September 22, 2020— A recent Wall Street Journal opinion piece by a pharmaceutical industry consultant resurfaces claims that statutory discounts for safety-net hospitals, health centers, and clinics are forcing drug companies to hike their prices. Drug manufacturers are using this false notion as a pretext for urging program cutbacks in the guise of “reforms” and for refusing to sell at the prices the 340B drug pricing program requires.
But a day after that piece came out, a study published in the Journal of the American Medical Association directly refuted this argument. This independent research concludes that penalties built into 340B drug pricing program discounts when drug companies hike prices faster than inflation (the reason why discounts on some drugs approach 100%) have restrained the rate of that pricing growth, even for drugs outside of the program. In other words, 340B discounts help save Americans money without costing taxpayers anything.
Drug makers have long argued that these stiff inflationary penalties lead to higher drug prices. But evidence has been lacking for this counterintuitive assertion, and the new research concludes the opposite.
What the Study Says
The author of the study, Sean Dickson, is the director of health policy at West Health Policy Center, a nonpartisan, Washington-based think tank. He set out to understand the influence of 340B inflation penalties on the pricing behavior of drug makers.
Drawing on publicly available Medicare drug data, Dickson looked at whether drugs with more of their sales in the 340B program had higher or lower drug price increases over time. He found that these drugs had lower price increases and that the inflation penalties work to restrain the rate of drug price increases. He states that his findings are consistent with the theory of the penalties, namely that “when presented with a financial penalty for price increases that are higher than the rate of inflation, drug manufacturers would prefer to implement lower price increases to avoid incurring the penalty.”
Manufacturer pricing decisions are what drive up drug prices, not 340B discounts. The JAMA study demonstrates that 340B inflation penalties alone are not enough to counter incentives for drug price growth. Even after discounts and penalties, pharmaceuticals are one of the most profitable industries. The fact remains that manufacturers set high prices and hike those prices over time simply because they can.
Targeting Discounts Harms Patients
A good demonstration of the power of drug companies to set high prices and increase them over time is the case of Eli Lilly and insulin, a product on the market for nearly 40 years. Over eight years, Lilly tripled the price for a single vial of Humalog from $92.70 to $274.70, bringing the average annual cost to nearly $6,000 a year per patient and generating nearly $3 billion in annual revenue to Lilly. But the higher prices have meant some people are skipping doses and suffering needlessly.
Lilly since has launched an all-out attack on the 340B program by unilaterally terminating discounts earlier this month on all its drugs that hospitals and clinics purchase to be dispensed in community pharmacies. The company’s “exception” for insulin is not an exception at all, as it only will apply if pharmacies agree to accept no payment for administering the drug.
The Lilly move has harmed 340B hospitals that now are paying retail prices for life-saving drugs and absorbing billions of dollars in losses during a global pandemic. The situation could worsen, as AstraZeneca has announced a similar policy effective Oct. 1 and at least two more major manufacturers are threatening to follow suit.
Undermining the 340B program harms patients who need the comprehensive care and patient support that safety-net providers finance with program savings. 340B hospitals provide 60% of all uncompensated and unreimbursed care, 75% of all inpatient care for Medicaid patients, and specialized services such as trauma care that other hospitals find too costly to offer. They cannot continue doing that without 340B.