I thought it wasn’t possible for FiercePharma do be less honest and inaccurate about drug pricing than it’s past track record. But with “Hospitals Join Drug Pricing Battalion” the publication has reached a new low – or high – depending on your point of view.
FarcePharma editor Emily Wasserman asserts: “ U.S. hospitals are alarmed over rising drug prices, and like lawmakers, patients and doctors, they want to do something about them.”
Really? So why is the American Hospital Association opposed to proposals to reduce Medicare reimbursement of they drugs they buy and bill but in favor of expanding discounts meant to make drugs affordable for poor people?
We will answer that question in a moment. But first, let’s take a look at how regulators are trying to curb drug prices. Recently the Obama Administration introduced a proposal to cut a payment it makes to doctors who administer injectable drugs under Medicare. Specifically, , “Medicare Part B generally pays physicians and hospital outpatient departments the average sales price of a drug, plus a 6% add-on. The proposed model would test whether changing the add-on payment to 2.5% plus a flat fee payment of $16.80 per drug per day changes prescribing incentives and leads to improved quality and value.”
The goal is to encourage doctors to prescribe cheaper drugs, which Wasserman suggests is exactly what hospitals want. But just how much of a problem is the 6 percent fee in determining what drugs are used and priced. After all, doctors don’t set drug prices, the hospitals, health plans and PBMs do. Doctors only get a percentage of what Medicare reimburses for Part B drugs, not the price set by the other interests. So why the opposition?
This is not the first time Medicare changed the payment model under part B.
It changed in 2003 under the Medicare Modernization Action (MMA). Prior to the MMA, under the Balanced Budget Act (BBA) of 1997, Medicare reimbursed physicians at 95 percent of the average wholesale price (AWP) for each drug that physicians billed or the actual charge, which ever was lower. However, the BBA did not provide a clear definition, or uniform reporting requirements.
Medicare part B drug spending increased by 25 percent a year before reimbursement was changed to ASP plus 6 percent. Since 2006 Medicare part B drug spending has increased by about 4 percent a year.
But a lot of the decline is a result of the introduction of many oral formulations for cancer and autoimmune diseases. So it’s unclear whether the shift in reimbursement had any effect.
Further, the Budget Control Act of 2011 decreased Medicare reimbursement by two percent, impacting the thin margin available for cushion in Part B drug payments and reducing the ASP add-on from 6 to approximately 4 percent. This also has had no effect on the use of Part B medicines.
The General Accountability Office notes that, “New Part B drugs are more likely than new non-Part B drugs to have used an FDA expedited program or to have received an orphan designation which applies to drugs that treat rare conditions and are received by a relatively small number of people. “
Expenditures for new Part B drugs were concentrated among a small number of drugs and conditions, and most new Part B drugs were costly for beneficiaries. GAO identified expenditures in 2013 for 75 of the 83 new Part B drugs. Expenditures for these 75 drugs in 2013 were concentrated among 3 drugs—Lucentis, Eylea, and Prolia—which accounted for 53 percent of the $5.9 billion Medicare and its beneficiaries spent on new Part B drugs. The 20 highest expenditure drugs accounted for 92 percent of 2013 expenditures on new Part B drugs and for 26 percent of total expenditures for Part B drugs
But even then, new part B drugs did not drive up total part B drug spending as a percent of Medicare spending.
Meanwhile, the ‘battalion’ is all in favor of expanding the number of Medicare Part B drugs qualifying for deep discounts. “Hospitals and its beneficiaries paid $3.5 billion for 340B-purchased drugs in 2013. In the aggregate, Part B payment amounts were 58 percent more than the statutorily based 340B ceiling prices that year, which allowed covered entities to retain approximately $1.3 billion. The 340B statute does not restrict how covered entities may use these funds. ”
That’s the GAO’s way of saying that hospitals pocket the difference.
Indeed, as Adam Fein notes in Drugchannels, “the discounted purchases hospitals made under the 340B Drug Pricing Program hit $12 billion in 2015. That’s a whopping 67% higher than the 2013 figure. I estimate that the undiscounted value of these purchases exceeds $17 billion.
Most 340B purchases are made by hospitals. My exclusive number-crunching below reveals that hospitals now receive 340B discounts on more than 44% of their drug purchases. As I predicted two years ago, the 340B program is taking over the hospital market.”
So of course hospitals want cheaper drug prices! They are betting that deeper discounts will fatten their margins.