican leaders in the U.S. House of Representatives recently introduced competing drug pricing bills for consideration by lawmakers. The bills are modified versions of legislation that had been introduced in the previous Congress indicating that measures aimed at lowering prescription drug costs remain a high priority on Capitol Hill. We will continue to keep a close eye on these measures as they go forward to determine what effects they might have on the 340B program were they to become law. David Glendenning (01:35): The fight continues over drug company refusals to offer 340B pricing on drugs dispensed at community-based pharmacies. This was one of the big topics that our President and CEO, Maureen Testoni, discussed in our most recent episode. Since we sat down with Maureen, a group of six hospital and pharmacy associations, including 340B Health, sent a letter to Health and Human Services Secretary Xavier Becerra, calling for a solution to this problem. The letter asks for immediate enforcement actions against the six pharmaceutical manufacturers that are in violation of the 340B law, including imposition of civil monetary penalties against the companies for intentionally overcharging hospitals, health centers, and clinics. Those fines can be as high as $5,000 per claim. David Glendenning (02:23): There are signs that our advocacy activities are having a positive impact. In two recent status reports filed in federal courts for lawsuits related to contract pharmacy, the government said HHS is considering additional options for enforcing the statute that go beyond the new 340B administrative dispute resolution process. The department did not provide details about what those enforcement actions might entail, but the development could signal an important turning point in this lengthy dispute. You can read the government's filings by visiting the show notes. David Glendenning (03:04): And now for our feature interview with Sean Dickson with West Health Policy Center. David Glendenning (03:09): Prior to his time at West Health, Sean worked for The Pew Charitable Trusts' drug spending research initiative. Sean has made major contributions to a growing body of research and policy analysis on the role the 340B plays in national drug pricing. David Glendenning (03:26): Here's Myles Goldman with that conversation. Myles Goldman (03:29): Thank you, David. Myles Goldman (03:30): I'm joined by Sean Dickson. Sean, I'm looking forward to an in-depth conversation with you on a topic that so many people are thinking about these days in health care, drug pricing. Sean Dickson (03:41): Thank you so much for having me, Myles. Myles Goldman (03:42): And I want to start with a question, I'm sure you receive it all the time, Sean Dickson, why are drug prices so high? Sean Dickson (03:52): Well, drug prices are high because that's the price drug manufacturers choose. We have a system where we have monopoly pricing while drugs are protected from care competition and drug manufacturers choose the price. Those prices don't reflect the costs of research and development. They don't reflect the marginal therapeutic benefit of the drug. They represent the most money that a drug manufacturer can get for that drug. Sean Dickson (04:17): That doesn't mean that's the system we want going forward, but it's important to recognize that right now drug prices are high because they allow manufacturers to set high prices, and that's just the system we have. Myles Goldman (04:30): Can you provide a little more info about how drug prices are set? Sean Dickson (04:31): When a manufacturer is developing a drug, part of its development process is to think about how much money it can make from that drug when it's released, thinking about what other drugs in that space cost, how much more they can price the drug than existing ones, who the payers are, are they government payers, or there's going to be less restrictions on people getting access to the drugs so that they can price it really high because they're not worried about formulary restriction, or is it mostly targeting younger people, and then they have to be more concerned about whether or not insurers are going to try and manage utilization of that drug based on its price. Sean Dickson (05:07): But all of these calculations are done by the manufacturer during the development of the drugs so that they can launch it at the most profit maximizing price they can achieve. Myles Goldman (05:16): Is research and development one of those factors, or not so much? Sean Dickson (05:21): We shouldn't expect drugs to be priced at just the cost of producing them because that's not the way we do anything in a capitalist economy. Instead, we charge what the market will bear. And so research and development costs are long past the point where the drug is being marketed and don't directly set the price. Sean Dickson (05:40): What's interesting is, we know from some recent reporting by the Congressional Budget Office, as well as other years of research, that the price of a drug - I'm sorry, the research and development costs of a drug are often borne by smaller companies, and are doing it in sort of these early-stage bits of research that are funded by venture capital. Sean Dickson (05:58): And you look at the cost of those compared to the cost of what they sell