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Each week, Health Affairs' Rob Lott brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.
A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.
00;00;00;06 - 00;00;38;18
Alan Weil
Hello and welcome to “A Health Podyssey”. I'm your host, Alan Weil. For more than 30 years, the 340B drug pricing program has offered deep discounts on drugs purchased by providers that meet certain criteria tied in part to serving uninsured or low income patients. The program has expanded dramatically from its humble origins and is the focal point of significant controversy regarding how effectively it achieves its objectives of ensuring access to drugs for low income populations and supporting the institutions that serve them.
00;00;39;20 - 00;01;12;14
Alan Weil
One question about the 340B program is if by providing discounts for certain drugs, it alters the prescribing patterns of participants. In today's episode of “A Health Podyssey”, we focus on one aspect of this question. Does the 340B program deter hospitals from using cheaper biosimilars rather than more expensive biologics? I'm here with Amelia Bond, assistant professor of health policy and economics in the Department of Population Health Sciences at Weill Cornell Medical College.
00;01;12;27 - 00;01;42;05
Alan Weil
Dr. Bond and coauthors published a paper in the May 2023 issue of Health Affairs, exploring whether participation in the 340B drug program influences biosimilar uptake. They found that in hospital outpatient settings, 340B program eligibility is associated with a lower use of biosimilars and more hospital based administrations of and revenues from biologics. We'll discuss these findings and their implications in today's episode.
00;01;42;24 - 00;01;44;27
Alan Weil
Dr. Bond, welcome to the program.
00;01;45;19 - 00;01;46;29
Amelia Bond
Hello. Thank you for having me.
00;01;47;26 - 00;02;10;24
Alan Weil
This is a really interesting and somewhat disturbing paper, I have to say. We're going to get into it here. Now, there are two concepts that I think our listeners have to have at least a basic understanding of in order for the paper to make sense. Let's start with what are biologics and what are biosimilars and how should people think about what those are and why it's important to study them.
00;02;11;25 - 00;02;34;13
Amelia Bond
I think it's first helpful to talk about actually small molecules first in the small molecule market. So a small molecule is one where the active ingredient is what it sounds like, a small molecule. It's typically a pill or a tablet and things you can pick up over the counter or get a script from your clinician and pick up from a local pharmacy.
00;02;34;29 - 00;03;01;10
Amelia Bond
Biologics, on the other hand, are more complex and large molecules. They're typically an injection or an infusion and oftentimes not always, but oftentimes you're going to go to a physician's office or an outpatient department and have a clinician administer them. As the name implies, these medications are made from biologic materials. So things like nucleic acids, amino acids and proteins.
00;03;01;20 - 00;03;29;00
Amelia Bond
And typically, biologics are used to treat severe diseases where just small molecule drugs don't exist. And some examples that you and I are probably very familiar with and listeners are very familiar with are things like vaccines, monoclonal antibodies and gene therapies. As I mentioned before, since these are often administered by a clinician in the Medicare setting, these are then going to be paid for via part B.
00;03;29;17 - 00;04;07;15
Amelia Bond
Now, why me as a health policy researcher and health economist interested in biologics and for two reasons. One, biologic medicines are very expensive. So in 2019, biologics accounted for about 2% of administrations. So overall there are not a lot of them administered, but they accounted for over 40% of spending. One, biologics are very expensive. And the second reason very interested in them is that they are kind of the main reason for spending increases in U.S. drug spending in recent years.
00;04;07;23 - 00;04;36;06
Amelia Bond
So based on our calculation, using IQVIA data, around 83% of drug spending growth was due to biologics between 2015 and 2019. So kind of the high spending, high prices, this is where the concept of biosimilars comes to play, which you can think of as kind of this lower cost alternative to a biologic. But before I can define that a little more precisely, I thought it might be helpful to go back to that small molecule parallel.
00;04;37;00 - 00;05;05;28
Amelia Bond
And as many listeners likely know, when a drug comes kind of first to market, this branded small molecule medication or in the biologic setting, the originator biologic, they're going to come to market and have patent protection. And so the FDA is giving these pharmaceutical companies patent protections so that the first number of years on the market, the pharmaceutical company, can set whatever price they want or the market can bear.
00;05;06;06 - 00;05;30;13
Amelia Bond
And the idea here is we need to provide some incentive for that pharmaceutical firm to make these large investments in research and development and recoup that kind of large expense of developing that medication. So now in that small molecule market, once the patent is up, we have these generic drugs that will generally enter the market pretty quickly. Market shares are going to increase in that price drops pretty precipitously quickly.
00;05;30;24 - 00;05;51;09
Amelia Bond
And so a parallel in the biologic market, we have these biosimilars and I wanted to kind of use a quote from the actual piece of legislation. I believe that defined them. So biosimilar is defined as quote, “a biological product that is highly similar to and has no clinically meaningful differences from an existing FDA approved reference product.”
