Testimonies focus on benefits of 340B Drug Program

Various testimonies were provided in a hearing before the House Committee on Energy and Commerce examining how covered entities are using the 340B Drug Pricing Program. The hearing discussed various issues, including how covered entities (1) track and use savings from the 340B Program; (2) use contract pharmacy arrangements; (3) use child sites; and (4) interact with the Health Resources and Services Administration (HRSA). In addition, the hearing focused on the requirements different types of covered entities must meet in order to receive reduced prices through the 340B Program.

Neither the 340B statute nor HRSA guidance, however, explain how 340B entities must use savings from the program. There is no requirement that the discounted 340B price be passed on to uninsured patients who seek treatment at 340B entities. As a result, the 340B entity will acquire the drug at a discounted price, but the uninsured patient may pay the full list price for the drug. While some 340B entities pass savings on to uninsured patients, it has been reported that some use savings from the 340B Program to pay for the operations of the covered entity, such as marketing. The House Committee convened the hearing to examine current practices and usage of savings generated by the 340B Program.

Background

Established by Congress, the 340B Drug Pricing Program mandates that drug manufacturers provide outpatient drugs to eligible health care organizations, also known as covered entities, at reduced prices to remain eligible for reimbursements through entitlement programs such as Medicaid and Medicare. Covered entities are eligible to receive discounts on outpatient prescription drugs from participating manufacturers and report saving between25 and 50 percent of the average wholesale price for covered outpatient drugs.

Covered entities do not receive discounts on inpatient drugs under the 340B Program. Covered entities can realize substantial savings on outpatient drugs through 340B price discounts and generate 340B revenue by selling 340B drugs at a higher price than the discounted price at which the covered entity obtained the drug.

Testimonies

Shannon A. Banna, Director of Finance and System Controller, at Northside Hospital, Inc., noted that the 340B Program savings allow the hospital to provide drugs to some of its most vulnerable patients and expand its charity care and community programs. In addition, the hospital met 340B Program requirements, with only a single instance of inadvertent diversion of less than $7 in an HRSA audit. Northside is an independent Georgia non-profit corporation that owns or operates an extensive network of health care facilities in Georgia, including three acute care hospitals located across the northern metropolitan Atlanta area with a total of 926 operational beds and more than 150 ancillary and physician service sites located across the 28 county Atlanta Metropolitan Statistical Area.

Michael Gifford, President and Chief Executive Officer, of AIDS Resource Center of Wisconsin, a non-profit providing health care services and support for HIV patients, stated that the savings generated by the 340B Program allowed entities to purchase certain medications at a price lower than what these medications are normally purchased for. In turn, these savings that are generated off the reimbursement for the medication purchased using 340B pricing are then reinvested into programs and services that directly benefit the individuals the covered entity serves.

Ronald A. Paulus, MD, President and CEO, of Mission Health Systems, Inc., testified that six Mission Health hospitals qualify to participate in the 340B Program based on either disproportionate share hospital (DSH) or critical access hospital status. The hospitals use of 340B Program savings directly reflects the intent and design of the 340B Program, going to support high quality, safety net services and programs many of which are otherwise unavailable in the region and would be unavailable absent the 340B program. He noted that funds provided by 340B program savings were integral to the hospital’s work.

Charles B. Reuland, Executive Vice President and COO, of The Johns Hopkins Hospital stated that participation in the 340B Program allowed the hospital to provide care and service to vulnerable individuals and families. As a safety net hospital, Johns Hopkins uses its 340B savings to respond to emerging crises and to continue serving the most vulnerable patients in Baltimore. Reuland noted that since 2009, Johns Hopkins has offered a charity program designed to improve access to effective, compassionate, evidence-based primary and specialty care to uninsured and underinsured patients from the neighborhoods immediately surrounding the hospital.

Sue Veer, President and CEO of Carolina Health Centers, Inc., a federally qualified health center that serves as the primary care medical home for 26,952 patients in the west central area of South Carolina, noted that using 2016 as a sample, 142,045 or 43.1 percent of the 329,679 prescriptions dispensed at the system’s two pharmacies were filled with 340B purchased inventory for eligible patients. The system’s total 340B savings for 2016—calculated as the net margin after the sale of the drug—was $561,620. She further noted that the savings enabled the health center to provide deeply discounted pharmacy services to those patients eligible for the income-based sliding fee program, offer medication therapy management to promote clinical and cost effective care, and assist patients with qualifying for manufacturer Patient Assistance Programs.

