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April 29, 2025 01:45-02:43 - CSPAN
57:50
Discussion on Drug Pricing Reform
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Next, a discussion on drug pricing and Medicaid discounts with researchers and experts in the field.
The nearly hour-long event was hosted by the American Enterprise Institute.
Thank you so much, and welcome, everyone.
Thank you today for joining us for our panel discussion about the 340B drug program, which we will be explaining throughout our conversation today.
I am joined here by a really extraordinary group of thought leaders and practitioners in this area.
And in a moment, I'm going to ask them all to introduce themselves.
If you have any questions you want answered, there'll be a moment in about 45 minutes where people in the room will be asked if they have questions.
But if you're online, you can send an email to jack.rowing at aei.org, and that's in the invitation if you need to know how to spell.
So please go ahead and send your questions in.
And also, please remember that we are recording this session.
It's on YouTube, so your question would be recorded.
I'll start by introducing myself.
My name is Kirsten Axelson.
I am a non-resident scholar with the American Enterprise Institute.
I also worked in the biopharma industry for 19 years, and I'm now a consultant with clients in life sciences.
So I want to make it clear what my role is and also my experience and any biases I may have.
So I'm going to go ahead and start asking all my panelists, and I'll start with Jeff, to please introduce yourself, your expertise, your current role, and why would I have invited you to join this panel today.
Great, thank you.
Jeffrey Last, I'm a senior health policy advisor on the Health Education, Labor, and Pensions Committee in the Senate for Chairman Bill Cassidy.
I cover the 340B portfolio, having spent about 14 years on the Hill, 12 of which were specifically in health care, a lot of in discretionary health, some in mandatory health.
You know, I come with an interesting background on where policymakers are on 340B, as well as the chairman having just released a really interesting report on the 340B program that I highly recommend everyone take a look at.
Thank you, Cody.
Hi, everyone.
I'm Cody Kinsley.
I'm a senior advisor with the Milken Institute, and most recently was the Secretary of Health and Human Services for the state of North Carolina.
It's great to be here.
North Carolina has the second largest population of folks living in rural communities, including a number of rural hospitals and community health centers that make that possible.
And so 340B program is an important part of that puzzle.
And looking forward to chatting about it today.
Thank you, Anthony.
Please.
My name is Anthony DiGiorgio.
I'm a practicing neurosurgeon at the University of California in San Francisco, where I primarily work out of our county safety net hospital.
I'm also a health policy researcher.
I'm interested in how the safety net is financed and within that, the 340B program.
And I should stipulate my views are my own and do not necessarily represent my employers.
Thank you.
I will say that as well.
Thank you for that reminder.
So I'm going to start off with you, Anthony.
Can you explain to us, not as a neurosurgeon or a policy scholar, but just sort of in as layman terms as possible, what is the 340B drug discount program?
How does the hospital come eligible and how has it evolved?
So, the 340B Drug Discount Program was originally passed in 1992 as a way to, quote, stretch scarce resources for hospitals.
And so, what happens is when an institution qualifies for 340B, they can purchase their outpatient pharmaceuticals at a large discount, sometimes reaching up to 50%, and then resell those pharmaceuticals and keep any difference in the resale value.
Institutions can become 340B eligible through a variety of mechanisms.
There's critical access hospitals, FQHCs, federally qualified health centers, Ryan White clinics with treat HIV and AIDS, but by far the most common way that institutions, covered entities, as we call them, become 340B eligible is through disproportionate share, which is what we call the DISH percentage.
And that is how many of your inpatient, total inpatient Medicare days are occupied by dual eligible beneficiaries, so patients who have both Medicaid and Medicare.
Once you reach 11.75% of that so-called DISH percentage, your hospital becomes 340B eligible.
Not only the one hospital, but any hospitals within that hospital system, any clinics within that hospital system become 340B eligible.
So just to confirm, you become eligible based on the inpatient care, but this program is focused on only outpatient medicines.
That is one of the ironies is that they use an inpatient metric to qualify for an outpatient drug program.
And about what proportion of hospitals would qualify for this program that is really, I think, intended for high-need patients?
Right.
So as the programs evolved, in 2000, there are about, the year 2000, there were about 8,000 entities that were 340B covered entities.
Now it's about 60,000 entities that qualify.
So there's been a large growth in the program.
And over half of not-for-profit hospitals are 340B covered entities.
Thank you.
So my next question to Cody, you ran the health system for a large state with a lot of need, particularly low-income people, people living in rural areas.
How did the 340B program help you stretch scarce resources to treat people who may be uninsured or otherwise can't afford to pay for care?
So, you know, up until just a little over a year ago, North Carolina had not yet expanded Medicaid.
And so we had about 1.6 million people in the state that were uninsured.
And as I mentioned earlier, significant number of those folks living in rural communities.
We had had about a dozen rural hospitals close in the preceding decade leading up to that point.
And so for many folks, the 340B program was a critical lifeline into rural communities.
But I think as Anthony really started to point out quite beautifully, there's a bit of a disconnect between exactly the kind of design of use versus the design of where it is getting used more.
And so we've seen that growth in North Carolina as well.
We have 41 community health centers in North Carolina, a number of Ryan White programs as well.
And these 340B programs, we have surveyed them.
And on average, about 22% of their receivables are coming from 340B programs.
And so it's hard to imagine them being able to fill the gap without that program.