00;05;51;22 - 00;06;15;25
Amelia Bond
And to date, when the originator biologic patents are up, some biosimilars have entered, but we haven't seen across the board these kind of large market share increases and deep price drops that we might have expected. And in particular the first few biosimilars that entered, we didn't see that as much. And to date there's been a little bit of heterogeneity.
00;06;16;01 - 00;06;24;29
Amelia Bond
And so that leads me to asking why have we seen this? What might account for the lack of deep price declines in market share increases to date?
00;06;26;02 - 00;06;52;18
Alan Weil
Okay. So we have biologics, which account for, as you said, 40% of drug spending, a vast majority of spending growth. We'd like to see biosimilar adoption at lower prices to drive prices down just as we see in the small molecule market. And in comes the 340B program, which is at least as complicated as drug discovery, and we're not going to do it justice here on this podcast.
00;06;53;00 - 00;07;08;04
Alan Weil
But fundamentally, the 340B program enables certain entities to purchase drugs at a lower price. Can you just say a little bit about how hospitals are affected by that program when it comes to biologics and biosimilars?
00;07;08;26 - 00;07;33;14
Amelia Bond
I think it's helpful to start with understanding the 340B program's original kind of intent. 340B program started in the early 1990s and its goal was a good one, is a good one. It's really to support a public good. So supporting hospitals that see a large portion of low income individuals, those typically with Medicaid or no insurance at all.
00;07;34;06 - 00;07;59;23
Amelia Bond
And again, I'm going to quote here, I think this is the original legislation that put this into being. It's, quote, “The purpose is to stretch federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” And the issue that a lot of policy researchers have identified to date is that just the targeting of this program was poor.
00;07;59;29 - 00;08;31;17
Amelia Bond
Now, I'll speak a little bit about that in a couple moments. So the 340B program, it enables participants to receive discounts from manufacturers on almost all drugs administered in the outpatient setting. Now, most of these drugs are biologics, so this is why biologics come into play. These discounts, they must be at least 22% off. A GAO report that is now a little dated found that these discounts can be much higher, as much as 50% off.
00;08;32;08 - 00;08;54;08
Amelia Bond
Importantly, and this gets to a little bit of the targeting. These hospitals receive this discount no matter who receives that drug. So whether a Medicaid or uninsured individual receives that drug, which is the original intent of this program, that discount is had. But that discount is also had if that is administered to a commercial patient where the reimbursement might be much, much higher.
00;08;54;29 - 00;09;20;12
Amelia Bond
Now, in the Medicare setting, reimbursement is not affected in any way so that the 340B participating hospitals receive this discount, but they're going to receive the exact same reimbursement as a non-340B hospital. And I'm going to get a tiny bit in the weeds here, but the reimbursement, and I'll talk about this a few times, reimbursement is the average sales price or ASP plus 6%.
00;09;21;11 - 00;09;46;26
Amelia Bond
And you can think of the average sales price as, for the average hospital, you're going to be paying at cost, the cost of purchasing that medication. And then that hospital is going to receive this kind of 6% profit, 6% kind of revenue for administering that medication. And we did some calculations in the paper to work this out for one particular biologic, which was Infliximab.
00;09;47;05 - 00;10;14;29
Amelia Bond
This is a medication used generally in the long term to treat chronic conditions such as rheumatoid arthritis and Crohn's disease. We backed out an estimate that a hospital would be reimbursed for a one year supply of administering this to one person around $24,000. And to give you a sense that that kind of 6% quote unquote revenue for a non-340B hospital is going to be around 1400 dollars.
00;10;14;29 - 00;10;40;18
Amelia Bond
That's the revenue a non-340B hospital receives. For a 340B hospital who receives a discount, here we're going to estimate somewhere in the middle around a one third discount, that revenue was going to be eight times larger. So around $9,000. So importantly here, the pairing, the discount with the kind of equal reimbursement leads to a much more kind of profit when administering these medications.
00;10;40;26 - 00;10;54;17
Amelia Bond
And the one final thing I'll mention here is that there's no, there's little requirement in how those surplus of funds is used. So, again, that gets to perhaps the lack of targeting of this program.
00;10;55;05 - 00;11;22;07
Alan Weil
So the key issue that you get into in this paper is the question of whether the 340B program affects hospital choices. And to understand how that can play out, you have to understand that it's possible actually to sort of flip the profitability for the hospital to where it's more profitable to prescribe and use the more expensive drug.
00;11;22;22 - 00;11;31;29
Alan Weil
So I'm going to ask you if you can explain how it's possible that a more expensive drug actually leads to the hospital making more money.
