Inflation Reduction Act vs 340B: Debating Prices and Rebates
TL/DR –
The article discusses the conflict between two US policy efforts intended to lower drug prices: the Inflation Reduction Act (IRA) and the 340B program. The IRA, introduced in 2022, allows the government to negotiate lower drug prices with pharma companies and applies a fee if they raise medication prices faster than the rate of inflation. The 340B program sets a discounted price ceiling on medications purchased by safety-net hospitals and has drawn criticism for lack of transparency in savings utilization; it is also feared that the conflicting provisions of the IRA and 340B may reduce the savings 340B entities might use for outreach, complicating the drug pricing system.
Drug Pricing Policies: A Juggling Act That Could Impact Patients
The battle to reduce drug prices in the United States could take an unpredictable turn as conflicting policy efforts may complicate the pricing landscape, threatening access to affordable prescription medications for patients.
The U.S. has a longstanding history of its citizens paying notably more for prescription drugs than their counterparts in other Organisation for Economic Co-operation and Development (OECD) countries. But the introduction and subsequent enactment of the Inflation Reduction Act (IRA) in 2022 represented a significant shift in this narrative, granting the government authority to negotiate drug prices with pharmaceutical manufacturers.
The IRA was primarily designed to safeguard Medicare enrollees, including individuals aged 65 and above, as well as those with disabilities and other conditions. The Act also incorporated a rebate program, mandating pharmaceutical companies to pay a fee if they increased drug prices faster than inflation.
Given the significant number of Medicaid recipients in the market, estimated at 70.1 million, pharmaceutical corporations essentially have no choice but to comply with the IRA’s price negotiations. Noncompliance would entail forgoing tax credits, subsidies, and potential funding, thus missing out on crucial profits that could be earned by staying in the industry.
Concurrently, there is Section 340B of the Public Health Service Act (PHSA), commonly known as 340B. This separate drug pricing initiative establishes an upper limit on the price of drugs purchased by safety-net hospitals, whose mission is to provide care irrespective of a patient’s ability to pay. The ultimate objective of 340B is to enable these healthcare systems to use the savings altruistically to deliver care to vulnerable populations.
While the IRA largely benefits Medicare beneficiaries with high drug costs, 340B effectively targets Medicaid beneficiaries, constituting a separately insured group including low-income individuals, pregnant women, disabled people, and specific age groups, although eligibility depends on state-specific rules.
However, hospitals participating in the 340B program have been criticized for a lack of transparency regarding the use of these savings. The hospitals’ utilization of partnered contract pharmacies to stock and distribute additional discounted drugs has led to dual discounting, wherein 340B-linked hospitals receive rebates on top of Medicaid’s independent discount program for pharmacies. A 2023 study found that while some 340B-participating entities extended services to underserved populations, many engaged in rent-seeking behaviors, pivoting their care toward affluent areas and acquiring private practices to increase profits.
The clashing provisions of 340B and the IRA make it hard to predict drug prices. Medications present in both programs will see a maximum fair price determined by the IRA, which could decrease the reimbursed money to 340B entities and reduce the savings otherwise allocated for outreach.
Decreased savings often speed up vertical integration in 340B hospitals, leading to the consolidation of smaller firms and increasing the complexity of drug procurement. Middlemen in these vertically integrated health systems can hike up the price of a drug at each level, with minimal oversight to prevent them from reaping unexpected profits.
In response, hospitals could opt to avoid IRA-negotiated drugs rather than integrate them into these intricate, vertically-integrated supply chains. This action could deny the populations they serve access to crucial drugs at reasonable prices, contradicting the original intent of the legislation.
Pharmaceutical companies have stoked the mistrust of 340B hospitals through ad-funded smear campaigns. While there are legitimate instances of financial misuse of savings, the extent of the culpability of safety-net hospitals for financial waste in the health sector remains a topic of debate.
In the wake of the full implementation of the IRA, it’s vital that oversight of 340B-qualified entities be enhanced. However, pharmaceutical companies too should be subject to equitable investigation given their conflicting interests with those of protected hospitals.
Ultimately, the system should prioritize patients’ interests. Given the uncertainty surrounding the future, it’s crucial to establish contingency measures to safeguard enrollees in 340B health systems ahead of the complete roll-out of sweeping changes.
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