At the same time, that's not where we're seeing the growth in the program.
We're seeing it more in hospitals.
And just to clarify, a Ryan White Center is a center that delivers care for people with HIV and AIDS.
That's right.
Great.
Thank you.
So my next question is for Jeff.
You just produced an excellent report from the Help Committee on 340B.
Everyone should read it if you have time and interest.
Can you tell me a bit what has been the focus of members of Congress as they've been considering 340B reform?
Is there an understanding within Congress for what the program does and doesn't do?
There's a high need for these hospitals, but then I think you've pointed out in some ways how the program may or may not be helping the highest need patients.
Sure.
So I would start with: you know, there's a wide range of knowledge for policymakers on the program itself.
And a lot of this has to do with the fact that some serve on committees of jurisdiction, others don't.
But their understanding of it might come from interest, it might come from hearing from stakeholders that are really important in their states.
You have members like Dr. Cassidy, who is really into the weeds of it.
So I would start by saying any effort on reforming the program has to start with educating members and staff because until everyone fully understands the way that the program operates, they can't fully understand some of the problems and bad incentives that the current program creates.
I would start by saying what Anthony talked about, the growth of the program when it was originally created, it was very targeted.
I think around 90 hospitals originally were intended to be served by this.
That didn't take into account the expansion that we saw in the Affordable Care Act, both in the number of hospitals that now qualified to be covered entities, but then secondly, in the expansion of the Medicaid population, which pushed up that DISH percentage for a lot of these providers.
So what has started as a pretty targeted program has now turned into effectively a subsidy for providers and one that is particularly poorly targeted because if we're to use PayerMix as a proxy for the financial health of some of these covered entities,
the covered entity that has a higher percentage of commercial payers benefits far more than your entity that is more reliant on public payers, has high uninsured populations.
So to me, that is a very poorly targeted subsidy if we're thinking about anything to do there.
So until we can have this shared understanding of that as the issue, I don't know if we can necessarily agree on how to solve that problem.
But there's been a lot of momentum, I would say, in recent years to address this, driven partially by a lot of the press that has looked at some of the bad actors in here.
The Richmond Community Hospital article that was done by the New York Times really brought a lot of attention to this.
But some of the examples that we've seen, especially in the report, of how much of the 340B benefit, which I'll say is that spread between the reimbursement of that drug and the actual cost of the drug, is actually going towards for-profit contract pharmacies and third-party administrators and not going to those entities to provide care for patients, as well as just the number of patients that aren't necessarily seeing that direct benefit.
So I think those are some of the goals that we should really be striving for when we think about what a reform to this program would look like.
And so just to elaborate on that point, a lot of hospitals qualify.
I have good insurance coverage.
If I were to go, say, to the Cleveland clinic and get a medicine that costs $10,000, they purchase it for four.
An uninsured person goes and they lose money on that person, right?
So they're making more money on somebody with good insurance and not on somebody without insurance or with bad insurance.
That's correct.
And two things I would also note on that.
One, oftentimes, some of these covered entities will have patient assistance programs for the uninsured patient, but that doesn't necessarily extend to a contract pharmacy.
So with a lot of the PBMs driving folks towards their pharmacies, you have that uninsured patient who maybe, if they went to the in-house at that covered entity having patient assistance, being directed towards one of these contract pharmacies, having to pay largely out of pocket.
But secondly, when it comes to the Medicare population, the beneficiary, especially on outpatient drugs, pays a 20% copay.
The incentive in this program is for those entities to use higher-cost drugs.
We see a lower utilization of biosimilars, for example, and that patient now pays a higher percentage or higher copay as a result of that.
So really, it's hitting that Medicare patient in the pocket there, but it's also hitting the federal government because now we're paying a higher reimbursement for that product.
Thank you.
So Anthony, you work in a hospital.
You treat some of the most high-need people with low-income in San Francisco.
I mean, you should love this program, right?
It's funneling money to hospitals.
Why are you a critic of this program?
Right.
And as we're alluding to, it's the incentives.
So once a hospital qualifies for 340B, the hospital system, and there's plenty of reports out there that show this behavior.
They tend to open new clinics in wealthy, highly insured areas.
They sign up with contract pharmacies in wealthy, highly insured areas.
They sign up with contract pharmacies that are often far distant to the site.
There's clinics in, or hospitals in Michigan with contract pharmacies in Hawaii.
So there's really a lot of exploitation in the program.
And then if you look at, say, for example, the Minnesota 340B report that just came out, it shows that the true safety net hospitals are really not the ones benefiting from the program.
About 80% of the funds that are going to the hospital to the DISH qualified covered entities are actually going to large hospital systems.
So it's taking this money, this program that is really meant for the safety net.
And because of the incentive structure, the fact that these institutions can make more money by expanding into wealthier, highly insured populations, the incentive structure does not incentivize taking care of more of the safety net population.
And we see this in practice every day.
There's a number of 340B hospitals that surround our hospital, the Safety Net County Hospital, and they will make sure and turf their Medicaid patients to us, even though they still qualify for this 340B discount.
So practicing physicians that work at these safety net hospitals still see this bad behavior from these entities that manage to get 340b coverage and exploit the system that was really meant for hospitals like mine.
Thank you.
So Cody, this next question is for you.