Study finds weak results for outcomes-based drug contracts

There is no evidence that outcomes-based pharmaceutical contracts lead to less spending or higher quality health care, according to a study conducted by the Commonwealth Fund. The limited impact of outcomes-based reimbursement may be due to the fact that the reimbursement model is only used for a small subset of drugs which offers limited metrics to evaluate the model’s effectiveness. The Commonwealth Fund suggested that voluntary testing and more rigorous evaluation could lead to better understanding of outcomes-based pharmaceutical reimbursement.

Outcomes-based

Following the trend towards value-based reimbursement in health care, some pharmaceutical manufacturers and private payers have made a push towards an outcomes-based pricing model in the prescription drug market. Outcomes-based models attach rebates and discounts to the health care outcomes observed in the patients who receive certain drugs. The purported goal of such arrangements is to improve the value of pharmaceutical-based care by paying more for drugs that work and less for drugs that do not. The reimbursement model appeals to manufacturers and payers as a means to increase the scope of formularies and coverage while reducing prices.

Restrictions

The outcomes-based model is limited by the fact that the model cannot apply to pharmaceuticals that do not have reliable outcomes measurements. Additionally, the outcomes measurements that do exist typically rely on claims data and exclude significant clinical outcomes. In other words, the outcomes-based contracts may not lead to optimized value because the actionable outcomes are limited to those that can be measured. Thus, while outcomes-based pharmaceutical reimbursement has the potential to increase the value of pharmaceutical treatments, greater evaluation of the model’s effectiveness and implementation is necessary to determine its true benefit.

Senate committee works to understand balance between drug innovation, affordability

Drug pricing is a complex system in the United States, and costs vary significantly between different payers and consumers for a number of reasons, including rebates and discounts offered by manufacturers, drug patents, agreements with insurers, and changes from volume- to value-based payment systems. In a hearing before the U.S. Senate Committee on Health, Education, Labor & Pensions titled “The Cost of Prescription Drugs: How the Drug Delivery System Affects What Patients Pay,” experts testified about who pays for prescription drugs, and what that money pays for. In his opening statement, Committee Chair Sen. Lamar Alexander (R-Tenn) explained that this is the first of three planned hearings; the second hearing will consider the full drug delivery process and its associated costs, and the third hearing will focus on ensuring patient access to affordable drugs.

Dan Mendelson, President, Avalere Health, said in his testimony that consumer drug prices are “determined jointly by health system design, pharmaceutical company pricing, and decisions by health plans, pharmacy benefit management (PBM) practices, and other transactions involving distributors and pharmacies along the supply chain.” He explained that total costs often include payments for (1) the product; (2) services provided; (3) shipping; (4) rebates; (5) pharmacy reimbursement; and (6) costs associated with PBMs and third-party payers including reimbursement, share of rebates, and contractual obligations. Mendelson noted that most patients pay cost-sharing for prescription drugs based on list price, not net price, because many rebates are not shared directly with consumers. He added that the patient protections included in the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) led to payers increasing deductibles for consumers in order to offer lower monthly premiums. However, he said, the ACA’s cost-sharing reductions have allowed individuals using the health insurance exchange to pay less for drugs; Mendelson reminded committee members that the American Health Care Act (AHCA) (H.R. 1628) in its current form would repeal cost-sharing reductions.

Allan Coukell, Senior Director of Health Programs, Pew Charitable Trusts, testified that net pharmaceutical spending has increased 42 percent since 2006, but two-thirds of that growth has occurred in the past four years. He listed the following limitations on effective drug pricing competition:

  • monopoly pricing for new drugs;
  • lack of competition for some older drugs;
  • misaligned incentives and incomplete information for stakeholders, including payers, providers and patients at many points in the system, and
  • a historical willingness to cover new therapies without ensuring that their clinical benefits justify the price.

Coukell said that the cost of new medicines is rising, and that is largely responsible for increased drug spending—for example, high-cost specialty products, particularly biologics that are not used by many individuals, account for more than 40 percent of drug spending. He suggested that the 12 years of exclusivity granted to biologic manufacturers, particularly when compared with the five years that drug manufacturers get, is excessive.