that drug to a bigger manufacturer to, to bring it to market, and there's no real relationship. Again, the price at which a drug is sold from a small manufacturer that did the initial research to a large manufacturer, which is going to commercialize it, is all based entirely upon what price the big manufacturer thinks it can get in the marketplace. Myles Goldman (06:19): You have done quite a bit of research into the 340B program and its impact on drug pricing. For example, an article published in the Journal of the American Medical Association in 2019 looked at spending on hepatitis drugs at 340B hospitals. Can you tell us more about that study? Sean Dickson (06:39): Well, thanks, Myles. I like to think more that I do research on drug pricing and how the 340B drug pricing program fits into the overall drug pricing world. And that's what I was trying to do with that JAMA article, was look at this conundrum that we saw in the market. Sean Dickson (06:55): Normally, when drug manufacturers introduce a new drug that is similar to an existing one, it's priced about the same as the other drugs in the market or even higher. And what we were seeing in the hepatitis C space was that drugs are coming in cheaper than their competitors, and in fact, drug manufacturers were lowering their prices either directly or by offering an authorized generic at a lower price. And so the question is why, why did we see price competition on list prices, which is something that's very rare, rather than seeing a continuation of high list prices and then big rebates to pharmacy benefit managers in order to get preference for your drug on formulary? Sean Dickson (07:34): And what I hypothesized is that the 340B program might have something to do with this reduction in drug prices at at list. And the reason is that a lot of the hepatitis C prescriptions are originating in 340B eligible providers, specialty doctors, hospitals, or those involved in community health centers, and Ryan White clinics to see a disproportionate amount of the population that needed these curative treatments. Sean Dickson (08:01): And so what we did was looked at the percentage of sales of the hepatitis C drugs that were coming through 340B eligible institutions compared to other drugs that were at large and showed that there was that difference, and then I looked at what would happen if the manufacturer were to keep that high price, have to offer a 340B discount, and then also have to pay a significant PBM rebate on the back end in order to remain competitive on formulary. And it actually ended up that it was more profitable for manufacturers to reduce their list price, to reduce both their 340B obligation and their PBM obligation, than it was to act in our normal markets, where you keep having a higher and higher list prices with higher and higher PBM rebates. Sean Dickson (08:41): And so this was an interesting example of how the pricing structures that are set up under the 340B program actually put downward pressure on list prices, something that we don't see happen very often. Myles Goldman (08:53): That's really interesting because some have tried to argue that it's putting upward pressure on the list prices. Sean Dickson (09:00): Yeah, again, it's important to realize that list prices are not set because the manufacturer only wants to make X amount of dollars every year. They want to make the most dollars that they can every year, and so those prices are always going to be as high as they possibly can to generate higher profits. Sean Dickson (09:15): If a drug costs $110 now and the manufacturer says, well, that can be a hundred dollars if there weren't any 340B discounts, but the market can clearly support $110 drugs, so why wouldn't you price it at $110 and make that additional profit? It's kind of a specious argument to say that prices would be lower on monopoly drugs if there weren't mandatory discounts under the 340B program or under the Medicaid program or any other mandatory discount program. Myles Goldman (09:42): Let's talk some more about some other pieces of research you've worked on. You published another article in JAMA that looked at the effect of 340B inflation penalties on manufacturers that raised their prices faster than inflation. Can you provide us some details on that? Sean Dickson (10:01): What we were trying to look at was, do inflation penalties work. Inflation penalties are one of the policies that's been considered in recent legislation, both packages coming from the Senate and from the House of Representatives. Sean Dickson (10:14): And we wanted to sort of test what they would do if they would have the effect that people had hoped, that they would slow the price increases of drugs. And we had this sort of experiment that we could look at looking at drugs that have a lot of their sales happening under the 340B program and comparing them to drugs that have fewer of their sales happening under the 340B program and see whether they took different sizes of price increases. And that's because, as I'm sure listeners to this podcast know, part of the 340B discount is based upon how much the price of the drug has risen greater than the rate of inflation. Sean Dickson (10:48): And so what we did was, we looked at the share sales for all the drugs in the Medicare Part D program, looked