One of the critiques of the 340 program is it encourages provider practice consolidation, meaning a hospital that is a qualifying hospital can go out and purchase another practice, maybe in a higher income area, and start making money off of their drugs.
So is this something that is a concern to state policymakers?
And is the 340B program seen critically by state policymakers or no?
And maybe shed a little bit of insight on that.
Yeah, so I think as Anthony was pointing out, there's a number of incentives that I feel like are not, kind of were not part of the initial plan.
And I think some major structural changes, whether it was the ACA reforms, a number of people on Medicaid, and a number of other mixes as far as the hospitals that have been able to do this.
But they're responding to the incentives in front of them.
And so I think we do see it as one of probably the many factors that are driving more vertical integration in health care, right?
It's not just 340B as a way to kind of increase revenues, but also, of course, alignment, market power, purchasing power, et cetera.
And it's kind of a bit of a grower die.
And it creates this dynamic.
And this has been a big concern for health policymakers in North Carolina because we want to have a competitive, diverse healthcare ecosystem where we can try to make sure that's available folks.
As I mentioned earlier, we've had 12 hospitals close in rural parts of the state.
We only have one critical access hospital that still offers labor and delivery.
And so I think taking this tool or reshifting the incentives so it does not be one of the additive parts of driving consolidation is important, but I don't think it is sufficient alone as far as trying to push that back.
340B is an important part of the conversation in North Carolina for a couple of reasons.
One, we do have a number of safety net hospitals that do rely on what they can get from the program, even fighting maybe the incentives to poorly behave.
And then as I mentioned earlier, we have 41 community health centers, 216 locations across the state.
As 12 hospitals have closed in rural North Carolina, they're the only game in town.
I mean, these are rural community centers that ideally are giving people access to the preventive care.
There are other opportunities to do that.
And so I think making sure that we can preserve the aspects of the program tied to initial intent, that kind of categorically, by their existence, we know that the dollars in those spaces are going for good purpose.
And there's other opportunities, so I think strengthen statutory language around what are the dollars being used for and how can we get more clarity there.
But I think we don't want to throw the baby out with the bathwater.
Thank you.
So thinking about reform, I'll put my next question to you, Jeff.
What do you see as being a focus of this Congress?
Do you anticipate that reform can or would happen in the next year or two to the extent that you feel comfortable putting looking into your crystal ball?
If not, just tell me what the focus is.
Sure, I would caveat everything with reconciliation is the elephant in the room until we get a better sense on what that path is.
I think a lot of other priorities are going to be in a holding pattern.
But from Dr. Cassidy's perspective, we see need to do immediate reforms because as the report laid out, one, there's a total lack of transparency, especially on the contract pharmacy and third-party administrator side.
There is so much information that we just wouldn't have known if we weren't doing this investigation and getting information from them.
As I believe Anthony mentioned on the Minnesota audit, we saw 16% of 340B revenue was going towards those entities.
And until we can see some measurable patient benefit coming from that, I think we need to ask the question: what value are they bringing to the program?
And I would also say, from the perspective of a lot of the smaller providers who oftentimes need those contract pharmacies more than the contract pharmacy needs them, they're at a disadvantage when it comes to negotiating with them.
So they're seeing increasing fees year over year, and oftentimes they're required to have a lot of them in network, and they just don't have the ability to push back on that because what does an FQHC have on leverage against a CBS Health or a Walmart?
So I think those are areas that are really ripe for reform.
And I think there are areas where there will be a lot of bipartisan agreement.
But I would say if we're talking about wholesale reform of the program, and some of this is just my own perspective, I would say while that spread is the mechanism by which covered entities are getting benefit, it's going to be really difficult to address a lot of the bad incentives that come with that without addressing that in and of itself.
Because no matter what, entities that have a higher commercial payer percentage are always going to benefit more.
So I think there are a lot of concepts out there.
You know, there was a bipartisan gang of senators, the gang of six, that had been working on their version of 340B reform.
I think the work that they've done has really helped drive the conversation forward.
Our hope is that the health committee will be able to have a process by which we could come together with a lot of these different policies and put forth a large reform package.
And our hope would be to get it done this Congress.
But as I said, I can't really pontificate on what could happen until we get a better sense on reconciliation, which is priority number one right now.
And so, what is limiting the Center for Medicare and Medicaid Services from saying you just can't dispense these prescriptions to somebody with good insurance?
What blocks that from being somebody who could be done through regulation as opposed to a change in law?
I think there's going to be some issues ultimately with how do you, you know, even with transparency, and I don't mean to duck the question, but even with transparency, you have to balance what information you're requiring those entities to submit with the cost of compliance.
Because your Cleveland clinics, who, as you look at our report, generated almost a billion dollars in revenue from this program over a three-year period, could afford much more stricter compliance than a smaller community hospital that might not generate nearly as much revenue.
But I think because of the nature of the program and the fact that once an entity is qualified, it doesn't matter who their patient mix is.
I don't know if you can necessarily get that granular and try to do that.
You could do a strict patient definition, but even that might not necessarily change how this will operate.
Because, again, having especially the contract pharmacies comply with all of that, we're going to have to create a whole new paradigm for that oversight.
And I'm not saying that that is an option.
I just think there's the balance of what is politically feasible and what is practical.
And I don't know necessarily where we're going to land on some of these things, but I think it's important that we ask the questions and try to land at a good place.
Great.
And last question.