Paul Howard, Ph. D., Senior Fellow and Director of Health Policy, Manhattan Institute, also spoke about the challenges involved with specialty medicines, such as those that treat hepatitis C, cystic fibrosis, and rheumatoid arthritis. He said noted that the vast majority of prescription drugs are “highly affordable,” and that the “outlook for innovation has never been brighter,” but mentioned the need for increased competition to reduce waste and ineffective care. Howard recommended that Congress “create incentives that reward providers who use medicines (both generic and branded) and technology to deliver care as efficiently as possible, while also empowering patients with the information they need to identify high quality providers.” He suggested changes to the 340B drug discount program, HHS and FDA coordination on safe harbors for innovative contractual arrangements, and broader Medicare, Medicaid, and patient-empowerment reforms.

Gerard Anderson, Ph.D., Professor of Medicine, Johns Hopkins University School of Medicine, also blamed high costs on specialty drugs and chronic conditions, but added that state and federal health care programs cannot afford to continue paying high prices for these expensive drugs for Medicare and Medicaid recipients, and are being forced to make “life or death decisions.” His recommendations are increasing competition and changing policies to increase access to pharmaceuticals, such as including drugs in bundled payments and accountable care organizations (ACOs) while eliminating rebates from PBMs and prescription drug plans. Anderson also recommended cracking down on abuse of orphan drug designations and allowing branded drugs to move to the generic market sooner. He suggested that negotiating drug prices, specifically by a single designated federal agency using existing authority under 28 U.S.C. §1498, and enacting price-gauging legislation.

Trump nominates Gottlieb for FDA Commissioner

President Trump intends to nominate Scott Gottlieb, M.D., a resident fellow at the conservative American Enterprise Institute (AEI), clinical assistant professor at New York University School of Medicine, and a member of the HHS Federal Health IT Policy Committee, to the post of FDA Commissioner. The White House announced the nomination, which brought varied reactions from opposite sides of the aisle and a general positive response from the pharmaceutical industry, via a tweet from Press Secretary Sean Spicer.

Gottlieb served as the Deputy FDA Commissioner from 2005 to 2007 and previously served as a senior official at CMS. He has testified before Congress on numerous occasions as an AEI felllow, most recently with respect to EpiPen® price increases and “How Regulatory Barriers Inhibit Pharmaceutical Competition.” Gottlieb noted that FDA regulatory policy has made developing less expensive copies of complex drugs after patent expiration difficult, discussed how the 340B program has put “upward pressure on drug prices,” while noting other change in drug insurance coverage structure, and described obstacles to competitive single source drug pricing.

Various sources report that Gottlieb has close ties to the pharmaceutical industry. Scientific American noted that Gottlieb believes in a quicker approval process for new drugs, but has focused on shortening waiting times for large, clinical trials rather than doing away with efficacy considerations. He commented on this, to an extent, in remarks he made at the 21st Annual International Meeting of the International Society for Pharmacoeconomics and Outcomes Research (ISPOR) in May 2016.

Gottlieb has also issued commentary about the Patient Protection and Affordable Care Ac (ACA) (P.L. 111-148). In May 2016, he testified before Congress that the law’s tiered marketplace approach has aided consumers with plan selection, but has forced insurers into narrow design corridors. His testimony regarding the ACA also included a suggestion that CMS move away from mandates and towards incentives to encourage individuals to enter into the insurance market (see Is there a better way than the ACA? Hearing asks experts, Health Law Daily, May 12, 2016). More recently, he coauthored a piece with another AEI fellow, opining that President Trump’s election provided, “a generational opportunity to pursue a new direction for American health care” and making suggestions about how a new health care system should operate. The authors suggested that the system should provide a path to catastrophic health insurance for all, accommodate individuals with pre-existing health conditions, allow access to health savings accounts, and deregulate the medical services market.

Senator Lamar Alexander (R-Tenn), Chairman of the Committee on Health, Education, Labor & Pensions, touted Gottlieb’s “impressive qualifications” in a released statement. His colleague, Ranking Member Patty Murray (D-Wash), expressed “initial concerns” about the nomination, including Gottlieb’s “work with multiple pharmaceutical companies, medical device companies, and investment firms.”