Introduction and Episode Overview
[00:00:01] Stacey Richter: Episode 448, Part 2. “Today, I'm Talking 340B with Shawn Gremminger. Why Employers Should Probably Care About What's Happening Here".
To listen to this episode or read the show notes with links mentioned, visit the episode page.
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Listener Reviews and Feedback
[00:00:28] Stacey Richter: First of all, we got two really nice reviews lately. One is from Doug Geinzer. Hi, Doug! Doug wrote, "Relentless Health Value is a must listen. There are just a few podcasts that I listen to religiously and Relentless Health Value is one of these." He goes on to say we have a knack for finding the brightest of the bright and asking the right questions to unpack the reason healthcare is where it is and explore the real solutions of what we need to do to fix it.
Second review we got this month is from Mike 33754. Who kept it short and sweet. He said great stuff. Thank you for your work. Thank you for listening. Mike. 33754.
As you may have heard already, because you are in the know and or you read the email I sent because you ahem have chosen to subscribe to our weekly emails. That was a subliminal suggestion. For those of you who aren't subscribed to our weekly emails, by the way.
340B Program Overview
[00:01:20] Stacey Richter: Or maybe you're in the know because you listened to Part 1 of this conversation with Shawn Gremminger. But no worries, because here's the scoop. The scoop is, after some pondering, I decided to release this 340B extravaganza of a conversation with Shawn Gremminger in two parts. So listen to one, listen to both, pick your poison.
These shows aren't particularly sequential. You are currently tuned in to Part 2. And you can, for sure, start here.
Impact of 340B on Employers
[00:01:47] Stacey Richter: Right now, we are going to talk about how 340B impacts employers and commercial plans and other plan sponsors. So if all you want to hear about is the why, as in why do employers care about what amounts to a program that is or was supposed to be for low income Americans and Medicaid, you are in the right place.
As just one example of the why should employers care if you are teetering on the edge of proceeding, did you know that if an employee or a member of a commercial plan gets a drug at a contract pharmacy participating in 340B, the employer does not get the rebate? The employer is going to pay the list price for that med.
Wait, what? Yeah, details follow because Shawn Gremminger is going to get into this and many other reasons why employers or anyone in the commercial market, or taxpayers really. Should care about this, as some may call it, Medicaid program. The fact is, 340B is currently so gargantuan that it creates market distortions that bleed into the prices and possibly the quality of healthcare for everybody, all Americans.
And that could really matter to employer or Taft Hartley plan sponsors. If you have really zero idea of what 340B is beyond some program that was supposed to be safety net hospitals buying drugs low and selling them high and then taking the dollars in the middle and using them to support underserved patient populations, that might actually be sufficient.
You got the gist of it. But after you listen to this show, if you want to drill in a little deeper on the what the what and the history of 340B. Head back and take in Part 1 of this episode 448, Shawn Gremminger gives the skinny on how the program morphed over the years into a $53 billion juggernaut and is credited or blamed for all kinds of healthcare market consolidation and many other weird and unusual consequences that make me admire some of the folks who are truly gold medal winners in the sport of financial engineering.
Before we kick into this fast moving convo, I just want to point out a few interesting 340B posts and tweets and articles that I will link to in the show notes. The first one is from Dr. Anthony DiGiorgio talking about the recent announcement by one 340B covered entity hospital to stand up a film studio.
I guess it could be deemed an educational endeavor that may or may not be considered charity. But yeah, I too have questions. Then there is a new report out from Neal Masia and Health Capital Group that found that state Medicaid spending increases as the number of 340B sites per capita rises, adding about $30 billion a year in excess costs when spread across the country.
Shawn and I both mentioned the study in the conversation that follows. Additionally, the Avalere/Community Oncology Alliance study has come out and that shows how closely tied PBM affiliated pharmacies are to the 340B program. And now I'm going to quote Brian Reid, who wrote in his really great newsletter.
He wrote, “My gut says that wherever you stand on 340B, you probably feel uncomfortable with the idea that the program is padding the bottom line of PBMs". Link in the show notes. So look, probably the most damning 340B studies lately have been funded by pharma, but again, I like how Brian Reid puts it.
"Talking about 340B research sometimes feels like watching one of those true crime shows where the circumstantial evidence is overwhelming. And yet, there's no definitive answer to the whodunit. Sure, there's a motive, and an opportunity, and a questionable alibi, but with no smoking gun, the case hangs in the balance. However, given all the other circumstantial evidence in the case, it sure seems like this is a problem even without a smoking gun."