Oh, and then I'll let Cody go.
Yeah, go Cody.
Just interject into, you know, I mean, HERSA that administers the 340B and kind of declares entities as being covered, they attempted to implement a stricter patient definition and it was struck down in district court because there hasn't been enough statutory clarity.
But I mean, really, this is a yes and an agreement that still doesn't change some of the fundamental alignment issues.
And one of the things that I worry about around reform where we add more reporting requirements and more transparency is that we're already losing considerable number of our health care dollars to administrative cost and burden.
And so I think that we still have to try to be clever policymakers in finding a way to kind of categorically say, you know, this group of entities, we have confidence based off their either structure is aligned to the community, aligned to serving in the outpatient setting where we have more confidence that the benefit is accruing to the patient overall versus the opportunity where it could be cost shifted into other places.
You're absolutely right.
If you came out with a new regulation for increased transparency or administrative burden, my hospital is going to hire three more FTEs and then they're going to say, I can't have XYZ to take care of my patients.
So I absolutely agree with that.
Well, and Cody, since we're talking about, we talked about this morning trying to reduce complexity of regulation.
Can you maybe share some thoughts on what would be a better way to fund critical care hospitals, especially considering states like yours?
Well, I mean, I think we have made some progress in trying to increase the number of people that have access to quality insurance.
I think we have some considerable room to push forward there.
I think that there are, of course, a number of different strategies that we continue to need to look at doing that.
I mean, the fundamental problem, and I always think about 340B programs, a band-aid on a band-aid on a band-aid, right?
And we can continue to add more band-aids or try to change the structure of the band-aid, but that's not necessarily going to fix the underlying problem.
That, you know, look at community health centers.
We have rural individuals, by and large, not all rural, but I think of rural, because that's who I love in North Carolina, who don't have access to care otherwise, or they need services that aren't covered by the care that they have.
Think of Ryan White and HIV clinics, right?
Think of how expensive it is to try to only be dealing with folks that are not virally suppressed when they're showing up in the emergency department.
They're having a lot of other issues as they're combating a chronic disease.
If we had better public health investment or we had other ways to cover those preventative things, this is ounce prevention, pound of cure.
And so, you know, the 340B program is, you know, albeit clever way to try to cost shift dollars into those programs.
So the alternative would be, you know, just putting dollars in those programs.
Thank you.
So, Anthony, you offered up several ideas.
Continuing on this theme of reform, when you testified to the Energy and Commerce Committee, could you describe some of those reforms, particularly ones that we might not have discussed yet?
And, you know, if anything new has arisen since then?
Yeah, and so we touched on this earlier that it's a lot of ironies in the way the program is designed.
And just thinking broader in the way that we do have social benefit programs, this one is a little bit unique in that it takes from one private entity and the benefit accrues to another private entity and doesn't go to the beneficiary, right?
So the covered entity is the beneficiary, not the patient.
So I think one way to better design the program is have that benefit follow the patient a little bit better.
And the other irony that we talked about is this whole thing about using an inpatient metric for an outpatient drug program.
One thing we know about Medicaid patients, where do they get most of their care is through the ER.
Because Medicaid patients lack access to primary care clinics, they lack access to elective outpatient clinics.
If you try, if I see a patient in my clinic and they need a primary care provider, that may be a six-month wait because there's no primary care provider slots for Medicaid patients.
So where do they end up getting their care?
Through the ER.
That makes it so these large institutions make it very easy for them to hit that 11.75% DISH percentage.
Our hospital, our DISH percentage, is closer to 80%.
You could adjust the DISH percentage, or you could also come up with a metric that incentivizes outpatient care for these patients so that they can get slots at primary care clinics, they can get slots at elective outpatient clinics so they're not having to go to the ER where care is more expensive, where their disease has progressed more, and now they're a lot more expensive to care for because they've been delaying and delaying and delaying because they can't get in to see a doctor.
So if you could shift it so that the benefit more closely follows the patient, then I think you would get rid of a lot of the perverse incentives there.
And then if you could open it up not just to large not-for-profit hospital systems.
Why if I own an independent oncology practice as a physician, I don't get to purchase drugs at the 340B discount.
But if my practice is acquired by the large hospital system that has 340B, all of a sudden now I get to purchase those drugs at the 340B discount.
Or if the large hospital system wants to put me out of business and they open a clinic across the street from me, they have that financial arbitrage and that extra revenue stream to then put me out of business.
So making it so that independent clinics can utilize the benefit as well, I think would stem some of the consolidation factors that we see with the 340B program.
Excellent.
I'm going to, in a moment, turn to questions.
And also just remind everybody: if you want to send me a question here, send it to jack.rowing at AEI.org.
So for Jeff, and actually anybody can answer this after Jeff goes, do you see a bipartisan path for reform?
Are there elements of reform that could be palatable to Republicans and Democrats?
I do.
I think ultimately where we started and what we came up with in the report highlights areas that I think there's a lot of bipartisan agreement.
Folks want more transparency.
They want to understand the flow of those dollars.
I think folks on both sides of the aisle want to make sure that patients are directly benefiting and you're not having scenarios where a community hospital is closing vital services like an ICU or like labor and delivery, but opening up these outpatient clinics in very well-heeled areas.
And I think getting a better understanding of what the fee structures and how they're disadvantaging, especially our FQHCs and rural providers, and getting those under control, I think there would be a lot of bipartisan agreement to do those.
