Kim
Hello, everyone. I’m Kim Thiboldeaux, and welcome to this episode of NEBGH Voices. I’m delighted to have you with us today for a timely conversation on the 340B program and what it means for employers navigating pharmacy costs, transparency, and an increasingly complex healthcare landscape. I’m pleased to welcome Shawn Gremminger, President and CEO of the National Alliance of Healthcare Purchaser Coalitions. Shawn brings deep policy expertise and extensive experience working with employers, coalitions, and policymakers to advance high-quality, affordable care and has been closely engaged in issues like 340B, the drug supply chain, and employer-sponsored coverage. I’m also happy to share that NEBGH is a member of the National Alliance. Shawn, thanks for joining the conversation today.
Shawn
Thanks so much, Kim. Delighted to be here.
Kim
Well, so Shawn, let’s jump in, but I think to start us off, can you briefly introduce the National Alliance to our audience and the role you play in representing employer coalitions across the country?
Shawn
Sure, thanks so much. So, the National Alliance is a 501(c)(6) trade association based here in beautiful Washington, D.C. Our direct members are the 40+ regional employer purchaser coalitions, of which NEBGH is one. In fact, NEBGH is one of our largest and oldest members, going back quite a few years now. You take NEBGH, we’ve got the Midwest Business Group on Health in Chicago, the Florida Alliance for Healthcare Value in Florida, Washington Health Alliance out in the Pacific Northwest. All of them are a little bit different, but our role at the National Alliance is to help bring together the collective voice of employer purchaser coalitions to serve those coalitions by bringing national perspective and sometimes educational programming, etc. and to advance policy, particularly at the federal levels, although we do occasionally help coalitions at the state level, you know, we are really here to service coalitions as representatives of employers and purchasers, particularly self-funded employers. Altogether, you take all of our coalitions, got about 90 million covered lives, of which I think more than 10% are members of your terrific coalition in New York.
Kim
Terrific, that’s a great overview. Thank you, Shawn. We are hearing much more about 340B in employer conversations lately, and for those who may be newer to the topic, can you please start by explaining what the program is, what its original intent was, and why it’s gaining so much attention among HR and benefit leaders right now?
Shawn
Absolutely, so 340B is not a new program, although it is kind of new to a lot of people in our space, right? It goes all the way back to 1992, and to take a long story short, it was created to deal with the unintended consequences of a law that passed in 1990 called the Medicaid Drug Rebate Act. Effectively, that says that Medicaid will get the best price for any drugs sold in the United States. The unintended consequence of that was that it turns out some drug manufacturers voluntarily were providing deeply discounted drugs to certain safety net providers, in particular community health centers and some large urban hospitals, so those just on a voluntary basis, they were able to buy drugs at a discount. Not surprisingly, they came to Congress the next year and said, “Wait a minute, you know, get what you’re trying to do to lower prices for Medicaid, but this is having an unintended consequence. It’s actually basically driving up our prices, because the drug maker said, “Look, I can afford to give you Bellevue Hospital in New York a discount, but I can’t do that for the entire Medicaid program.” So, Congress stepped in, and they said, “Okay, let’s create a program to deal with that. And the idea was that if you’re a community health center, a Ryan White AIDS clinic, large urban safety net hospital, we will allow you to buy drugs at effectively the Medicaid price, it’s what’s called a 340B ceiling price, and then that will enable you to use that, whatever revenue you saved, to do safety net things, right, open up new clinics, provide uninsured people low income or discounted drugs, etc. That’s where the program started again in 1992. It is essentially the same legal framework today, but the program has grown substantially, which is why we’re starting to hear more about it in the commercial market.
Kim
So, let’s talk about that a little bit, because we’re really, in theory, it sounds like a great program, right, that we’re kind of stepping in to help some of these underserved folks, folks who can’t afford the care, making investments in those kinds of institutions, but the really the idea is that over time the program has grown, it has changed. What are some of the key ways that 340B looks different today compared to its original structure and really original intent?