And lastly, a link to some comments by Adam Fine on 340B, which Shawn mentions in this episode. Also a study by Zack Cooper. I'd also mention that this episode, both Parts 1 and Part 2, is kind of a companion to the recent episode 444 with Anne Kempski. Both could probably have the subheading, “Welcome to Policy Surprise Valley, When Things Don't Turn Out As You Thought They Would.” Now, this said, policies always require some trial and error. We cannot forget that, especially in healthcare where gamesmanship has become a fine art and the spirit of the endeavor is often nowhere to be found in how organizations choose to extract financial incentives.
If you want a summary of the points Shawn makes for why employers should care, it is your lucky day, because here you go.
Market Distortions Caused by 340B
[00:06:21] Stacey Richter: Here's the four distortions in the market that Shawn talks about which impact employers. Number one, 340B contributes an incentive for hospitals to consolidate and consolidation is known to drive up prices that employers will pay for their health care.
Second distortion. Turns out, 340B covered entities actually mark up drugs more than non 340B entities. Weird. So 340B hospitals buy drugs cheaper and they sell them for more.
Three, distortion. 340B hospitals have said, flat out, at summits and elsewhere, they will do formulary machinations so as to ensure clinicians prescribe the most profitable drugs, ie, the ones with the best 340B discounts. So as to make the most money possible. This gets really interesting when you layer in the IRA, the Inflation Reduction Act. Quiet part, literally said out loud at a recent summit, is that some 340B entities are busy cooking up ways to move patients off of the IRA drugs to get them on non IRA drugs so that they can continue to make the same money off of 340B.
Sometimes I just close my eyes and slip slowly off my chair onto the floor.
Market distortion number four. When employees get drugs at a 340B contract pharmacy, the employer does not get the rebate, the hospital does. Oh wow.
So kind of taking it from the top here, the two really big takeaways for employers in this show, Part 2 here, is number one, this is not cost neutral for employers, this whole 340B thing.
And the last takeaway is that 340B is not this little thing that everybody pats on the head and chuckles about, like it's some kind of reality TV where the PBMs and pharma point fingers at each other and it's just dramatic and hilarious. 340B is now so huge, that it is sitting at the center of the drug pricing debate.
It is not this tangential little side scuffle. It has a center of gravity that pulls 340B onto the main stage. And anybody trying to figure out drug pricing really has to be aware of what's going on here.
Shawn Gremminger's Insights
[00:08:16] Stacey Richter: Shawn Gremminger, my guest today, is the relatively newly installed president of the National Alliance of Healthcare Purchaser Coalitions.
But rounding out the why, as in why did I ask Shawn to come on the show today and talk about what is or was supposed to be. A program for low income adults and children, Shawn started his career doing government relations for the Children's Hospital Association. He spent nine years at America's Essential Hospitals, which represents the big kind of urban safety net public hospitals around the country.
And since then, he has been in a number of different roles representing consumers and employers. So he's seen this 340B juggernaut from many perspectives, I guess, is the main point. And it's a big point because it was hard with a capital H to find a guest so situated.
My name is Stacey Richter and this podcast is sponsored by Aventria Health Group.
Shawn Gremminger, welcome to Relentless Health Value.
[00:09:10] Shawn Gremminger: Delighted to be here, Stacey.
[00:09:11] Stacey Richter: Why do employers care about 340B? Which is a Medicaid program. So like maybe we can just start there briefly.
[00:09:19] Shawn Gremminger: People are asking all the time. Why exactly are you guys interested in this issue?
The question of why we care about 340B really goes back to what our central role is at the National Alliance, which is to help employers and purchasers on purchasing higher value, by which we have a very sort of straightforward framework. To us, value equals the cost of care divided by quality with a real keen interest on making sure that we're promoting health equity, right?
And any policies or any underlying market dynamics that make it harder for employers and purchasers to purchase high quality, low cost healthcare is something that we're going to focus on. What we found is that 340B, which theoretically should have absolutely nothing to do with us, has grown to the point that it's now highly distortive in the commercial market.
