Abstract
Importance
Pharmaceutical manufacturers rarely reduce drug list prices, but 3 expensive treatments for hepatitis C experienced significant list price reductions in 2018. Understanding the impetus for these price reductions could inform policies to reduce drug spending.
Objective
To estimate the differences in manufacturer and health care organization revenue from the Medicare Part D program following list price reductions for hepatitis C treatments, accounting for manufacturer discounts to eligible health care organizations under the 340B drug discount program and manufacturer rebates to pharmacy benefit managers.
Design, Setting, and Participants
A cross-sectional analysis of Medicare Part D claims for hepatitis C treatments in 2016 was conducted. Data analysis was performed in February 2019. Using the observed price changes from 2018, manufacturer and 340B health care facility net revenues for each drug were estimated before and after the price change based on 2016 use, adjusting for estimated 340B health care organization discounts and pharmacy benefit manager rebates. The 340B health care organizations include hospitals, clinics, and other organizations that meet federal standards to participate in the 340B program and were actively enrolled in the 340B program from January 1 to December 31, 2016. Manufacturer discounts to 340B health care organizations are based on the price of a drug before rebates to pharmacy benefit managers, and a reduced list price would reduce discounts to 340B health care organizations. Health care organization–level claims data were obtained from the Medicare Part D Provider Utilization File, and health care organizations were matched to Health Resources and Services Administration Office of Pharmacy Affairs Information System to identify 340B-eligible health care organizations. Eligible claims included claims for ledipasvir with sofosbuvir (Harvoni; Gilead Sciences Inc), sofosbuvir with velpatasvir (Epclusa; Gilead Sciences Inc), and elbasvir with grazoprevir (Zepatier; Merck). Health care organizations were considered 340B eligible if their practice address was a registered 340B entity for the entirety of 2016.
Main Outcomes and Measures
Discounts to 340B health care organizations and pharmacy benefit managers for each drug before and after the price change were the primary outcomes. Other outcomes included per-treatment and aggregate manufacturer and 340B health care organization net revenues for each drug before and after the price change and the share of claims prescribed by 340B health care organizations for each drug. Per-treatment manufacturer net revenues were estimated for 340B health care organizations, non-340B health care organizations, and a weighted average revenue across health care organization types.
Results
The 3 hepatitis C treatments evaluated had 30% to 41% of claims prescribed by 340B-eligible health care organizations, greater than the 14% 340B prescribing rate for all Medicare Part D drugs. Based on use data from 2016, list price reductions for hepatitis C treatments in 2018 were estimated to have increased aggregate manufacturer net revenues for 3 treatments by $181.9 million—a 28% increase. Aggregate 340B health care organization net revenues were estimated to have been $181.9 million lower—a 74% decrease.
Conclusions and Relevance
List price reductions for hepatitis C treatments may have increased drug manufacturer net revenues, owing in part to lower discounts provided under the 340B program and the high share of sales subject to those discounts. Policymakers should consider the role of 340B discounts when evaluating policies to reduce drug spending.
Introduction
Three hepatitis C (HCV) direct-acting antiviral curative treatments (ledipasvir with sofosbuvir [Harvoni; Gilead Sciences Inc], sofosbuvir with velpatasvir [Epclusa; Gilead Sciences Inc], and elbasvir with grazoprevir [Zepatier; Merck]) experienced price reductions of 60% or more in the second half of 2018.1,2 Price decreases for brand-name drugs are rare; even after generic competition, manufacturers of brand-name drugs increase the prices.3 Although pharmacy benefit manager (PBM) rebates may offset increases, some argue that such rebates drive price increases.4 Concurrently, manufacturers argue that the 340B drug pricing program (340B program), which allows federally designated health care organizations to purchase discounted drugs, drives price increases by reducing manufacturer revenues.5 We conversely hypothesize that the combination of PBM rebates and 340B discounts has driven price reductions in the HCV treatment market, as manufacturer revenues are actually greater following price reductions.