Shawn
Sure, so when the program started in Congress assumed that maybe 90 or 100 hospitals would qualify, plus all the community health centers. Today, because of the way that hospitals qualify for 340B. Actually, a majority of hospitals now qualify for the program, so it’s become quite large. It’s also become larger because of a policy change that occurred in the early 2000s in which hospitals and community health centers were able to contract with pharmacies outside of their network to dispense 340B drugs, so if the reason it started that that contract pharmacy started with some smaller community health center said, “Hey, wait a minute. I don’t have an on-site pharmacy. I’m a small FQHC, but I would like to access 340B, for obvious reasons.” And so HRSA, the Health Resources and Services Administration, the part of the government oversees 340B, said, “Okay, let’s let you contract with a community pharmacy that got expanded to an unlimited number of contract pharmacies. Now, there is no limitation, at least under federal law, on the number of contract pharmacies that a hospital or health system or community health center can have. So, you can imagine there are, in fact, 10s of 1000s of contract pharmacies out there. The other thing that happened is, as we all know, you know, the health systems in the United States have become much more consolidated than they were in 1992, right? So you and I are holding up to remember the days when typically you’d have like two or three hospitals in a system, that was kind of it. Today we have sort of mega systems, right, and they’ve been both horizontally consolidated, so hospitals buying hospitals to create large systems, but also vertically integrated, so now we have a lot more care that’s done in the outpatient setting. Generally, that’s a good thing, right. We pay less for outpatient care than inpatient care. People tend to prefer lower complications. It’s generally good, but what that means is there’s there’s a whole lot more drugs that are being sold under 340B today than could have ever really been reasonably anticipated in 1992 and a substantial number of those drugs are being bought by self-funded employers on behalf of their patients, their covered lives, and the way that 340B works is, you remember, I talked about, you could buy drugs at a discount, that’s great, saves the hospital money, but the hospitals and community health centers, to the extent that they have commercial lives, are able to sell the drugs at this sort of prevailing market rate, which means there is now a fairly substantial spread between the amount that they’re buying the drug at and the amount that they are selling the drug to the commercial plan sponsor for. That spread is worth quite a bit of money, and hospitals can use that to do the things that Congress envisioned, but actually one of the challenges with 340B is that the law does not actually require any covered entity to do anything specific with those drugs, and so there are reasonable questions coming up by policy makers to say, wait a minute, we know that hospitals are making a lot of money, here is this going, is this actually being used for the things that we envisioned it would be used for,
Kim
Got it, got it. So just help us stitch together where employers kind of fit in here, because we’re obviously talking about patients, we’re talking about hospitals and clinics, we’re talking about pharmaceutical companies. But so related to employers specifically, how does the 340B actually impact self-funded employers and their pharmacy spend, and do they know, sort of, that this is happening? Is there transparency in the system?
Shawn
Right, so this is the part that’s really interesting, and part of the reason why the National Alliance has spent a lot of time working on this, and I think employers are hearing more about it. Until a few years ago, I think most people didn’t really understand, including myself, that there is actually an impact on us. The assumption was always, well, you know, pharma companies are taking a hit, they’re having to sell it cheap, hospitals are making some money, but you know, it’s kind of just a transaction between those two, but as we’ve dug more into it, we’ve realized that, in fact, there are impacts on us as self-funded employers. So, as I mentioned, maybe 40 to 50% of all 340B drugs are sold to commercially insured people, that has a couple of impacts. One, because of the way that 340B is structured, employers in general lose access to the rebates that they otherwise negotiated through their PBM. So I’m sure everybody who listens to the podcast is probably familiar with PBMs, PBM contracting, and the rebate game, or the rebate way in which we pay for drugs, right? Not all of us like it, but it is the way that we pay for drugs in the United States. So, an employer is used to saying, “Ok, well, the list price of the drug is quite high, but I know it’s highly rebated, I’ll get that money back right through the rebates through my PBM.” Unfortunately, when the drug is sold under 340B, that generally does not happen, and I’ve told, I’ve suggested to self-funded employers, go back and look at your PBM contract. It will almost certainly say, if this drug was bought under 340B, we’re not offering you a rebate. That’s not necessarily the PBM’s fault, because generally speaking, the drug manufacturer says to the PBM, “I can’t give you a rebate on this, I’m already being required by law. To sell the drug at a discount, if I further rebated it, I would be underwater on the drug, or at least I’d be making