And we have, I think, very strong and clear evidence that this program, as well intentioned as it is, is in fact significantly driving up the price of pharmaceuticals that employers and purchasers purchase on behalf of their employees and covered lives. But also even on the medical care side, and there's a lot of reasons for how that has happened sort of through the downstream effects.
[00:10:30] Stacey Richter: And I guess that's excellent foreshadowing for the conversation that we're going to have today. We had talked earlier and you had come up with what I'm going to call three takeaways. Just three ways to kind of organize what's going on with 340B, which I think is really necessary in a conversation that can be such a hairball.
I mean, this is such a big, many pronged demon of a topic. The first takeaway that you had put forth is the original or maybe not quite original, intent of the program, there's some doubt that it's being met.
I mean, who knows, because there's no systematic way to evaluate whether these 340B dollars are in fact being applied to help underserved communities. But I just want to tee up takeaway two with a question for you. So moving on from question mark with whether this program is actually delivering on its original intent. That's number one.
But number two here is unless I'm pharma, maybe a pharma manufacturer who's funding all of this, why do we even care? I mean, patients largely are paying the same if they would, if there was no 340B discount and the dollars are coming out of pharma's piggy bank and arguably the hospitals are local businesses, right?
So like, do I care if the dollars are being taken out of pharma's pocketbook and put into a business in my local community, ie, the hospital, which employs a lot of people? I mean, like, is this third party transaction that has nothing to do with anybody else of really any concern? I mean, I could consider it a wealth transfer between titans of the industry and my local community,
[00:12:12] Shawn Gremminger: It's a, it's a great question. So I think two perspectives. One, if you're a patient and consumer advocate, you should care from the perspective of the fact that this is a, as you said, it's a wealth transfer from pharma to hospitals, but if low income patients, uninsured patients, underserved communities aren't actually benefiting, you should care for that reason alone, right?
And that's where the focus, I think, is for a lot of folks in the kind of patient and consumer community, which is like, wait a minute, why are we getting nothing out of this that we can discernibly find? I think from the employer purchaser perspective, which is where I sit at the National Alliance, the reason we care is the significantly growing set of data and information that shows that we are uniquely paying higher prices for drugs and medical services because of 340B.
If this didn't cost us anything and it was just sort of a misaligned program that didn't help patients, but it sort of left us harmless, I probably wouldn't be focusing on this. But what we're finding is that in fact there are a couple of downstream effects that are significantly impacting us as people purchasing drugs and medical services that are caused by the distortions in 340B.
So, the first one is kind of the supercharged consolidation, as I put it. There already would be a lot of consolidation in the healthcare system for all kinds of reasons. A big one being, you know, the lack of site neutral payments in Medicare, as we know is a significant driver of consolidation.
But when you look at these, these substantial benefits that can be accrued to a 340B hospital by buying up physician practices and then engaging in price arbitration on their drugs, we know that's a substantial driver of consolidation. And that consolidation doesn't just increase the prices that we're paying for pharmaceuticals in those clinics, increases the prices we're paying period, right? Because as hospital systems get bigger, they have substantially more leverage in their market, they're able to demand higher prices. And obviously there's literal mountains of data that shows that hospital consolidation drives up prices.
[00:14:11] Stacey Richter: So that's distortion number one. And yeah, there is mountains of data that hospital consolidation drives up prices with no appreciable, discernible increase in quality.
And this matters to employers because usually the majority of spend on any employer's health plan goes to hospitals. It's usually like 55 or 58 percent of total employer healthcare spend. There was also a study that just came out by Zack Cooper, we'll link to it in the show notes, for every point of increase in hospital prices, non healthcare employers responded by reducing their payroll and cutting jobs of middle class workers.
Okay, so we definitely have a first distortion consequence for employers. 340B may trigger more consolidation, this could drag up prices for employers.
What's distortion number two?
[00:15:04] Shawn Gremminger: Number two, interestingly, is we're seeing distorted prescribing and pricing patterns at 340B hospitals. It isn't just that hospitals are able to purchase at a discount and then sell at the market rate, that's the arbitrage, but that we're finding that actually 340B hospitals tend to mark up their prices even more than non 340B hospitals.