As I mentioned previously, we've seen some bipartisan bills or at least policy ideas put together on this, some of them geared towards things like a patient definition, tightening up eligibility for child sites, looking at possible limitations to contract pharmacy.
I think all of those are on the table as things to discuss, but ultimately, we want to make sure that any reform isn't disruptive to the system, but is also going to better target the way the benefit goes to not only the covered entities, but the way that patients experience it.
So to some extent, finding better ways to define what is the community benefit.
Is it ensuring that these covered entities are providing vital services, you know, thinking about maternity services, thinking about substance use disorder and psychological and behavioral health?
Is it ensuring that there's outreach into those communities with a lot of these mobile vans that do dental and vision and things in communities that just don't have access?
And are there ways, as Anthony mentioned, to incentivize putting those outpatient clinics in areas that are high need and are full of patients who should be served by this program?
So I think there's space for those ideas to come together and to be part of a reform package.
And I think we're going to really pursue those heavily.
And we have a lot of members on committee who've shown a lot of interest in this.
And I think they'll all be part of this process as we come together to figure that out.
But I think there is space for it to get done.
And really, we want to use the report as sort of the roadmap as to how to get there.
Cody or Anthony, if you want to offer any thoughts on where there might be bipartisan elements of reform.
Anything that empowers patients to direct their own care and their own health care spending.
I mean, low-income patients have just as much agency as other patients in selecting where they get their care.
And so anything we can do to empower them is going to direct the resources where they need to go, you know, better than any poorly designed program like 340B.
So again, if you can get that closer to where the patient is, that's got to cut across party lines, right?
We all want to empower low-income patients to get the care that they need by making sure that they can see the provider of their choice and direct where those health care dollars go.
I mean, I think clearly the growth of this program and alongside the growth of just health care dollars broadly while still struggling with poor health outcomes and waning access.
I think the idea of being able to prioritize patients and to ensure a focus on community health centers and FQCs to preserve kind of the initial intent of the program, I think would still cut across broad swaths of individuals.
And just to double down on this question of community benefit, I think clarity on community benefit across a number of programs, not just 340B, is an important part of the conversation.
Thank you so much.
Anybody here in the room want to ask a question?
Yes, thank you very much.
And Elm, we're going to bring a microphone over to you so everyone online can hear.
Thank you.
Thank you.
Hi, I'm Jocelyn Gajego.
I'm here on behalf of the cancer support community as a manager of policy and advocacy.
Thank you so much to all the panelists and the AEI for hosting this event today.
Just curious on your thoughts on any model state legislation regarding program for transparency and any state legislation that you've seen that you feel is a good representation of what is needed right now in terms of reform.
And an additional question around the Sustain Act and any path towards reintroduction.
So, at least on states, I would say what Minnesota did in empowering that audit to happen really did a lot to shed some light not only on how hospitals and other covered entities are benefiting, but it really showed just how much of the revenue was going outside of the program and really to what extent it was impacting those different covered entities.
You can see the impact, especially on FQHCs, being significantly higher than large health systems, partially because of that sort of leverage issue.
So I think doing more to empower that type of transparency will help actually figure out what the path forward is on broader reforms.
You mentioned the Sustain Act, which is the Gang of Six bill that I had mentioned earlier.
I know there's been some transition in the group.
You had a few members that had retired, and I know that they're reforming the group and are looking to see what next steps are.
You know, as I said earlier, they've done a great job in advancing the conversation on what a bipartisan approach could look like.
Ultimately, there's going to be a process in the Help Committee to come together on a bipartisan reform package.
Four of the six members are on committee, so I suspect that they'll be actively involved in whatever that process looks like.
And I wouldn't necessarily say that their bill is in tension with what we're looking to do, but I think ultimately getting stakeholder consensus on those policies and ensuring that they sort of meet the overarching goal of reform will be some of the thresholds that they'll have to hit in order to see those move forward.
Can I get a little bit wonky?
Yeah, I think that's a good question.
So I agree, Minnesota, fantastic job with transparency.
Most states do not require that level of transparency.
But I think on the state level, something that really comes into play is the fact that the statute forbids duplicate discounts.
So the state Medicaid programs can purchase drugs or get a rebate on drugs through the Medicaid drug rebate program, the MDRP.
Please jump in and correct me if I get any of the facts wrong.
But most states that use Medicaid managed care actually end up foregoing the MDRP because what will happen is the covered entities will purchase the 340B drugs, resell them to their Medicaid patients through managed care, and will receive the funds through the managed care.
And because it's still a 340B drug, they will make a little bit of spread on the managed care reimbursement, and then the state is forced to forego that drug rebate.
So the state Medicaid program ends up paying a bit more for pharmaceuticals because they not only give up the MDRP, but they have to pay whatever the negotiated rate through the managed care program is.
There's, I believe, seven states now that have carved out 340B drugs out of their Medicaid-managed care programs.
And so when the drugs are carved out, the reimbursement simply is acquisition cost plus a dispensing fee.
And those states have actually reclaimed a lot of funds through doing that.
I think California was on the hundreds of millions that they were able to reclaim by carving out the 340B drugs from Medicaid managed care and reclaiming that MDRP.
So, that's one way I think states can really make sure that they're being financially prudent with this program.
