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title: 340b joey
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NEW ANTITRUST EVENT ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­    ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­  

| View in browser Dear Reader, Join Health Affairs on June 23 for an exclusive Insider virtual event exploring the evolution of antitrust in health care at both the federal and state levels. Speakers include Katherine Gudiksen, Leemore Dafny, and Nathan Hostert. Join Us June 23 Why is the 340B Drug Pricing Program Under Fire? PhRMA, a trade group representing major brand name pharmaceutical companies, launched an advertising campaign last fall specifically targeting the 340B drug pricing program.   The first commercial, “Meet Mark”, claims to expose how “340B hospitals” take discounted medicines, mark them up, and pocket the difference.   The second commercial launched this spring, “Goldmine: Spa Day”, revisits a fictional 340B hospital executive excited about the profit numbers from the program and explains how there are “no rules” for how 340B hospitals use program profits.   If you work in pharmacy, health policy, or hospital administration, you probably have a complicated reaction to this.   You should.   The 340B debate is one of those genuinely messy policy problems where everyone holds a piece of the truth and nobody holds all of it.   This is my attempt to lay out what the program actually does, what the evidence shows, and where the legitimate criticisms land. What is the 340B Drug Pricing Program? Congress created the 340B program in 1992 as part of the Veterans Health Care Act.   The core mechanic is straightforward. Drug manufacturers that participate in Medicaid must also sell outpatient drugs to qualifying “covered entities” at a ceiling price set well below the drug’s list price.    Many papers cite the original intent was to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”   However, a new paper by Sayeh Nikpay and colleagues in Milbank Quarterly determined this idea has been taken out of context following structured interviews with 18 key informants and reviewing 175 internal primary source documents from 1990-1992 (if you love wonky deep dives into policy, you need to go read this paper!).    The legislation created an environment where covered entities can dispense significantly discounted drugs to eligible patients and bill insurers at a standard reimbursement rate, allowing the covered entity to capture the spread as gross profit to cover operations.   Crucially, the statute contains no explicit requirement that the resulting savings be passed directly to patients or restricted to serving low-income individuals.   In other words, the text of the law benefits the covered entity directly, which would indirectly impact the patients served by the covered entity.   The original design of the program — not necessarily a flaw in it, but the design itself — is the source of every fight (or misunderstanding) that has followed.   But design and implementation are different things, and what Congress created in 1992 bears only a partial resemblance to the program operating today.   As Nikpay and colleagues demonstrate, the original sponsors of the legislation likely never imagined a world where so many hospitals would ultimately qualify as covered entities, that there would be an unlimited number of contract pharmacies, or the margins would be so large it would fundamentally shift the entire market. How Big Are These 340B Discounts? 340B drug discounts vary substantially, but a “20-50% discount” is frequently cited.   However, these discounts can reach eye-popping levels thanks to the way the 340B ceiling price is calculated.   Under the statutory formula, the 340B ceiling price equals the prior-quarter average manufacturer price for the smallest unit of measure, less the unit rebate amount.   In some cases, the ceiling price may actually be less than $0 – yes, you read that right.   In 2017, the Health Resources & Services Administration (HRSA) published a final rule implementing the “penny-pricing policy” setting the 340B price per unit at $0.01 for any drug that meets this definition.    When PhRMA creates a commercial saying a “a nonprofit hospital like ours can markup medicines 1,000% or more,” they are factually correct, but is not the whole story without the context of how discounts are determined and the incentives created by the program.   Let’s walk through a hypothetical example based on the 2025 “340B Covered Entity Report to the Minnesota Legislature” published in February, which highlighted that Humira generated over $26M in gross revenue alone.    The wholesale acquisition cost, or list price, for Humira is currently $6,922 for a single box containing 2 injector pen devices.   If the ceiling price calculation (which is defined in statute from average manufacturer prices and rebates) is less than $0.01, the drug falls under the “penny-pricing policy” and since the package contains 2 pens, the 340B ceiling price would hypothetically be $0.02.   