So there's a certain level of kind of greed here, right? When you could be marking up to X, but you're actually marking up to X times 1.5, even though you're already getting a larger discount than anybody else. The other thing we're finding is that 340B clinics are more likely to prescribe higher priced drugs, than non 340B clinics, which again, makes a lot of sense if you kind of look at what the profit motivation is if the money is made on the spread. So, you know, if given the option of prescribing a $200 drug or a $500 drug, what we're finding is that 340B clinics tend to prescribe the $500 drug disproportionately compared to a non 340B clinic, whether that's a independent practice that isn't in 340B or is a non 340B hospital clinic. We're seeing a different prescribing pattern.
And then the last one is, kind of interestingly, and I find myself in an interesting place on this because the National Alliance has been one of the more vocal critics of the PBM industry, when a drug is purchased through the 340B channel rather than the more traditional channel, the employer loses the discounts or the rebates typically negotiated by PBMs, right? So, we could do a whole other podcast on our concerns around PBMs and the way that they operate and the fact that they're not meeting the needs of employers and purchasers and they're finding ways to make a lot of money off of us.
But, it is true that PBMs negotiate rebates, a substantial portion of those rebates are passed on to employers and purchasers, and so our net price for a particular drug, a particular unit, is lowered at least through that rebate. Again, lots of other games being played here, but we know kind of what that negotiated price is.
In 340B, there are no PBM rebates, right? There's no PBM in the middle, other than actually kind of one PBM that is contracted. It's, called a prime vendor. But the rebate is, it's one big rebate that's passed on to the hospital. That's where the 340B price comes in. So, when we are purchasing the drug through the 340B channel, we lose access to all of our rebates.
So inherently, all the drugs that we're buying, are without a rebate, the rebate has been passed on to the hospital, we're paying more every time. So as more and more drugs flow through the 340B channel, all of those rebates disappear from the perspective of the employer and purchaser. We're working to do a more systematic assessment of exactly how much money employers and purchasers are losing because of 340B.
Obviously it's complicated. There's a lot underneath there. All of what I'm saying is, you know, well documented and is in very kind of clear directionally knowing that this is happening. Hopefully in the next six months, we will have more information that specifically is able to identify here's how much more employers and the commercial market are paying uniquely because of 340B.
Key Takeaways and Conclusion
[00:18:17] Stacey Richter: So let me recap the four distortions that you just illuminated here. The first one is 340B in and of itself is a driver of consolidation because hospitals want that additional spread on the buy in bill on the medical side, they can get pharmacies and they can get dollars from the pharmacy, but additionally, consolidation drives up prices because, hey, you can charge a facility fee. So like, if you're thinking about this from the patient or the employer or the ultimate purchaser standpoint, prices just went up. I mean, I've heard studies ranging from when there's consolidation in a marketplace, prices go up 5 percent to 23%.
So like, this is meaningful if you're thinking about it from a commercial standpoint. That's the first thing, the first distortion, just this consolidation. The second distortion is these hospital systems are actually marking up the drugs more for patients, which is, question mark, you know, who thought that was a good idea? If you're thinking about it from a patient standpoint and you're claiming that you're a non-profit serving patients.
Number three, they're more likely to write high priced drugs, and you see that, like, said out loud. I mean, say in quiet part out loud, like, there was just a summer summit of 340B entities where it was pretty flat out said, like, we're not going to prescribe drugs that are in the IRA, that have the IRA price.
Right? Because we don't make as much margin on those. We don't make as much spread. So we're going to buy 340B drugs that are not covered by the IRA. We're going to, you know, move patients over to the non IRA drugs so that we can make more money. I mean, like, nowhere in there is it like, what's best for the patient? I don't know, I hesitate to make any speculation, but it's unpalatable on its face.
And then number four, is just this whole other thing, if we're thinking about this from an employer standpoint or a commercial standpoint, the fact that list prices are super high, the claim is the gross to net bubble. What's the gross to net? Employers are only paying the net price. Well, if the drug is purchased by a hospital system or dispensed by a hospital pharmacy, you know, a, a contracted pharmacy, the employer's paying the list price and they do not get that rebate because the rebate then goes to the hospital system.
So there's a lot going on here. Some of the studies that show this are in fact funded by the pharmaceutical industry, so you certainly can take them with a grain of salt. As you just said, I really like how Brian Reid put it. He's got a newsletter, what he says is given all of the circumstantial evidence here, it sure seems like there's a problem even without a smoking gun.
Okay, so recapping the entirety of this discussion, both Parts 1 and Part 2, we have had two big old takeaways so far, and now I'm going to tee up the third one. But taking it from the top, takeaway one, unintended outcome here that may or may not align with the original intent. Takeaway two is, anybody with commercial insurance, patients are actually potentially paying more.
