Part 1: Dr James Robinson on the Impact of 340B Programs and Drug Pricing Policies

In the January issue of The New England Journal of Medicine, using 2020 to 2021 Blue Cross Blue Shield data, James Robinson, PhD, MPH, and his fellow investigators published their findings from an analysis of how insurer drug expenditures on infused drugs for patients who have cancer, an inflammatory disease, or a blood-cell deficiency disorder influenced price markups at hospitals and how the share of insurer drug expenditures retained differed among 340B Drug Pricing Program–eligible hospitals and ineligible hospitals vs independent physician practices.

In part 1 of our interview with Robinson—the Leonard D. Schaeffer Professor of Health Economics and the Director of the Berkeley Center for Health Technology, University of California, Berkeley—he expands on why he and his team took up this investigation, their reaction to the degree of markup they saw, and the contributing role of diversion.

Transcript

Can you discuss the importance of your research on hospital price markups?

The purpose of this study is to measure how much hospitals are able to mark up the prices of infused drugs to private insurance companies—in this case, Blue Cross Blue Shield plans. Essentially, hospitals pay one price to the drug manufacturers and distributors, which I call the acquisition price, and a different higher price to the insurance companies, which I call the reimbursement price. And it's the difference between those two which this study is seeking to measure and how it varies between hospitals and doctors’ offices, with the role of the 340B program, and the implications of that for the division of total spending between drug companies and hospital systems.

Did the degree of the markup difference between the 340 B hospitals and the community practices surprise you?

Yes, that it was that large. It has been growing, because hospitals have discovered that this is a major potential revenue stream for them, and so they are pushing on both ends, if you will, the way to increase their 340B discounts is to increase the volume of drugs that pass through them. And the way to do that primarily is by acquiring physician practices and having those patients flow through the hospital infusion clinics, outpatient infusion clinics, where they can be reimbursed a higher price and get the 340B discounts. So this has accelerated the consolidation. And then on the other side, in their negotiations with insurance companies, of course, they're able to charge higher prices the more the hospitals have consolidated with their former competing hospitals and also with the doctors. This all contributes to further consolidation in the hospital and physician sector.

To what degree is diversion responsible for high drug prices and high out-of-pocket costs?

I think that is a contributor to the high prices, because from the point of view of the manufacturer, if they only get 50 cents on the dollar of what they charge—because the other 50 cents goes to the hospital—well, they care about their revenue, and so they're going to increase the prices and get 50% of the larger number. There's other things going on in drug pricing policy, but that is definitely one of them. If somehow we were able to reduce the take of the middleman, if I may use that language—the hospitals—in principle, you could have lower drug prices and still have a lot of revenue going to the drug companies, who do invest, it should be said, 20% of their revenue in R&D [research and development]; hospitals invest 0% of their revenue in R&D, it should be noted.

And then the issue of consumer cost sharing, that's really an issue of the insurance companies and the employers. They're the ones that decide what share of the price of the drug should be paid for by the patient, as opposed to the insurer. Now, obviously, the rising amount of cost sharing and deductibles and coinsurance is in part an employer response to the rising price of health care—they're trying to shift more of it onto the patient. But that's very perverse. By itself, lowering prices doesn't lower the consumer price. For that you really have to fix the insurance design.