Big Pharma Uses Fuzzy Math to Discredit Discount Drug Program

Yves here. It is disheartening to see how the Democratic party and elite fondness for complex programs, best of all in eligibility rules to make the poors pay for their bennies in time and stress, then serves as a mechanism for gutting them. This article argues how drug companies are seeking to limit or end the Federal drug discount program 340B, which requires pharmaceutical companies to provide price breaks to some customers in return for Medicare and Medicaid. Their method is to misrepresent its economics, which is not hard to do since hardly anyone outside Big Pharma really understands it.

Note that sadly, consistent with that fact, this article doesn’t provide as much detail on the program itself or the distortions as I would like. I assume the author feared it would produce MEGO (My Eyes Glaze Over) in readers.

By John Arcano, a policy analyst at AIDS Healthcare Foundation. Originally published at Common Dreams

The recent wave of articles on the 340B Drug Pricing Program’s supposedly “out-of-control” growth relies on faulty comparisons and fuzzy math. News reports and opinion columns often cite misleading statistics from 340B opponents.

Drug industry-approved “experts” have become known for offering faint praise for the good intentions of a program gone awry. Faux concerns mask their real intent, which is to gut 340B.

The truth is, the program functions today the same way Congress intended at its start in 1992. Drug company spin asserts 340B has morphed into a program unrecognizable to federal legislators. But, while 340B has admittedly grown since creation, the program is not on autopilot.

Drug makers have the entire commercial insurance and federal entitlement drug markets to reap massive profits. Yet the drug industry remains unsatisfied with less-than-outrageous profits for a small slice of prescription drug sales.

340B critics obfuscate the true nature of the 340B program by referencing its federal origins. The tact is meant to mislead Americans into thinking they foot the bill for 340B. But the program is not analogous to Medicare and Medicaid.

Unlike federal entitlement programs, future recipients do not pay into the program and expect returns upon retirement or as a backstop, should they face economic hardship. The government does not fund 340B with payroll taxes. In fact, 340B drug purchases do not cost the government one cent. Taxpayers are not on the hook for a single 340B purchase.

Drug companies, not taxpayers, resource 340B drug purchases. And why do drug companies extend discounted prices to nonprofit healthcare providers? In return for discounts on less than 8% of total U.S. drug expenditures, pharmaceutical companies can access the much more lucrative Medicare and Medicaid prescription drug programs. Drug makers are not forced to participate in 340B; to the contrary, they eagerly entered into the program, salivating over millions of customers backed by a guaranteed federal payer.

Drug companies resort to drug pricing gimmicks to exaggerate the size of 340B purchases. Instead of using the actual price, drug makers use their list prices to measure 340B’s relative size. By that metric, 340B sales in 2021 registered $93.6 billion.

But think of drug company list prices as the sticker price for a new car. Car dealerships and drug companies can set their prices however they want. Consumers only care what they pay for cars, and in this case, their medications. And, just like with cars, no one pays the sticker price for prescription drugs. The federal government most certainly does not, nor do state Medicaid departments.

Consumers do not either. Private insurance picks up the overwhelming majority of prescription drug spending for their plan holders. Taxpayers subsidize those who rely on federal aid to procure prescriptions.In 2021, real 340B purchases actually made up $43.9 billion. Yet the taxpayer does not finance 340B. Discounts come out of drug company profits—revenue drug makers more than make up for through the quid-pro-quo arrangement which enables drug sales to entitlement program patients.

The sketchy math does not end there. Drug companies want Americans to believe that 340B is the primary driver for exorbitant prescription drug price hikes. 340B, however, represents a fraction of overall prescription drug spending in the United States. In 2021, the healthcare system spent $603 billion on prescription medicines before rebates; retail drugs accounted for $421 billion of the total.

According to the pharmaceutical industry, the “explosive” growth of 340B means they will have to make up for supposed lost revenue elsewhere. In reality, drug companies are more concerned that they cannot charge nonprofit providers arbitrary list prices.

Drug makers want Americans to believe that, if not for 340B, drug price increases would magically disappear. Somehow, Medicare Part D—a program over 2.5 times the size of 340B ($110.1 billion in 2021) in terms of net spending—has less to do with drug price hikes than the program that cuts into drug industry profits.

For some reason, drug companies never complain about explosive growth in federal entitlement drug spending. And why would they? Drug makers are the primary beneficiaries. When it comes to 340B, drug industry innumeracy is only rivaled by its greed.

Drug makers have the entire commercial insurance and federal entitlement drug markets to reap massive profits. Yet the drug industry remains unsatisfied with less-than-outrageous profits for a small slice of prescription drug sales. Faulty pharmaceutical industry math places 340B sales on the wrong side of the ledger.

Without 340B, drug companies would not make any money off the medically underserved. Drug makers should stop exaggerating the size of 340B purchases and abide by the terms of an agreement they voluntarily entered.