Competing policy efforts to lower drug prices could muddy the waters of drug pricing and leave patients unable to afford their prescription medications.
After decades of U.S. citizens paying over double the price for prescription medications compared to other countries part of the Organisation for Economic Co-operation and Development (OECD), the Inflation Reduction Act (IRA) was introduced and codified in 2022, allowing the government to negotiate lower drug prices with pharmaceutical companies.
The IRA is intended to protect Medicare patients, who include people over the age of 65 as well as those with disabilities and other conditions. Under the IRA’s rebate program, drug companies must pay a fee if they raise the medication prices faster than the rate of inflation.
Drug companies are essentially forced to abide by the IRA’s price negotiations due to the swath of 70.1 million Medicaid recipients who populate the market. By not participating in the IRA, pharmaceutical producers forgo tax credits, subsidies and possible funding, missing out on vital profits that can be gained by remaining in the industry.
340B, which takes its name from Section 340B of the Public Health Service Act (PHSA), is a separate prescription drug pricing program that sets a discounted price ceiling on medications purchased by safety-net hospitals, providers committed to providing care regardless of the patient’s ability to pay. The goal is for those health systems to use the unspent funds altruistically and deliver care to vulnerable communities.
While the IRA primarily assists Medicare beneficiaries with high drug costs, 340B functionally targets Medicaid and its beneficiaries, who comprise a separately insured group including patients in low-income brackets, pregnant women, disabled people or those in a certain age range, though eligibility rules vary based on the state.
In practice, hospitals under the 340B program have drawn scrutiny for a lack of transparency in how they utilize those savings. Hospitals’ use of partnered contract pharmacies to stock and deliver more discounted drugs has resulted in duplicate discounting, where 340B rebates are given to hospitals on top of Medicaid’s independent discount program for the pharmacies. Financial oversight is flimsy, with a 2023 study finding that while some 340B covered entities extended their reach to underserved populations, many displayed rent-seeking behaviors, migrating their care to wealthy areas and making acquisitions of private practices to boost profits.
340B and the IRA have conflicting provisions that make predicting drug prices difficult, as medications overlapping in both programs will have maximum fair prices set by the IRA. The reimbursed money to 340B entities can then be reduced, lowering the savings they might otherwise have used on outreach.
Reduced savings often accelerate vertical integration in 340B hospitals, where they agglomerate smaller firms and add layers of complexity in prescription purchasing. Middlemen in vertically-branched health systems upcharge for a drug at every level, with little oversight preventing them from pulling unexpected profits.
If hospitals decide to avoid IRA-negotiated drugs altogether rather than pulling them into these complex, vertically-integrated supply chains, the populations they serve will lose access to critical drugs at prices that should have been more acceptable, having an opposite effect from what the law intended.
Pharmaceutical companies have prompted the scrutiny of 340B hospitals through ad-funded smear campaigns. While some reports of financial abuse of savings are valid, there is skepticism regarding the extent that safety net hospitals are responsible for financial waste in the health sector.
Oversight of 340B-qualified entities should be amplified following the IRA’s full implementation, but pharmaceutical companies should be investigated equally, as their stake conflicts with the interests of protected hospitals.
Ultimately, patients are the ones the system should serve. With uncertainty in the future, contingency steps should be taken to protect those enrolled in 340B health systems before sweeping changes are fully implemented.