virtually nothing.” So, as more and more drugs get sold under 340B, the amount that we are receiving or being discounted on drugs is going down, and so employers are actually seeing higher prices in the net because you’re paying full price for drugs. The size of this is something that we’ve tried to estimate. There’s an independent company called IQVIA that has done estimates on this, and they guess or believe that roughly $6 billion in higher prices are being paid by commercial insurers, self-funded employers. So that’s quite a bit of money. The second part is, you know, 340B has, by its nature, it kind of creates some economic distortions, right? So, if you’re a hospital system, you actually make more money by dispensing a high price drug over a lower price drug. I mean, frankly, the same thing occurs with PBMs, right? We know that to be a fact, and so we’ve seen in some cases health systems that are more likely to prescribe higher-priced drugs than the lower-priced alternative. That’s obviously not something that we particularly like. The other thing is that 340B has the… provides a financial incentive to further consolidate, sort of, the bigger you are as a health system, the more outpatient clinics you have, the more money can be made on 340B. All of those things together tend to drive up prices, and so this is why you know, I think increasingly self-funded employers are saying, like, “Wait a minute, you know, this is a program that I didn’t know anything about, I didn’t sign any contract saying I was going to be a part of, or not a part of, and yet I’m finding that it is actually showing up, or at least it is impacting my overall bottom line.” To your second point, Kim, how do we know, and can employers see it? Right, that’s one of the biggest challenges we have. We know it’s the case because if you look at the plan contracts, you’ll see sort of loss of rebates, and there’s plenty of academic evidence to show some of the things that I talked about, right, prescribing patterns that don’t quite make sense, consolidation, etc. But the visibility that a self-funded employer gets into 340B is almost zero, and again, that’s not necessarily anybody’s fault.
Shawn
The program was never really designed to impact the commercial market, but it is something that we’ve been working on at the National Alliance to say, like, “How do we help employers see what’s going on, and then consider, are there design changes that can mitigate the negative impact of 340B.” So the first thing is you’ve got to start talking to your PBMs and seeing if they can give you accurate or at least estimates of what, which of your drugs that you’re buying through your PBM are being impacted by 340B, for which you are not getting discounts or rebates, and we’re starting to see employers do that. I will say feedback so far has been mixed, right? A lot of times the PBMs are not interested in sharing that information, or they will say they don’t have that information. So it’s an area of tension, and where I think employers are just having to be pretty upfront, saying, like, I need, I need this information to be able to be a prudent fiduciary overseeing my health plan.
Kim
So talk a little bit more about that, because I do think this is a fairly new topic for folks, and so talk a little bit more about what you think they should be asking their PBM for when it comes to transparency, and again, once they know that or have that information, Shawn, why does it matter? What does it mean? What would be the next step or steps beyond being able to, a sort of acquire that information?
Shawn
Yeah, so I think the first thing is, as you said, is you need the transparency, but then what’s the point of transparency if you can’t do anything about it? So the first ask, I think, for an employer is to say to their PB, to their PBM, you know, in your next update to me, I want you to actually calculate or estimate to the best of your knowledge how much money I’m losing in 340B, which scripts are running through 340B, and which ones are not. Again, the PBMs aren’t systematically necessarily collecting this information, but they do know how much they’re missing in terms of the rebate value they would otherwise receive, right, and they can break that down for a single employer. Almost all employers today have a pass-through, a rebate pass-through contract, or at least many of them are going that direction. That’s becoming very common. So, I think it’s, you know, it’s totally appropriate for an employer to say, look, you’re already guaranteeing you’re passing through all my rebates. I need to not just see how much I’m getting in rebates, but I need to see what I might be losing. The PBM is going to push back, they’re going to say, well, it’s a hard time getting that information. It is true that the backend mechanism of how 340B, um, Savings are calculated is complicated, is complex, but a good PBM should be able to provide this information to a self-funded employer. So, part of the question is, how much is it? And then part of it is, where you know, which health systems, which outpatient sites, and which pharmacies are am I seeing most of my 340B volume go? Right, so this is another place where you know you can ask your PBM to say, I need to know which health systems, you know, is it hospital X or hospital Y, or obviously it’s going to be both, but like, what percentages, which particular outpatient sites, which particular services, you know, is it oncology? Best guess is oncology is about 40% of 340B, probably not surprising, very high-priced drugs.
