Two simple fixes for higher drug prices

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OPINION—There are many barriers to equitable health care in California, the cost of prescription drugs being central among them. As legislators and advocates for the state’s underserved populations call for solutions, however, they’re overlooking two easy options that can make a big difference.

One of the biggest problems involves misuse of a program meant to make medications more affordable —the “340B Program.”  It was created to help the most vulnerable get access to medicines by providing covered entities (hospitals) with discounted drugs. Due to a lack of transparency, however, some large players in the healthcare system are choosing to profit at the expense of patients.

These bad actors buy deeply discounted prescription drugs and instead of passing the savings to patients, they charge higher prices and pocket the difference. There’s very little evidence that any financial relief from 340B has benefited patients, but many examples of hospitals and contracted pharmacy partners benefiting from the profits. As evidence, a study by the Drug Channels Institute estimated CVS Health, Walgreens, Cigna and UnitedHealth collectively made $3.2 billion and $2.9 billion in 2022 and 2023, respectively, in profits from the 340B program.

This kind of incentive, coupled with no actual requirement that hospitals use the discounts to help low-income patients, has fueled growth in the 340B Program. The number of participating hospitals and pharmacies has grown 500% in the past 15 years—340B is now the federal government’s second largest prescription program. Yet only 35% of 340B hospitals serve underserved areas.

Worse, of the 1,240 audits conducted on covered entities by the federal Health Resources and Service Administration (HRSA) between 2012 to 2019, roughly 75% found noncompliance with 340B Program requirements. Of those, 429 found noncompliance related to duplicate discounts, meaning drug manufacturers were effectively double-discounted on the same drug—a direct result of covered entities failing to maintain the basic safeguards the program requires. This kind of mismanagement erodes the financial foundation of a program meant to serve the most vulnerable patients. The 340B Program should be a lifeline for impoverished patients, but instead, it’s failing them, and it’s time for reform.

For lawmakers demanding more health care access for the underserved, a simple solution is legislation requiring more accountability and transparency. Let’s ensure 340B benefits reach the patients who need them most. While several reform measures have been floated, however, lawmakers have so far taken no action.

In a similar fashion, prescription drug middlemen called “pharmacy benefit managers” (PBMs) have been an upward driver of drug costs for years. PBMs operate with minimal oversight to take advantage of deep discounts and rebates from drug manufacturers that are not passed to consumers.

PBMs also play an outsized role in what patients pay for medications. They negotiate rebates and formularies on behalf of insurers and employers, decide which drug plans cover, and manage pharmacy networks.

Pharmacies that cannot meet PBM demands are unable to acquire the drug, depriving patients of the treatments they need, and fostering the disappearance of community pharmacies—typically in rural or underserved communities.

If the rebate system functioned properly, patients would enjoy reduced prices for medications—discounts that could mean the difference between getting medically necessary prescriptions that improve health, and being unable to afford or access medication.

Fortunately, California has found a solution the feds should emulate. California passed a law last year banning spread pricing (where PBMs charge plans more than pharmacies receive and keep the difference), mandating 100% rebate pass-through to payers and  imposing strict transparency requirements.

The good news here is that federal legislation, in the form of the PBM Reform Act, is moving through Congress, and our California Congressional delegation should be 100% behind it. If passed, the Act would increase transparency, restrict certain PBM compensation practices, and ensure negotiated savings are ultimately passed to patients.

Patients throughout California and the U.S. already face huge health care access barriers. Artificially high drug costs needn’t be one of them any longer. It’s time for simple, but impactful reforms that align incentives towards patient affordability and positive outcomes rather than profits.

Julie Gill Shuffield is the California executive director of Patients Come First.