North Carolina has tackled this using kind of a modifier in the billing process through Managed Care to be able to tag it back.
It does kind of underscore just the complexity and being able to track that.
So, short of carving it out, there's some other methods as well, but it is an issue that states have to wrestle with.
I think that there are some states that don't even require reporting if a Medicaid drug purchases through 340B or not.
And so, the state has no other option but just to forego the MDRP.
Another question on the room.
Yeah, I see you.
So, I have two questions, if that's all right.
The first is on this sort of claims identifier situation.
There are some states that specifically prohibit the use of a 340B claims identifier, and I don't really understand the logic of that.
It seems, I mean, to me, it seems like a giveaway to hospitals.
But, any thoughts on, I don't know, Jeff, maybe at the federal level, whether 340B claims identifiers are something that's being considered for a reform package, but at the state level, you know, what sort of thinking are you guys seeing there?
I mean, I'll say that I don't know why a state wouldn't.
I mean, perhaps it is just a giveaway as far as the motivation for that.
I mean, I think we in North Carolina have leaned into wanting there to be minus the administrative cost, no additional cost to the state Medicaid program.
And at least on the federal level, I think there have been a lot of different concepts to address the duplicate discount piece.
You know, there have been policies written to create a clearinghouse to get a better idea of that.
I think a new wrinkle, two new wrinkles into this are one with the HHS reorganization.
You know, they're proposing to move the Office of Pharmacy Affairs out of HRSA into CMS.
It's unclear where within CMS that would be seated, but I think we might get some better clarity once we know more details on how that will work on what some of the oversight might look like.
Because one of the biggest issues has been that HRSA has lacked the resources to do proper auditing and oversight of the 60,000 covered entities.
But second, there's an interesting issue that's coming up with negotiated products where the companies that have negotiated products now have to submit a deduplication paradigm to CMS, I believe, by June 1st.
And that's why you saw at the end of last year, Johnson Johnson trying to come up with this rebate model for their two negotiated products.
You've had a handful of other manufacturers that are in lawsuits right now about moving to a rebate program because that's the only way that they've been able to figure out how to address the duplicate discount piece.
And I think there's going to have to be a lot of thought into that because if they don't come up with a good paradigm there, you have not only the risk of having both the manufacturer fair price or discount as well as the 340 feet discount, but then any sort of commercial spillage that might happen as a result of that.
So, you know, as I said, June 1st of this year, it sort of behooves us to figure out how to address that problem.
Just for a quick level setting, when the Inflation Reduction Act price setting is implemented next year, 340B facilities will be allowed to take that price if they choose, especially if it's lower than the 340B price.
So I think there's an opportunity for duplicate discounts.
There's also an opportunity for greater spread of the program because now kind of even more money can be made off of these medicines.
So I'm sorry, I saw you had a follow-on question.
Well, and interesting thing on the IRA there is the retail pharmacies that have said they may not stock negotiated drugs because the math no longer makes sense for them, but that's a conversation for a separate time.
My other question was sort of separate from that, but thinking about some of these companies that have popped up recently that are like health benefit management, so not traditional like payers or PBMs that are using telemedicine to direct patients to remote hospitals, 340B hospitals, for a prescription.
Is there any reaction from you guys to that that's a little bit newer, I think, as an issue for 340B, but it seems like it could snowball?
I would say there was a Wall Street Journal article, I think, mid-March, that talked about some of these companies that are especially doing it for employer-sponsored insurance, which clearly was not intended by the program.
So I think that is one of the loopholes that we'd really like to focus on closing.
Could you do that through patient definition or some other policies?
Sure, but I think we're trying to think through more holistically how to approach that.
But that, along with, as I said, this cottage industry that's grown up around the program are things that we really need to tackle because it's just a large percentage of that 340B revenue that is now going to these for-profit third-party entities that just weren't intended to be part of this.
I'm going to put a question to you from a remote viewer.
Can you elaborate a bit on what was in Trump's President Trump's executive order on pricing that is focused on 340B?
Yes.
So this was a similar policy, or I believe it was the same exact policy from his first administration, which was requiring federally qualified health centers to provide insulin and injectable epinephrine to patients who meet certain thresholds on income and having either high deductible health plans,
not hitting their deductible, or being uninsured to offer the product at the acquisition cost.
And clearly trying to address the issue of the high cost of insulin and epinephrine, I would say that there's been some conversations about trying to apply that similar policy to more covered entities or to apply it to more products.
I think part of the issue with that is for your FQHCs and especially some of your hospitals, I don't say much like Anthony's, that have such a high percentage of public payer and uninsured, that's really going to hurt those entities versus ones that have, as I said, this higher percentage of commercial payers.
Similarly, there's a policy that the Trump administration had originally contemplated in his first term of reimbursing Part B products at average sales price minus 22.5% versus average sales price plus 6%.
That policy would generate an extremely high amount of savings.
I believe CBO has estimated almost $74 billion over 10 years.
I know that's something that as folks who are looking for pay-fors in reconciliation might be considering.
But I would also say for a hospital like Anthony's, that would be quite regressive on them versus others who are not as reliant on public payers.
So I think there's some nuance that needs to be looked at at how to take that individualized policy and expand it out.
But I think that was the one component in it that really touched 340B.
Yeah, I think along that broader discussion, it is interesting that Minnesota 340B report noting that the safety net hospitals, a lot of them made minimal margin or actually lost money on 340B.
