You need medications. A physician calls in the prescription to a pharmacy, and well-insured Americans pick up the pills. An insurer pays some-to-most of the price; the patient pays a co-pay, which, depending upon the “formulary” rules of the insurer, may range from negligible to substantial. While the printed receipt might suggest a “list price,” no patients study it. Why should they? Most of the time the “system,” however expensive overall, does not unduly burden insured Americans.
But when those Americans are poor, and uninsured, they flounder in the almost Byzantine maze of drug pricing.
From one vantage, “price” is simply what the market will bear — no different from the price of cereal, houses, cars. Yet, unlike those commodities, the market for drugs splinter into subsets: hospitals, insurers (each insurer negotiates its own prices), employers, retail stores, countries. Different markets, different prices. The prices start with the AWP (average wholesale price), end at the ASP (average selling price). Add patent protections, versus generics, to the jumble. Add too the “pharmacy benefit managers,” who take their cut.
Cost is only one factor; the manufacturer calculates its product mix, its stance vis a vis competitors, its public relations face — a face which influences voters, which influences Congress. Some drugs have become synonymous with corporate greed: remember when Turing Pharmaceuticals, started by a hedge fund manager, raised the price of Davaprim, used for more than 60 years to treat a rare parasitic disease, from $13.50 a pill to $750. The initial price for Aduhelm, a “breakthrough” drug for Alzheimer’s, triggered general outrage; and the ongoing battles over the price of insulin continue to gather legislators’ attention. Every buyer (except for Medicare, but that is another bureaucratic tale) negotiates price; for the same condition, in the same hospital, different insurers may pay different prices. The goal of a pharmaceutical company is a profit.
Congress recognized that the poor needed a subsidy. Medicaid could hardly negotiate prices equal to private insurers; and those who were poor and uninsured could not pay a “list” price. Under 340 B, passed in 1992, under President George H.W. Bush, Congress required manufacturers who participate in Medicaid to sell outpatient drugs at discounted prices to those organizations that care for uninsured and poor patients. i.e., health centers, State AIDS Drug Assistance programs, Medicare/Medicaid Disproportionate Share Hospitals (meaning they serve a disproportionate number of poor and uninsured patients) , children’s hospitals, and other safety net providers.
At the same time, those clinics and hospitals also serve patients with private insurance, as well as Medicare; and those insurers pay more than the discounted price. Hospitals can make a profit under the 340 B subsidy program if they sell the discounted drugs at the higher reimbursement. Hospitals simply keep the difference between the discounted price that they paid, and the reimbursement they get from private insurers and patients.
The expectation (not the requirement) was always clear: If patients can pay more than the discounted price, hospitals would be expected to use that money to serve those with no insurance, or to pass the savings onto patients or insurers.
If the expectation of service to the poor and uninsured was clear, so was the opportunity for significant profits.
Not surprisingly, participation in the 340 B program grew, as hospitals recognized one way to bolster their bottom lines. The key: Sell more drugs to insured patients, including those with Medicare. Duke University Hospital reported a 5-year profit of $282 million from its participation in the 340 B program. (Health Affairs, October 2014; pp. 1786–1792.).
As for uncompensated care, a later study compared hospitals that participated in 340 B with hospitals that didn’t: the 340 B hospitals, in spite of Congress’s initial expectation, did not give more uncompensated care. (https://www.ajmc.com/view/340b-drug-pricing-program-and-hospital-provision-of-uncompensated-care).
Enter the fray: pharmaceutical manufacturers, the ones giving the deep discounts to hospitals. Major ones (Eli Lilly, Novartis, Sanofi, United Therapeutics, Novo Nordisk and AstraZeneca) decided to drop the discounts. They argued that the discounts were enriching the hospitals, not expanding service to patients.
Predictably, hospitals objected — including the truly “safety net” hospitals that needed the discounts, that served many uninsured patients, as well as patients with Medicaid. Some hospitals were eventually dropped from the 340 B program. Hospitals went to court.
As of now, the federal government has given “excluded” hospitals a chance to re-enter the 340 B program. Poor patients depend on the subsidies; but so do not-so-poor hospitals.
Serving the poor sometimes entails enriching the rich — a lesson that is sadly common. Some call it the “poverty industry.” It happens in foster care, education, housing. No surprise that hospitals seized this opportunity.
Joan Retsinas is a sociologist who writes about health care in Providence, R.I. Email retsinas@verizon.net.
From The Progressive Populist, May 15, 2022
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