00;11;33;12 - 00;12;05;11
Amelia Bond
The key here is the margin or the spread. And here, defining that as the difference between what Medicare reimburses, what Medicare pays the hospital, minus the cost of actually acquiring that medication. And so, as I mentioned before, the payment is this average sales price or ASP plus 6% of the originator ASP. What I didn't specify is that the biosimilar also receives that same 6%.
00;12;05;11 - 00;12;36;12
Amelia Bond
So the ASP will again mimic the cost of whether that is a biologic or a biosimilar. But that 6% is always going to be 6% of the originator ASP. When we come to the 340B and the discounts, the key here is that the discount, if it is larger in absolute terms. So even if that percentage discount is the same, if the discount is larger in absolute terms, then that will lead to the hospital making more money
00;12;36;12 - 00;13;14;23
Amelia Bond
when administering that originally higher priced medication. And again in the paper we run through an example with Infliximab and I won't go through the numbers as precisely this time, but here we can get to a point where it actually, a hospital can receive over $500 more for administering this originator instead of the lower, originally lower priced biosimilar. And want to make kind of two notes here, which is on one hand, there's actually isn't a huge difference, $500, so you can think of a hospital and how large they are or maybe it can become a little bigger
00;13;14;23 - 00;13;33;01
Amelia Bond
when you think of sizable patient populations and maybe ones that use a lot of biologics. The second piece, though, is that we're asking hospitals to engage kind of in this fixed cost to stock another drug, change their order entry, all for a less profitable medication.
00;13;33;28 - 00;14;01;17
Alan Weil
So what we're finding here is that due to the structure of the 340B discounts and the pricing and rebate structure associated with biologics and biosimilars, that it's possible for the margin to be greater for the more expensive drug. And even though maybe not by a lot, if the whole concept of the biosimilar like with generics is to sort of disrupt the patterns of use and of the more expensive drug,
00;14;01;19 - 00;14;48;23
Alan Weil
this is not a scenario where you're getting the kind of disruption that we see in the small molecule side. And this then leads to finding out what actually happened in terms of prescription use and administration of these drugs. We'll talk about your findings after we take a short break. And we're back. I'm speaking with Dr. Amelia Bond about financial incentives in the 340B program as they relate to biologics and biosimilars.
00;14;48;24 - 00;15;14;11
Alan Weil
So before the break, we talked a lot about how the program is structured in the somewhat odd financial incentives that could arise for a hospital. Let's go straight to the findings. You looked at two high volume biologics administered in an outpatient setting. What did you find about levels of use of these drugs in 340B participating hospitals compared to non-340B hospitals?
00;15;15;24 - 00;15;41;01
Amelia Bond
We focused on, as you mentioned, these two originator biologics that experienced the first biosimilar launches in the U.S. We talked a little bit about Filgrastim before, the second one was Filgrastim, which is generally used short term medication used to treat adverse effects of chemotherapy. And what we've found looking at these two medications was pretty sizable.
00;15;41;08 - 00;16;08;14
Amelia Bond
We found that the 340B program was associated with a 22.9 percentage point reduction in biosimilar use. So for hospitals who kind of just missed the cut off and were not eligible to participate in 340B, they administered a biosimilar about one third of the time, whereas hospitals that were just above and able to participate in 340B they instead administered a biosimilar closer to 12% of the time.
00;16;08;21 - 00;16;38;01
Amelia Bond
So this represents a 66% decline in biosimilar use associated with the 340B program. We, in addition to thinking about biosimilar use, we also looked at potentially the incentive to administer more medications overall. As I mentioned before, the 340B hospitals, their profit was about eight fold higher than a non-340B hospital. So we might think 340B hospitals might be incentivized to administer more things.
00;16;38;01 - 00;17;09;01
Amelia Bond
And this follows previous work by a number of colleagues. We found here similar effects. So 340B program was associated with 13.3 more biologics administered annually. This represents about a 77% increase. Face value, 13.3 doesn’t sound like a lot, but recall these biologics are very expensive and these 340B hospitals are more likely to use this more expensive biologic rather than biosimilar.
00;17;09;09 - 00;17;24;07
Amelia Bond
So we also found that the 340B program was associated with around 18,000 more biologic revenue per hospital and again, a 77% increase. So these are pretty sizable effects we found.
00;17;24;24 - 00;17;47;19
Alan Weil
Now, there's nothing in this conversation that takes away from the possible positive effects of the 340B program. I want to be clear, you didn't do a top to bottom assessment of whether or not it achieves its objectives, but this does suggest a pretty sizable response to the financial incentives associated with the program. You've been, I think, fairly direct about those.
00;17;47;19 - 00;18;03;15
Alan Weil
And you mentioned the targeting problem. So maybe if you could just say a little bit more, what do these findings tell you about how hospitals respond to these financial incentives and why that might give us some pause about the current design of the 340B program.