And you ask how can you actually lose money on a 340B program?
If they purchase the drug, they pay the TPA fee, and then the drug expires, they've lost money on that.
And that's the tough thing with Medicaid population, low-income populations, is the variability in care.
Are they going to show up and get their medications?
Again, the lack of outpatient services.
So, again, if you make things more onerous, there is a chance that the SafeNet hospitals will get hit a little bit harder.
And just to clarify, the TPA is a third-party administrator, and this report very nicely laid out that many are charging fees $30, $60 to distribute these prescriptions, which is a lot of money.
And you said 16% of the program benefits are flowing to the third-party administrators.
In the Minnesota audit, they found 60%, yes.
Questions from the audience?
Yes?
Okay.
This may be off the wall, but you didn't mention the tariffs.
I don't know where these medicines are made, but is it likely that they're going to have their prices increased by bariffs?
And how would that affect the 340B program?
It's a good question.
I mean, I'll posit an answer while you guys mow it over.
The tariffs are mainly going to be an issue for generic medicines where the margins are very low, and many of the generic medicines are manufactured in India and China.
And generic medicines are not a part of this program.
So I don't see the tariffs entering.
I mean, the tariffs are going to affect branded medicines, so I think it will just be a further reduction on those manufacturers and a further increase in their costs.
But can you guys think of any way the tariffs interact with this program?
I don't know, but I do push back that generic meds are part of 340B.
And there's actually instances, bringing up generics.
There are instances where the patient copay is actually even more in generic drugs.
The patient copay ends up being more than what the hospital acquired the medication at, if it's generic, totally negating whatever the payer actually ends up paying for the drug as well.
But I agree with that.
I don't know how tariffs will end up.
Thank you for correcting me on that.
Yes.
Any other questions from the room?
Yes?
I'm cash at work for a very large health care provider and lobbyist a few blocks away.
Have you found kind of a coalition, at least of the willing, among many of the trade associations of pharmaceuticals, hospitals, doctors, et cetera?
So I would say that there have been a handful of groups that have come together.
You know, there was an alliance formed between the pharmaceutical manufacturers and the federal grantees, FQHCs, I believe that was called ASAP 340B, that had their list of reforms that they would like to see.
I know there's been a group of hospitals, FQHCs, covered entities, along with some pharmaceutical manufacturers that have been working in concert with the Gang of Six to help develop the Sustain Act.
So I think there's a lot of desire amongst some stakeholders to come to some agreement on reforms that would create stability because one of the biggest problems has been the lack of specificity in statute has led to a lot of lawsuits that have really shifted how manufacturers behave, how covered entities behave.
And I think it's in the interest of everyone to have stability here, to understand the rules of the road and make sure that everyone is following them.
So I think it's the balance, again, of what policies are going to hit that Venn diagram of can be practical, will have the desired reform impact, and are politically feasible.
And that ultimately becomes some of my job to determine.
But I think there's a lot of space for us to try to find some of those.
One group I'd like to see step up in this is the small business community.
I think there's a couple reports that came out recently.
The IQVIA report, which says the increased cost for 340B drugs increases premiums by about 6%.
So employers are having to cover that with their health insurance premiums.
And 340B hospitals charge, I believe the number was about 8% higher prices on average.
So the employers and small business community are getting hit with higher premiums, both from the higher cost of drugs and the higher prices at 340B facilities.
So I really would like to see the small business community come together and help reform this as well.
I have a question for you, and anyone can answer this.
What would reforming the 340B program do in terms of costing the federal government?
Is the cost of the savings?
Because I know right now we're really looking for cuts, and maybe there's a state government perspective as well.
So let's say, for example, there's a tighter patient definition and commercial patients are less able.
Does that cost or save the federal government?
So I would say globally you would see savings.
It's just a matter of how it changes behavior.
So as I had mentioned earlier, 340B entities utilize biosimilars at a much lower rate than other entities.
So you would see savings in the Part B program, which is why I had mentioned that ASP minus 22.5% created such a large savings because we're talking about that population.
I think the broader impacts of stopping some of these incentives to consolidate will lead to more competitive pricing, which will ultimately lead to lower costs.
So I think that there are savings to be had.
It's just tough to fully quantify until you know the behavioral changes that happen, but there's no question that you would create savings on the federal side.
I think threading the needle is very challenging.
And I think this is kind of coming out in this conversation is understanding exactly where some of the changes will hit on the ground.
You know, obviously, some of our major community hospitals and safety net hospitals in North Carolina, if we get this wrong and we pull back on revenue sources for them, then it will cost the state more money to try to fill those gaps as access to care closes in some communities.
That will be a cost in a number of ways.
And so I think this is to the point of, you know, how do we make sure we do this thoughtfully?
And this is why I like the idea of leaning into like, you know, my father was a carpenter.
He would say measure twice, cut once.
You know, how do we get sharper on understanding exactly where these dollars are going and where are they coming from and where are they going to?
And then how do we then sharpen the axe with that information?
And then, of course, on the state side, if you are, if states are reclaiming their MDRP, decrease the overall state Medicaid spend, that's going to reduce the amount of federal expenditure, the FMAP for that state as well.
Thank you.
Brian Miller, non-resident fellow here.
I also have another hat where I'm on the board of the North Carolina State Health Plan.