at the share sales that was from 340B eligible institutions versus those that were from non-340B institutions, and then said, okay, well, let's look at the drugs that have a 40% of their sales coming from 340B institutions compared to the drugs, and we have 5% of their sales, and see what kind of price increases that they take. Sean Dickson (11:13): So I used a pretty complicated regression methodology to get there, but the end result was showing that a drug that had an increase in the amount of sales subject to the 340B discount program, so smaller price increases than drugs that didn't have that mandatory installation penalty attached to them. Myles Goldman (11:30): So 340B in a way kind of has been a trailblazer, could you say, for inflationary, sort of this concept of inflationary penalties? Sean Dickson (11:40): What we see is that the existing inflation penalty programs that we have available, those under Medicaid, under the 340B program, and some extent under the VA Federal Supply Schedule purchasing do seem to limit price increases. And so that bodes well for policymakers, who are thinking about expanding inflation penalties to the broader market either through Medicare or to all sales, that these really do slow the growth of drug prices over time, and ends up reducing our healthcare costs overall. Myles Goldman (12:13): Based on what you know, if 340B were to get cut back, go away, et cetera, would that change overall drug spending; do you think? Sean Dickson (12:24): We have good evidence from the paper that we discussed earlier that inflation penalties under the 340B program have slowed the price of some drugs. And so if we had a smaller 340B program, it's possible that drug manufacturers would take larger price increases year over year. Sean Dickson (12:41): And that trickles down in a couple of ways: One, it particularly affects Medicare beneficiaries. Even though drug manufacturers often rebate a large portion of the drug's price to a Part D plan, the beneficiary is still responsible for about 25% of the drug's cost at the pharmacy counter. So high price increases year over year, even if they're fully rebated back to the plan, still hit Medicare beneficiaries at the counter. Sean Dickson (13:06): We put some research out to show that that has real impacts on people's lives. Cost-related nonadherence; meaning, not following your prescribed medication because you can't afford it, is expected to result at 1.1 million unnecessary deaths among seniors over the next 10 years. So it's really important that we maintain policies that reduce price increases and thereby reduce seniors' cost sharing and therefore increasing their adherence to medication. Sean Dickson (13:32): So reducing the 340B program, reducing the size of the Medicaid program, anything that puts downward pressure on price increases would probably be a negative outcome in terms of drug affordability. Myles Goldman (13:43): It's interesting to discuss drug affordability, too, because right now, I keep hearing about drug prices, it would seem, might even go up even more as these more innovative drugs are coming to market. What are your thoughts on that? Sean Dickson (13:58): Well, it's important to distinguish between two different policies. There are policies like inflation penalties like those that are present under the 340B program that affect drug manufacturers taking year-over-year price increases on the same drug. And we've seen evidence that inflation penalties can work to slow that, but they wouldn't necessarily have as much of an impact on the launch price of new drugs. Sean Dickson (14:22): Now, slowing the price growth of existing drugs does help slow the sort of creeping benchmark at which drug manufacturers can launch new drugs, but we've seen in the past few years that manufacturers are willing to put extremely high prices on new drugs that aren't justified by their clinical benefit, nor by the costs that were put in place to develop them. Sean Dickson (14:42): And so new policies will have to be developed to address that; things that either restrict prices at launch that limit utilization if the drug is not effective and not price it as effective level or a variety of other things like Medicare negotiation. Myles Goldman (14:57): What might current drug prices of innovative therapies brought to market tell us about future drug costs? Sean Dickson (15:04): Well, I think we've already seen the significant growth in drug launch prices over the past few years from new therapies. As more and more therapies get developed in the Medicare Part D space, for example, the physician-administered drugs, we're seeing those coming with ever higher price tags. Sean Dickson (15:21): And one of the reasons for that is that we don't have a lot of utilization management, if really any, in the Medicare Part B program, at least in the fee-for-service side, so drug manufacturers can charge whatever they want, and we're seeing them charging as much as they possibly can for these therapies. Speaker 3 (15:37): I do want to talk more about policy changes even further in just a little bit, but I wanted to ask you a question that some of our listeners might really be interested in. Speaker 3 (15:46): Some of our listeners are often thinking about conducting their own research around 340B. And what