When the covered entity’s pharmacy (or contract pharmacy) bills a patient’s insurance, that payment determination is based on a formula related to the drug’s list price – in this case, the entity may actually receive something close to $6,900 for dispensing the drug it acquired for $0.02.  That is a markup of more than 300,000%. Not 1,000%.   Who Is The 340B Drug Price Villain (Is There One)? Covered entities are absolutely leveraging the gap between acquisition cost and the price billed to insurers.   But who influences that insurer-facing price?   Pharmaceutical manufacturers do.   As Conti and Bach observed as early as 2013, the 340B discount does not lower reimbursement rates — only acquisition costs.   The pharmaceutical manufacturer has complete control over the list price of the drug and all contracting starts there. When the list price grows, it ultimately influences the amount of markup that might be available for a 340B covered entity.   However, covered entities are not passive beneficiaries of the program.   Hospitals negotiate commercial reimbursement rates independently and have actively defended their right to bill at those rates in court. The 340B spread exists because that is how aggressively covered entities capture it is a choice they make.   In the case of Humira, AbbVie shareholders enjoyed nearly 20 years of market exclusivity and the company recorded approximately $200B in revenue from the drug over that period.   Did AbbVie lose revenue due to its rebates to insurers and statutory discounts through the 340B program? Absolutely.   Have 340B covered entities benefited enormously from AbbVie’s pricing strategy for its blockbuster drug? Absolutely.   Should we shed a tear for AbbVie? Perhaps not.   But manufacturers raise a legitimate concern 340B discounts compound the revenue losses they already absorb through Medicaid and commercial rebates, and this cumulative pressure ultimately influences how new drugs are priced.   Current 340B Advocacy Push Timing matters in policy.   The core statutory mechanics of the program have not changed — but the program today is substantially larger and more complex than the one Congress created in 1992.   Contract pharmacy arrangements, third-party administrators, the expansion of covered entity eligibility, and an entire consulting industry built around 340B optimization have transformed the program's scope in ways its original architects did not anticipate.   Under the Trump administration, HHS is considering a 340B rebate pilot program, which would allow manufacturers to pay 340B discounts after the point of sale rather than upfront.   However, this program is still working through litigation, with multiple federal courts pausing its implementation. What Should We Actually Do About 340B? The 340B program has created significant market distortions and the incentives inherent in the program have driven health-system strategic decisions dramatically.   Any reform needs to consider how these health systems will likely react if they lose access to these revenues with no replacement.   There will be downsizing and a reduction in services provided by covered entities.   There will be layoffs.   Some may argue these market corrections are necessary, but remember that many covered entities are large health-systems located in the districts of the very legislators responsible for the reform.   What would actually help is an honest accounting from all sides.   Covered entities should be required to report how 340B revenues are used and demonstrate that those revenues are reaching the populations the program was designed to serve.   Safety-net providers that genuinely depend on the program deserve protection from reforms designed primarily to benefit manufacturers.   And manufacturers pursuing legislative reforms to address misaligned incentives driving program expansion and system costs from 340B obligations might find more credibility if they addressed their own role in creating the pricing conditions that made the program so lucrative in the first place. Joey Mattingly, PharmD, MBA, PhD Associate Professor and Vice Chair of Research Department of Pharmacotherapy University of Utah College of Pharmacy June 23: Antitrust in U.S. Health Care and Beyond Join Health Affairs on June 23 for an exclusive Insider virtual event exploring the evolution of antitrust in health care at both the federal and state levels. Speakers include Katherine Gudiksen, Leemore Dafny, and Nathan Hostert. Understanding CMS’s Proposed Rule Regarding Prior Authorization For Drugs Michael Anne Kyle and Rachel Sachs   Healing Our De-Commissioned FDA Aaron Kesselheim and Jerry Avorn New Prior Authorization Proposals: Implications for Prescription Drug Access Was this email forwarded to you? Sign up for our newsletters if you want to continue receiving updates and insights on health policy.   About Health Affairs Publishing   Health Affairs Publishing delivers rigorous, nonpartisan research and analysis to improve health and health care. 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