This week we are joined by Sean Dickson, director of health policy for West Health Policy Center. Sean is an expert on the U.S drug system and focuses on policies that reduce prescription drug costs. Sean discusses why drug prices are so high, his research on how 340B fits into the drug pricing policy conversation and affects overall drug pricing, and what approaches policymakers can take to curb high drug prices. Before the interview, our news update shares developments on drug pricing bills recently introduced in Congress and how a group of hospital and pharmacy organizations, including 340B Health, wrote to HHS Secretary Xavier Becerra about what the department can do to stop drug manufacturers from refusing 340B discounts on drugs dispensed at community pharmacies. 

Why Drug Prices Are High

Sean explains that the U.S. health care system allows drug manufacturers to choose prices, and manufacturers choose the most profit-maximizing price for each drug that they can achieve. The prices do not reflect the cost of research and development or even the drug’s therapeutic benefits. Sean provides more details on what factors affect the manufacturer’s choice, including which types of payers – commercial or government – will be providing drug coverage to the patients taking the drug.  

340B Puts Downward Pressure on Drug Prices

While some have argued that 340B causes higher drug list prices, Sean discusses how his research on drug pricing demonstrates the opposite. In one of his studies, Sean examined why new hepatitis C drugs were coming to market with lower list prices than their competitors. He found it was more profitable for drug manufacturers to reduce list prices for hepatitis C drugs, which often are provided through 340B covered entities, and reduce the manufacturers’ 340B and PBM obligations. This demonstrated that 340B discounts can lead to lower list prices.  

Research on the 340B Inflation Penalty 

Under 340B, inflation penalties kick in when a manufacturer raises their prices at a pace greater than the inflation rate. Sean found in recently published research that these inflation penalties slow the growth of drug prices when a drug has a large percentage of its sales to 340B covered entities. The 340B program has been a model policymakers can look to when considering whether to expand the inflation penalties to the broader drug market. Sean further explains that if 340B ever were cut back, manufacturers likely would take larger price increases year-over-year, which would pass down to Medicare beneficiaries and could lead to seniors not adhering to their medication regimens due to the higher costs.  

Research Best Practices 

For listeners interested in conducting their own drug pricing and 340B research, Sean shares that there are plenty of quality data available publicly for examining drug spending and 340B’s role in the marketplace. For example, the Medicare prescriber utilization file is accessible for free and is a great place for researchers to start. This has been the starting point for many of Sean’s own research projects. 

Approaches to Slowing Drug Costs 

Sean recaps three areas policymakers can implement to curb drug prices. The first is capping drug price growth, possibly at the rate of inflation. However, this won’t stop new drugs from coming onto the market at high prices. To address this, new drugs could be priced under domestic reference pricing, which is basing the price on the historic costs of similar drugs, adjusted for the rate of inflation. Finally, Medicare or commercial entities could be authorized to negotiate with manufacturers directly.  

Check out all our episodes on the 340B Insight podcast website. You also can stay updated on all 340B Health news and information by visiting our homepage. If you have any questions you would like us to cover in this podcast, email us at [email protected].

Resources

1. Hospital and Pharmacy Groups Seek Action on Drug Company Violations of 340B Law  
2. HHS Considering Alternatives to ADR to Enforce 340B Statute on Contract Pharmacies 
3. Sean Dickson Research Article: Estimated Changes in Manufacturer and Health Care Organization Revenue Following List Price Reductions for Hepatitis C Treatments
4. Sean Dickson Research Article: Association Between the Percentage of US Drug Sales Subject to Inflation Penalties and the Extent of Drug Price Increases
5. Upcoming 340B Health Webinars