advice would you have for them just in terms of as they're going about any sort of research that relates to drug pricing? Sean Dickson (16:01): I think it's important to always contextualize your research as broadly as you can. Obviously, if you're looking at assisted clinical area or a specific type of provider or pharmacy, you have a bit of a narrow focus. But it's important to think about how things like 340B, how things like manufacturer decisions affect the healthcare ecosystem as a whole. Sean Dickson (16:22): I think the other advice I would give is that there is a lot of really good publicly available data for looking at drug spending and the role of 340B in the marketplace. Their Medicare prescriber utilization file is freely available and has the prescribing records of all providers under the Medicare Part D program that can be linked with their provider identifiers to where they practice. And that can subsequently be linked to the 340B Covered Entity database, which allows you to determine the share of drugs at the provider level that are coming from a 340B Covered Entity. Sean Dickson (16:57): And that's how we've done a lot of our research, is estimating the share of a particular drug that comes from 340B providers. And so once you do that, you've got a lot of possibilities. You can look at how it affects drug prices, how it affects utilization, all of these questions that can be pretty easily answered through publicly available data. Speaker 3 (17:13): That's good to know. Speaker 3 (17:14): We've spoken about some of the different mechanisms that policymakers can consider to reduce drug prices or slow down the rate of increase in the future. Are there others that we should be having on our radar screen? Sean Dickson (17:29): I think there's a couple of big buckets of policy solutions that have been put forward. One is the sort of straightforward approach that we've talked about, about limiting drug price growth, putting a cap on price growth either at the rate of inflation or some other rate. That's sort of one bucket. And that will slow drug prices, but it won't necessarily stop new drugs from coming in at other extremely high prices. Sean Dickson (17:51): A sort of modification of that, that does affect drug list prices, is something that we've put forward called domestic reference pricing. And what that does is, we look at the historical prices of drugs in a therapeutic area and say that new drugs should follow in that pricing threshold, again, adjusted for inflation. Sean Dickson (18:10): So you would look at what are the most used drugs in this therapeutic area, what prices did they launch at, let's bring those up to today's prices and give some sort of bump for what we presume is the innovation of the new drug, but not allow them to set a price higher than that. Sean Dickson (18:24): And then the sort of third approach is to negotiate with manufacturers either our current attempt to do so, which is insurers and PBMs negotiating, or we could centralize that from something like Medicare negotiation, and have a back and forth about how effective a drug is, what other people are paying for it, what profit was really needed to develop this drug and keep the manufacturer going forward, and try and arrive at a price through that kind of negotiation. Sean Dickson (18:50): So I think those are the three big buckets: limiting price increases over time, trying to address launch prices by looking at similar drugs in the class, and then a sort of hardcore negotiation that looks at the profitability, that looks at the cost to produce the drug, and at the end really what we can afford. Sean Dickson (19:09): I really appreciate that analysis of what we can be kind of keeping our eyes on moving forward. Sean Dickson (19:18): Sean, it has been great to dive into a topic that I know is so important to our listeners and so important to healthcare policy in general. Thank you so much for taking the time to speak with us today. Sean Dickson (19:31): Thanks for having me, Myles. David Glendenning (19:33): Our thanks again to Sean Dickson for sharing his expertise with us. We very much appreciate him taking the time to help us make more sense of an extremely complex and important topic. David Glendenning (19:43): You can visit the show notes to read some of Sean's research on 340B and the broader drug pricing issue, and we encourage you to do so. David Glendenning (19:52): We remind you that 340B Health offers regular webinars on a range of topics relevant to the 340B world, so if you haven't been to the events page on our website in a while, please check it out. There are four webinars in May, including a new installment of our updates from the field series on May 12th and an event on specialty pharmacy on May 26th. We welcome your episode ideas and feedback. You can email us at Podcast@340bhealth.org. David Glendenning (20:21): We'll be back in a couple of weeks. As always, thanks for listening and be well. The Presenter (20:31): Thanks for listening to 340B Insight. Subscribe and rate us on Apple Podcasts, Google Play, Spotify, or wherever you listen to podcasts. For more information, visit our website at 340bpodcast.org. You can also follow us on Twitter at 340B Health and submit a question or idea to the show by emailing us at podcast@340bhealth.org.