Thursday, May 16, 2019

340B Health Gets It Wrong … Again

This week, Drug Channels published our annual update on the growth of the 340B Drug Pricing Program. See 340B Program Purchases Reach $24.3 Billion—7%+ of the Pharma Market—As Hospitals’ Charity Care Flatlines.

Right on cue, 340B Health, which lobbies for hospitals that participate in the 340B program, immediately issued its annual rebuttal of the Health Resources and Services Administration (HRSA) data that we used.

340B Health was particularly distressed that our analyses “focused on 340B sales instead of discounts.” Below, you will see that when the program is measured using 340B Health’s suggested approach, it accounted for 9% to 11% of the relevant market in 2018. That’s even higher than my computation, which showed that the 340B program constituted 7% to 8% of the total drug market that year.

We’re all entitled to our own opinions about the 340B program, but we’re not entitled to our own facts. It is indisputable that 340B contributes to a large and growing share of the market.

#MATH

Our previous post examined 340B’s share of both channel purchases and manufacturer revenues. However, the 340B program is also a significant and growing part of the total discounts that manufacturers provide. Here are two computation approaches that support this conclusion:

1) 340B as a share of invoice-to-net discounts

According to IQVIA’s Medicine Use and Spending in the U.S.: A Review of 2018 and Outlook to 2023, total invoice-to-net discounts were $135 billion in 2018.

IQVIA’s invoice-to-net computation measures the gap between: (1) the amounts paid to wholesalers and distributors by their pharmacy or hospital customers, including prompt-payment and volume discounts, minus (2) rebates, off-invoice discounts and other price concessions that have been made by manufacturers to distributors, health plans, and intermediaries. It therefore encompasses 340B discounts. Note that the invoice-to-net discount is smaller than the total gross-to-net discount, as I explain here.

Per the first chart in our previous post, we estimate the total value of 340B discounts from invoiced prices for 2018 to be $14.9 billion (= $39.2 billion minus $24.3 billion).

Therefore, 340B’s share of total invoice-to-net discounts in 2018 was 11.0%, or $14.9 billion ÷ $135 billion.

2) 340B as a share of gross-to-net discounts

Alternatively, we estimate that in 2018, the total value of gross-to-net reductions for brand-name drugs was $166 billion. (See The Gross-to-Net Bubble Reached a Record $166 Billion in 2018.) This figure measures the gap between: (1) manufacturers’ sales of brand-name drugs at the wholesale acquisition cost (WAC) list price, minus (2) the total value of rebates, off-invoice discounts, copay assistance, price concessions, and such other reductions as distribution fees, product returns, the 340B Drug Pricing Program, and more. Rebates constitute about two-thirds of gross-to-net reductions.

Therefore, 340B’s share of total gross-to-net discounts for brand-name drugs in 2018 was 9.0%, or $14.9 billion ÷ $166 billion.

That’s right—340B contributes to the gross-to-net bubble.

In its rebuttal, 340B Health points to figures from 2015. But since 2015, discounted purchases made under the 340B Drug Pricing Program have doubled (+102%) while manufacturers’ net revenues have grown by only 9%. It is ludicrous for 340B Health to deny the factual reality of the program’s growth and size.

Here’s some unsolicited feedback: 340B covered entities are ill-served by an organization that can’t even acknowledge inarguable facts. Policymakers will come to view its lobbying as irrelevant and untrustworthy. Just sayin’.

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