The takeaway number three is kind of a little bit of this blame game that winds up getting played out, you know, like generally speaking in the pharmaceutical market, there have been just fingers pointing between PBMs and pharma. And the third takeaway that you have pointed out is just stop thinking about it that way. What do you mean by that?
[00:21:43] Shawn Gremminger: Well, what I mean is it's both, as you know, as you said, you know, often when we talk about drug pricing, there is this sort of blame game. It's pharma versus PBMs and everybody is expected to pick a side, which of course I've recommended to all of our employers, like don't pick a side.
There's plenty of blame to go around. And in this case, it's often, you know, it's pharma versus hospitals. And, you know, you don't need to take a side in that case either, right? The thing about 340B that I've noticed, again, in spending a lot of time talking to policy experts, to advocates, to people on The Hill, is they tend to think of it in these black and white scenarios, and they tend to carve out 340B as a separate thing?
So they'll spend a lot of time saying, okay, we've got to work on drug pricing, we've got to work on the reasons why drug companies price their drugs so high, and the patent gaming, etc. Or we've got to focus on, you know, what PBMs are doing and how they're driving up the price of drugs.
And then almost nobody thinks about 340B, right? There's a set of 340B people that this is all they think about. They think about it all the time. But it's always this sort of carved out space where even other people who know drug pricing well, I think because 340B is so different and so complex, they just sort of mentally or maybe very intentionally kind of carve it out and say, I don't know how to deal with that.
And my, my plea to employers, purchasers, policy experts, you name it, is you gotta stop thinking about 340B as being a different thing, right? Like, when it was a $5 or $10 billion dollar a year program, you'd be like, Yeah, it's this little thing over there, it probably has some effects, it's not a big deal. And that really would have been fine.
But now that it's the second largest purchasing program in the country, it is clearly driving business decisions by manufacturers who are probably, I would expect, pricing their drugs at a higher price than they otherwise might because they know it's going to have a 340B discount. They've got to account for that.
It's affecting decisions by PBMs in the way that they interact with 340B, including the PBM that is the prime vendor of 340B. Basically, they're sort of the middleman that you can use if you're a hospital. It's affecting behavior by pharmacies and all the chain pharmacies that are now in the middle of this program as contract pharmacies.
It's affecting mail order pharmacies, it's affecting the way that employers and purchasers engage in the way that they purchase drugs. So we need to think about 340B as sort of sitting at the center of the drug pricing debate and not think of it as some other special thing that we can't quite touch because we don't understand it.
And this is part of kind of the mission that I'm trying to be on is to say like, alright guys, let's get educated on this program because you can't really understand what's going on in the drug pricing world. If you don't understand what's going on in 340B and you don't understand interlinkage between this program and everything else.
Closing Remarks and Next Steps
[00:24:18] Stacey Richter: Which is probably a great place to end this conversation on that kind of call to action. So Shawn Gremminger, is there any place that you would direct people who want to learn more about this?
[00:24:29] Shawn Gremminger: Sure. I mean, a couple of places. One, the National Alliance is going to be spending a lot more time focusing on and thinking about 340B.
So do expect to see more coming out from us. Our website is NationalAllianceHealth.org and over the next six months plus, you will be seeing a lot more on kind of the employer purchaser perspective on 340B and what changes we think need to be made. I'm sure many of your listeners go to him, but Adam Fine does a very nice job of helping to understand the program.
And I think I have not talked to him about this particular issue, but I think he's, he's in the same place as I am of saying, you got to think about 340B in the same way that you think about all of the other issues that are affecting drug pricing.
[00:25:05] Stacey Richter: So Adam Fine. Shawn Gremminger, thank you so much for being on Relentless Health Value today.
[00:25:10] Shawn Gremminger: Thank you so much, Stacey. It's been an absolute pleasure.
[00:25:12] Stacey Richter: Okay, you have just listened to Part 2 of the 340B conversation with Shawn Gremminger from the National Alliance. Wherever you get your podcasts, if you haven't already listened to it, you will find Part 1 at the ready for your continued listening pleasure.
In part one, we talk about how the 340B program came to be to begin with. And spoiler alert, it's not the reason that most people think is the reason. Thanks so much for listening.