The 340B program was established in 1992 following changes in the drug market after the establishment of the Medicaid Drug Rebate Program.6 The Medicaid Drug Rebate Program uses a formula to determine the net price of drugs for the Medicaid program, and that formula requires drug manufacturers to extend the best price offered to any commercial purchaser to the Medicaid program.7 Following the introduction of the Medicaid Drug Rebate Program, manufacturers were less willing to provide discounts to safety-net institutions and government purchasers because a single discount to one health care organization could reduce the manufacturer’s net revenue for all Medicaid purchases.8 To fix this unintended consequence, in 1992, Congress passed a series of exclusions from the best price requirement, identifying a variety of health care organizations and government agencies to which manufacturers could extend discounted pricing without triggering best price. As part of this carve-out, Congress required manufacturers to extend net Medicaid pricing (340B discount) to these identified 340B health care organizations (separate discounts were established for government purchasers). The 340B health care organizations include hospitals, clinics, and other facilities that meet federal standards to participate in the 340B program. Currently, these discounts are at least 23.1% of a brand-name drug’s average manufacturer price,9 which approximates the list price for brand-name drugs10; these discounts are greater if the manufacturer has increased prices higher than the rate of inflation.11
The 340B statute identifies which health care organizations are eligible to participate in the program; the largest share of discounted 340B sales is to disproportionate share hospitals,12 a federal hospital status based on the number of Medicaid patients served by the hospital.13 Other 340B-eligible health care organizations include federally qualified health centers; health care organizations participating in the Ryan White program, which funds HIV care; family planning health care organizations; and hemophilia treatment centers, among others.14
When a 340B-eligible health care organization purchases a drug under the 340B program, the manufacturer must sell that drug to the facility at the discounted price.15 When the health care organization bills an insurer for that drug, however, it is not required to bill the insurer at the discounted cost of the drug, allowing 340B health care organizations to bill insurers at the undiscounted rate. The difference between the discounted purchase price and the reimbursed price is retained by the 340B health care organization and is intended to allow those facilities to “stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”16
Pharmacy benefit managers are contracted entities that administer the prescription drug benefit of health insurance.17 Among other functions, PBMs generally are responsible for creating the drug formulary for a given insurance plan, establishing coverage, patient cost-sharing, and use management. In this role, PBMs negotiate with manufacturers for rebates to offset drug costs, using the leverage of formulary inclusion, patient costs, and management of use. Under this model, the PBM will reimburse a pharmacy for the full cost of a drug but receive a rebate from the manufacturer to reduce the PBM’s net cost for the agent. In competitive drug classes, PBM rebates can exceed 50% of the cost of the drug.18
When a 340B health care organization is reimbursed by a PBM for the undiscounted cost of a drug, the manufacturer must generally pay the PBM the standard negotiated rebate for that drug to offset the PBM’s costs, even though the manufacturer sold the drug to the 340B health care organization at a discounted cost. If PBM rebates are high and 340B sales are a significant share of total sales, these combined discounts could significantly reduce net manufacturer revenue. In the HCV market, where both of these conditions appear to be true, we hypothesize that the manufacturer may prefer to reduce the list price of the drug, reducing both the 23.1% 340B discount and the PBM rebate payment. The Figure shows a simplified example of these transactions, using a hypothetical $100 drug with a $50 PBM rebate.
Key Points
Question
Did drug manufacturer net revenues increase after list price reductions for hepatitis C treatments, accounting for changes in pharmacy benefit manager and 340B drug pricing program discounts?
Findings
In this cross-sectional analysis of 112 630 Medicare Part D hepatitis C treatment claims for 3 drugs in calendar year 2016, estimated manufacturer net revenues increased by 28% after manufacturers reduced the list price of these treatments. Net revenues for 340B health care organizations for these 3 treatments were estimated to have decreased by 74% after these list price reductions.
Meaning
Manufacturer drug pricing decisions may be associated with the proportion of sales subject to both pharmacy benefit manager and 340B drug pricing program discounts.