00;18;03;25 - 00;18;30;02
Amelia Bond
Might step back and talk a little bit just about the financial incentives in this setting, which there's been quite a bit of research that has shown in many other settings that providers are/can be responsive to financial incentives. And here again, we see evidence that the profitability of a service or in this case medication, can impact a provider's decision on what to do, or here, what to prescribe.
00;18;30;10 - 00;19;16;07
Amelia Bond
I think it's important to remember in this setting we think that these biologic and biosimilar are clinically similar. However, we're in a setting where we're incentivizing hospitals to make more money. That's not necessarily a bad thing, but it's at the cost of Medicare, higher Medicare spending and most importantly, a larger out-of-pocket cost with consumers through co-insurance. And so we see actually a little outside of the 340B program, if we think that financial incentives can influence whether or not someone uses the biosimilar, that this could be relevant actually to more broadly, the Part B payment schedule, where, as I mentioned before, reimbursement is this ASP plus 6%. For biosimilars,
00;19;16;07 - 00;19;47;08
Amelia Bond
it's this ASP plus 6% of the originator. Importantly, there's no kind of disincentive to administer biosimilars, but this also means there's no incentive to do so. And this is actually unlike the small molecule market where providers are actually financially incentivized to prescribe the lowest cost alternative. So right now, this does not exist in Part B and something we talk about in the paper a little bit is we think this work can support proposals to reform this part B pharmaceutical reimbursement.
00;19;47;08 - 00;20;03;10
Amelia Bond
And in particular we highlight a recommendation by MedPAC that talks about perhaps the consolidation of originator biologic and all biosimilars to be reimbursed at the same rate. And in doing so, this would then incentivize providers to administer the lowest cost medication.
00;20;03;26 - 00;20;29;19
Alan Weil
Maybe as we come to a close. You've raised some real concerns about the structure of the program, the targeting, but also the implications of that with respect to levels of administration and uptake of biosimilar. So given this is an area you focus on, what suggestions would you make with respect to how the 340B program might change to address these problems?
00;20;30;01 - 00;20;55;09
Amelia Bond
We think that the intent of the 340B program is good. We're just concerned that perhaps the targeting is poor. And again, what I want to emphasize in this particular setting, we think that clinical effectiveness is similar. It's really about these incentives where hospitals are making more money, perhaps to the detriment of Medicare spending and consumer out-of-pocket cost.
00;20;55;20 - 00;21;20;09
Amelia Bond
And so what I think about reforms to the 340B program, I think about kind of three different mechanisms to perhaps do better with targeting. And one is perhaps the targeting of hospitals. So first, the 340B program covers almost one third of hospitals. So that's a lot. Perhaps we want to focus this program on more safety net oriented hospitals.
00;21;20;16 - 00;21;50;09
Amelia Bond
And I should say that safety net oriented hospitals, it's not a well-defined concept. So this is something that that a number of researchers are thinking about, including a colleague here at Weill, Will Schpero; One, reform potentially targeting, better targeting of hospitals. Second is perhaps targeting of patients. So right now, the program allows discounted medications to be used for all patients, whether they are Medicaid uninsured or commercial Medicare patients.
00;21;50;29 - 00;22;31;26
Amelia Bond
Here, maybe we target the patients so that only Medicaid or under-insured individuals could receive these discounts. I hesitate here a little bit, however, is because this could be a little difficult to implement and also monitor. When hospitals procure these medications, it's often kind of in big batches. So identifying which medications administered to whom might be difficult. And the final. potential targeting. and this is something that's been part of proposed legislation in the past, is perhaps enhancing the requirements for community benefits and pairing this with monitoring and enforcement.
00;22;32;05 - 00;23;01;05
Amelia Bond
So right now, there's been a lot of good work. Also by coauthor Sunita Desai. There was a group in, led by Sayeh Nikpay, Minnesota, that really shows that 340B hospitals don't seem to be providing any community benefits relative to their non-340B counterparts. So in this proposal would be, why don't we make this requirement to offer more community benefits at a higher requirement and also pair that with some monitoring?
00;23;01;17 - 00;23;28;26
Alan Weil
Well, I appreciate you shedding a light on this complicated issue. I know the feelings among the hospitals are very defensive about the program. And the question really is, as you say, for an admirable goal, how do we use our resources in the most efficient and effective way to achieve that goal? Your work helps us understand where the program is and maybe isn't hitting the mark.
00;23;28;26 - 00;23;49;07
Alan Weil
And for that I am confident it will get significant attention and I'm sure it will be criticized by those who don't like the results. For now, though, I'm really pleased to be able to add this to the growing body of literature on the topic to help guide policy and today I thank you for being my guest on “A Health Podyssey”.
00;23;50;06 - 00;23;50;20
Amelia Bond
Thank you.