February 18, 2020 at 5:00 am ET
It is interesting to see how one’s behavior often changes when someone else is watching closely. Not surprisingly, this concept also can apply to how drug companies set their prices.
In April, the federal government launched a new, secure website listing the maximum prices that drug companies can charge for many prescription drugs sold to safety-net hospitals, clinics and health centers. By collecting data from drug companies and calculating the maximum allowable price these providers must pay, we now have a level of clarity that helps both providers and manufacturers.
The website allows authorized health care providers to ensure they are paying the correct amount on medications for their patients. If a manufacturer is overcharging, the government can order repayments or even impose fines.
Many of us who spent years advocating for such transparency knew it would be an important check on the high prices of prescription drugs. Congress mandated the site in 2010 following a series of watchdog agency reports documenting overcharges by drugmakers. But both the Obama and Trump administrations delayed implementation of the rules to enforce that law numerous times.
Then after nearly nine years of delay, the Trump administration published rules effective Jan. 1, 2019, creating a new system to review prices charged to providers who participate in what’s known as the 340B drug-pricing program. Under that program, manufacturers must sell certain outpatient prescription drugs at discounted prices to safety-net providers and rural hospitals. The savings from 340B then support care for uninsured and underinsured patients without using a dime of taxpayer money.
The “ceiling price” website’s goal is to provide these 340B providers with validated information about the maximum a manufacturer can charge for a 340B-covered drug. This is a big improvement, as for too long these providers were operating in the dark.
The website is coupled with a new system of civil monetary penalties that the government can impose on manufacturers if they “knowingly and intentionally” overcharge a 340B provider. That might be a tough charge to prove. But the fact that the government is directly reviewing manufacturers’ pricing calculations and publishing ceiling price data appears to be having a very positive impact on manufacturers’ behavior.
Since the start of 2019, companies have been required to provide the government with quarterly reports of pricing data that allows it to calculate ceiling prices for all covered drugs and check each manufacturer’s data against what others report. Since this process began, the Health Resources and Services Administration, which administers the 340B program, has posted notices from manufacturers acknowledging that they overcharged for scores of 340B drugs and notifying safety-net providers that they are due refunds. These postings send a warning signal to other drugmakers to be extra careful in setting their prices, because now, someone is watching.
One of the more eyebrow-raising cases of overcharging involves Purdue Pharma, the manufacturer of some of the biggest-selling opioids in the country. Purdue is the subject of multiple lawsuits for its marketing of opioid products and has filed for bankruptcy.
According to a recent posting, the company now admits it was overcharging 340B hospitals and clinics for OxyContin, Dilaudid and several other frequently prescribed, high-priced drugs for much of 2017. Purdue has agreed to start repaying 340B providers for those overcharges.
The manufacturer notices aren’t the only tools the government uses to police overcharges. HRSA also conducts audits of manufacturers and providers to assure compliance with the 340B program rules. Last month, the agency posted audit findings from the previous fiscal year for three drugmakers — Gavis Pharmaceuticals, Lupin Pharmaceuticals and Xspire Pharma — citing them for overcharging 340B providers.
The government now is directing these companies to repay any amounts that providers paid above the ceiling prices and has approved corrective action plans to ensure the companies’ compliance going forward. Combined, the three manufacturers sell hundreds of brand-name and generic drugs to hospitals.
In 1913, writing in Harper’s Weekly, Louis Brandeis famously noted that “sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” In the case of high drug prices, the recent changes to the 340B program are evidence that by shining a spotlight on the behavior of a few, we can change the actions of many for the better.
Maureen Testoni is the president and chief executive officer for 340B Health, a nonprofit organization of more than 1,400 hospitals and health systems participating in the federal 340B drug-pricing program.
Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Updated submission guidelines can be found here.