To lower prescription drug prices, fix existing drug discount programs

One of the few policy priorities that Democrats share with President Trump is reducing prescription drug prices. At his recent State of the Union address, Trump said he wants his administration “to make fixing the injustice of high drug prices one of our top priorities.”

Health and Human Services (HHS) is taking up Trump’s call by fixing an existing prescription drug discount program known as 340B to benefit patients.

{mosads}This move is expected to cut drug costs by $1.6 billion. Democrats should put patients over partisanship and support recently introduced bills by Rep. Chris Collins (R-N.Y.) and Sen. Bill Cassidy (R-La.) that would further reform the program and cut costs even more.

The 340B Drug Discount Program, passed during the George H.W. Bush administration, requires drug manufacturers to provide outpatient drugs to participating hospitals at deep discounts. In theory, hospitals are supposed to pass these savings on to low-income patients. In practice, hospitals routinely charge market rates and pocket the difference.

Don’t take my word for it. Earlier this year, the House Energy and Commerce Committee released the results of a two-year long investigation into the 340B program. The study detailed how hospitals generate revenue off the program, finding that “340B hospitals do prescribe more and more expensive drugs to Medicare Part B beneficiaries as compared to non-340B hospitals” and that there is a “financial incentive” for them to do so.

The report also revealed a high level of hospital non-compliance with the program, and urged more rigorous Congressional oversight, hospital reporting, and eligibility requirements. A January study in the New England Journal of Medicine similarly found that 340B hospitals had “significantly higher” drug claims — roughly double in some instances. And a Berkeley Research Group study late last year found the average profit margin on 340B oncology drugs was approximately 50 percent in 2015. No wonder program participation has quadrupled over the past decade.

In response, the Center for Medicare and Medicaid Services (CMS), an agency within HHS, adjusted its hospital reimbursement rate to clamp down on hospitals pursuing 340B arbitrage. It reduced its hospital reimbursement rate for drugs purchased through 340B to the average sales price minus 22.5 percent, significantly less than the previous rate of the average sales price plus six percent.

This reform means hospitals will be forced to charge providers (both private and government) less for drugs, reducing drug costs for patients and taxpayers.

According to a recent study by Avalere Health, this adjustment will reduce prescription drug costs by $1.6 billion in 2018. CMS estimates that the change will reduce drug copayments for seniors by $320 million. These cost savings won’t hurt hospitals as critics fear because they will be redistributed by CMS back to hospitals. CMS estimates that hospitals will receive an overall increase of $690 million in 2018 as a result, with rural hospitals benefiting the most.  

This successful reform demonstrates that drug costs can be lowered by addressing the flaws in the current system without enacting arbitrary drug price controls that create shortages and threaten medical innovation.

Legislators and regulators should focus on identifying more patient-first reforms like this that fix well-meaning programs that have eroded affordability and accessibility and been twisted to line the pockets of big institutions. What other reimbursement and rebate programs that operate out of public view are quietly contributing to high drug prices and health costs?

Rep. Collins and Sen. Cassidy’s bills would tighten 340B eligibility requirements so that the savings go to those who need them most. They would also demand more comprehensive reporting about how hospitals direct their program savings. The bills indicate that Congress will no longer stand by while hospitals take advantage of prescription drug programs designed to help those in need.   

Both pro-patient experts and a leading critic of the pharmaceutical industry, Dr. Peter Bach, director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes, agree that such 340B reform is needed.

This consensus should serve as the catalyst for a series of patient-centered reforms of existing prescription drug programs that have been hijacked by the institutions that implement them.  

Terry Wilcox is the co-founder and executive director of Patients Rising, a patient advocacy organization.