So I should note that my views are my own and not necessarily those of any organizations or affiliations.
So I did two residencies, one of which was a year part of, I spent a year in Cooperstown, New York, which is a village of about 1,200 people with one stoplight.
It was a hospital for probably a 10-county region, five plastic surgeons, 200 beds, helipad.
When there was a blizzard, people could not drive over the hill.
They called on a mountain.
I'm from the West originally, so I thought it was a hill.
And we had a huge Medicaid population.
So like a hospital like that would use 340B and should have good access to 340B.
But then there are other hospitals that maybe don't have that population and they do the arbitrage, as you all have mentioned, and then that hurts the employers, right, through high costs, right?
So the commercial payers covering 100 and the self-insured employers covering 150 million people end up shouldering that load.
And so I noted that, because you talked about the weird confluence of trades and stakeholders, I noted that some of the plans actually had suggested the inclusion and Blue Cross Bushield had suggested in their affordability platform to include a modifier on all medical and pharmacy claims denoting a 340B drug usage, which doesn't have a clear financial impact on the program one way or the other, but might be a good first step towards transparency and data gathering.
So my question for each of the panelists is a yes or no question of whether you think that that is a good first step.
I mean, I'll jump in first with a thank you for your service on the State Health Plan Board, vested interests, former covered person.
And second, I would say, absolutely.
I mean, I think this is where more transparency here, and I think we've all echoed that, but I completely agree.
Yeah, I agree.
Transparency is going to be good, especially a one-check box on a form.
I don't think it's an undue burden.
I agree.
Yeah, I would agree with what's been said.
I think ultimately we have very little visibility on a lot of aspects of the program, and the more that we have, the better we can understand how some of these policy changes will tighten up the way that it operates.
It would be nice for a national org like BCBS to take that on, too.
Anyone else?
Okay.
I'll go back there and then I'll get you.
Yeah.
So given that there's been so much mentioned about how there's a need for education on the program, you know, 340B is not a new program.
It's been around longer than I've been alive.
So what gaps in the literature are there?
And what do policymakers, employers, and other stakeholders really need to know about 340B to generate change?
That's a great question.
I think knowing how it does perversely drive up costs via consolidation, use of higher-priced drugs, and it's not just, and when I describe it to my physician colleagues, most of whom don't know what the program is, they say, oh, well, it's just hurting pharma.
That's fine.
And I say, no, no, no, it's not, regardless how you feel about pharma, it actually drives up your insurance costs, drives consolidation, is putting independent practices out of business.
It has perverse incentives that actually don't benefit the intended population.
So those are the points that I keep trying to drive home.
Yeah, I mean, the issue with getting members of Congress to pay attention to any issue is, is it important to get their constituency?
Is it something that generates press?
Is it something that will get them attention?
And part of the problem is this is such a technical program that getting any of them deeper than sort of a surface level understanding requires their own personal interest in it.
And I think one of the biggest misunderstandings is a lot of members think about 340B as, oh, it's just a drug discount program.
They don't understand the second step of that, which is that discount allows providers to create revenue as a result of it.
So they only think of what the savings do, but the reality is, what does that enhanced revenue allow them to do?
And what do some entities use it for?
Some use it to expand services to underserved populations.
Others will use it for capital improvement projects.
Others might use it to just backstop losses.
And I think that's where we really have to be clear about what the intention is for the use of that revenue and to make sure that patients are seeing a benefit from it.
So I think getting past point one, which is just creating savings, and getting to the back end, which is how do we ensure that patients benefit from that?
That's the gap that we're trying to fill.
And I won't fulfill your goal, but I'll just add, you know, it's actually even more complex, right?
Because it's not just the 340B program.
It's state-directed payments, it's nonprofit status.
I mean, you know, our entire health system is a series of band-aids on band-aids, as we've said before.
And so I think the fundamental problem I always try to challenge us is: how do we take one step closer to pushing towards kind of real systemic change around some of these things and remove the need for all the exhaustive cost shifting?
And if the hospitals need another subsidy, if the hospitals need another revenue stream, let's have that conversation.
Let's not play these games with this financial arbitrage drug discount program.
Let's have the conversation.
Do they need a new revenue stream?
Do they need an additional subsidy on top of all these other band-aids that they're getting?
I'll take your question for the last one, please.
Thank you.
Do you have any recommendations of where we can keep up with 340B proposed legislation and anything else, any other news sort of trackers that you've seen online or anything similar?
The health website?
I mean, I think members can introduce legislation at their own pace, and sometimes they give us a heads up at committee when they're going to do something in our jurisdiction.
Sometimes they don't.
So, you know, giving you an exact website where you can do that, you know, obviously Congress.
Sorry, I shouldn't clarify vote that on the state.
Oh, yeah, and this now we're getting way outside of my lane, so I'm not even going to try to tell you how to track state legislation.
But, you know, I enjoy using my politico tracker to do everything, especially when members don't give us a heads up.
But I mean, I would say, you know, especially the help committee is doing a lot of interesting work here.
So I would say be sure to follow us on all platforms.
We recently started an Instagram, so I think that'd be helpful for folks to follow.
I don't have one, but.
Excellent.
Well, thank you all so much, and I really appreciate you all coming.
Really appreciate this group of panelists, experts in the field, and we'll see you next time.
Thank you.
Thank you, Chris.
Thank you.
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