Why Do Drugs Cost So Much?

Can you name a government program that supports billions of dollars in health care for low-income and rural Americans, has strong bipartisan support and doesn’t cost the taxpayers a dime? Congratulations if your response is the 340B drug pricing program because it just might be the only correct answer.

340B requires large, for-profit pharmaceutical companies to sell some of their high-priced products at a discount to safety-net hospitals, community health centers and public health clinics in return for access to lucrative Medicare and Medicaid drug markets. Those 340B savings provide hospitals with resources to cover the cost of uncompensated care, keep rural facilities open and maintain vital services that cost more to deliver than insurers will pay. These services include trauma and burn care, HIV and opioid use disorder treatment and medication management to help people with chronic conditions such as diabetes stay on their treatment regimens and live healthier lives. 340B hospitals also are responsible for 75 percent of all hospital care for people on Medicaid and provide 60 percent of all uncompensated and unreimbursed care in the United States.

Yet the pharmaceutical industry appears to be circumventing the law and recapturing those dollars for their bottom lines. Amid a historic global pandemic, six of the largest drug makers – Eli Lilly, Novartis, Novo Nordisk, AstraZeneca, Sanofi, and United Therapeutics – are in violation of the law by refusing to provide discounts for 340B drugs dispensed at community pharmacies. Their actions are so egregious that the top attorney for the Department of Health and Human Services under the Trump administration issued a blistering advisory opinion that found no legal basis for the companies to deny discounts based on where eligible hospital patients receive their drugs. In one of the more memorable lines, then-Health and Human Services General Counsel Robert Charrow wrote: “The situs of delivery, be it the lunar surface, low-earth orbit, or a neighborhood pharmacy, is irrelevant.”

Opposition to the drug companies’ actions is bipartisan: In February, 226 members of the House of Representatives – more than half the chamber – sent a letter about this issue to the acting HHS secretary. “There are no provisions in the statute that allow manufacturers to set conditions or otherwise impede a provider’s ability to access 340B discounts,” the lawmakers state. In an April letter to HHS Secretary Xavier Becerra, six national organizations representing safety-net hospitals and pharmacists urged him to order these drug companies to restore 340B discounts and impose steep fines on them as a deterrent against future violations.

These drug companies’ actions have disastrous consequences for patients who rely on safety-net providers for their care. Take the cost of insulin, the most common treatment for diabetes, which affects more than 34 million Americans. The most-prescribed form of insulin is Humalog, manufactured by Eli Lilly. In 1999, Lilly charged $21 for a vial of Humalog, but by 2019 that price was $332, an increase of more than 1,000 percent. In a recent shareholder report, the company boasted that its profits were higher than expected due directly to its changes in estimates of discounts for diabetes treatments.

There also is clear evidence that the 340B program helps control drug price increases: A study in the Journal of the American Medical Association found that penalties built into 340B for drug companies that hike their prices faster than inflation have curbed some manufacturers’ pricing behavior. The study concluded those curbs had reduced Medicare drug spending by $7 billion between 2013 and 2017. Taking away those penalties can serve only as more incentive for manufacturers to price their drugs ever higher.

America’s pharmaceutical industry can produce amazing results. Witness the development of multiple COVID-19 vaccines in less than a year. But in padding their price hikes by targeting 340B at the same time, manufacturers are putting their drugs out of reach of millions of Americans. Secretary Becerra is a strong supporter of the 340B program, so much so that he led an effort by 29 state attorneys general to demand that his predecessor at HHS take action on this matter. Now that he is in office, we look forward to him bringing this sad chapter to an end.

Maureen Testoni is president and CEO of 340B Health, an association of more than 1,400 hospitals participating in the 340B drug pricing program.

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