Stagnation in Reimbursement Keeps Biomedical Innovation From Reaching All Patients, COA Panel Says

More than 2 decades after policy discussions began promoting the idea of “value-based care,” reimbursement systems have failed to keep pace with the advances in biotechnology, making it increasingly difficult to bring lifesaving cancer drugs to all patients.

Nicolas Ferreyros | Image: AJMC

That was the assessment of panelists who kicked off the annual Community Oncology Alliance (COA) Payer Exchange Summit, an invitation-only gathering that opened yesterday in Reston, Virginia. COA Managing Director Nicolas Ferreyros moderated the session featuring John O’Brien, PharmD, MBH, president and CEO of the National Pharmaceutical Council, and William Sarraille, JD, now retired from Sidley Austin LLP and a professor of practice at the University of Maryland School of Law.

John O'Brien, PharmD, MPH | Image: NPC

“Value” and “innovation” might not mean the same thing to everyone, O’Brien said, but earlier in his career at HHS, he was always surprised by 2 things:

• Why is nobody interested in a best-in-class drug that launches at the lowest price?
• Why is more than half of US drug spending not being used to help patients?

Sarraille said he’s likely worked on a thousand value-based contracting arrangements and remains disappointed “at how marginal most of those contracts were.”

William Sarraille, JD | Image: LinkedIn

“Most people would ask me, why don't we have more of them?” he said. “On the legal side, the government could not be more ambivalent about value-based arrangements when they involve pharmaceuticals and device manufacturers. It seems like this incredible investment in trying to create an environment in which these things can happen. And the very first thing they do in each of those safe harbors is to exclude pharmaceutical manufacturers and device manufacturers.”

As the discussion unfolded, the panelists shared how drug margin has become a cash stream to pay for multiple other pieces of the health care system, with costs often passed to Medicare beneficiaries or employers paying health care premiums. “That’s a big reason why Mark Cuban is so popular,” O’Brien said, referring to the entrepreneur’s Cost Plus drug company. Rules around co-pay assistance don’t align with the realities of cancer treatment and complexities that arise when patients haven’t met their deductible but need a certain medication, O’Brien said.

He thinks about some of the cancer therapies available today that would have seemed like science fiction when he was in pharmacy school. The biggest challenges are not scientific but figuring out how to pay to get what is discovered to patients.

“We need as much innovation in reimbursement as we have innovation in drug discovery, because we're living in a golden age of biomedical innovation,” O’Brien said. “You can't pay for today's treatments…with yesterday's reimbursement system that was built for blood pressure.”

A well-intended effort to help safety-net hospitals, the 340B program, has grown to $68 billion as of 2023.1 This adds layers of cost to cancer drugs that aren’t cheap to bring to market, given how complex they are.

O'Brien has seen firsthand why the program was created. "If you are one of the [federally qualified health centers] or true safety-net hospitals,” using this program to give the uninsured access to medication is a life saver.

The trouble is that health systems have used the original qualifying entity to expand the 340B benefit far beyond its intent. Sarraille said employers who are wooed by 340B hospitals are being duped.

"You are cutting off your nose to spite your face,” he said. “You are being pitched the idea that you are going to share in the savings for the drug. The underlying reality is that that drug is probably marked up somewhere between 50% and 400% what you could get the same drug from a non-340B hospital.”

He continued, “The dollars that you are sending to the 340B hospitals [are] allowing them to grab more and more community practices. More and more community providers growing ever larger and putting you in a worse bargaining position tomorrow than you are against them today, you are feeding the beast.”

O’Brien highlighted brand-new research,2 which featured 3 authors from the National Pharmaceutical Council, that showed 340B accounted for a 2% increase in spending among the Affordable Care Act exchange population from 2018 to 2022, with significant effects on employers and state and local governments.

Laws With Problems

Sarraille said the 1974 law, the Employee Retirement Income Security Act (ERISA), which governs voluntary retirement and health plans in the private sector, has produced decisions that reflect courts’ discomfort over how much private employers should be asked to do.

When he teaches a class on ERISA, Sarraille tells his students, “If you think that every case is inconsistent with the last one and that there is no there there, you have understood it perfectly.”

Yet this inconsistency also makes it difficult for employers to create innovative benefit designs.

O’Brien raised alarms about the Inflation Reduction Act (IRA), which he said will generate savings for up to 3% of patients who will see reduced out-of-pocket costs. But he said the IRA is already slowing innovation on rare diseases and is creating the potential for duplicate discounting in 340B.

More troubling, he said, are cases where drugs that have maximum fair prices must compete with those in the same class that can still offer rebates.

Finally, despite intense advocacy by COA, there has been no resolution to proposed changes to average sales price calculations under Medicare Part B, which Ferreyros said would result in a 47% reduction in reimbursement for oncology and hematology drugs, based on a study by Avalere Health.3

Competition Needed

Sarraille said the chief problem in health care has been too much consolidation. "In our system, competition is what matters. It's what improves quality and delivers services at lower costs. Unfortunately, we spent 30 years really encouraging, incentivizing consolidation and vertical integration, and we're paying the price for that."

Employers have been among those who have lost out in this, O’Brien said. “If one employer coalition can leave here with a conversation with a practice about...’Let's figure out a way to align our incentives around patient outcomes and total cost of care, and not wait for the government to tell us how it has to be.’”

References

1. 2023 340B covered entity purchases. Health Resources and Services Administration. Updated October 2024. Accessed September 9, 2025. https://www.hrsa.gov/opa/updates/2023-340b-covered-entity-purchases
2. Masia N, Motyka JD, Westrich K, Campbell JD. The association of the 340B program with Affordable Care Act (ACA) premiums: a longitudinal analysis from 2018 to 2022. Inquiry. 2025;62. doi:10.1177/00469580251370317
3. Sullivan M, Tripp A, Isaiah E, Diskey R. IRA Medicare Part B negotiation shifts financial risk to physicians. Avalere Health. November 29, 2022. Accessed September 9, 2025. https://advisory.avalerehealth.com/insights/ira-medicare-part-b-negotiation-shifts-financial-risk-to-physicians