Kim
Of course, of course.
Shawn
Natural, and and then, which pharmacies are they being filled at? Is being filled at the the on-campus sites, or is it being filled at contract pharmacies? With that information, an employer could reasonably say, okay, you know, maybe they just say, look, it’s not, it’s, it’s a lot of money, but it’s kind of the cost of doing business, and I’m just, I know it, I’m okay with it, I’m going to keep moving forward, but I think an employer could also reasonably say, “Wow, I may be losing, you know, I’ve talked to one retailer based on the East Coast, not in your membership to yourself, that they’re by their best guess, they lost $2 million in rebates in one year,
Kim
Yeah, yeah.
Shawn
Mid-sized retailer, a significant amount of money, right?
Shawn
So, with that information, you could say, okay, well, I could start working with my PBM to say, I want to actually either move away from using this particular provider for this particular service, or I want to identify ways to fill that prescription if it’s being done through contract pharmacies to fill that prescription through a channel that is not a 340B contract pharmacy, in which I know that I’m going to be able to receive that rebate. Right, these are kind of plan design changes that are designed to have as little friction on the plan member, but also mean that you’re getting the best possible price for the drug. This is not a small lift, I don’t want to suggest that, just like a snap your fingers,
Kim
Sure, no
Shawn
But it is the kind of thing that I think employers can do that are within their control, particularly if you have a PBM that’s willing to work with you, and you have the kind of wherewithal to say, if it’s a matter of losing $5 million or $3 million whatever it is, I’m willing to take some steps to make sure that I’m getting the best possible dollar.
Kim
Are you, Shawn, I’m curious: are you seeing some of the alternative and transparent PBMs get out ahead of this and address it proactively to say this is an area where we’re going to provide the data or we’re going to monitor this for you versus let’s say the big three, or where are you seeing some movement on this?
Shawn
You know, it’s interesting. I’ve talked to a number of them about it. This isn’t to say that they’re not willing to do it. I think generally they tend to be a little bit more forward about, like, yes, what are your needs? How can I make sure, help you, help you get the data, etc. But I’ve yet to see a PBM of any type, large, small, or otherwise. Say, I’ve got a 340B solution, or I’ve got, you know, I’m going to make sure that I track this. I think again, I have a feeling, you know, the smaller ones are going to be more interested in doing it, but I do think it’s going to require employers to actually, upfront, say this is something that I care about. And actually, I would encourage employers, you know, you should work within, you know, if you’re in the middle of a PBM contract, work within the contract you have and see what you can get. But also I’d say the next time you go out for RFP, you know, have a question that’s in there saying, “I know this is impacting me, I want to build into my contract something that says you’re going to provide me with all the best information, and then you’re going to work with me to try to make sure that I’m sort of getting my needs met in terms of mitigating potential negative impact of 340B.” Reasonable thing to put into the mix.
Kim
Yeah, yeah, interesting. Good timing for that. Having this discussion now, too. I know, Shawn, that the National Alliance has been doing work in this space for some time now. Can you share how the alliance is helping employers better understand 340B. Are there any tools you have available resources that we can share out on our site?
Shawn
Yeah, thank you very much. So we have a whole bunch of resources. One of the things that we have put together is designed just to kind of get employers to be a little bit more focused on this, so it’s the what we’re calling the 340B cost calculator, and you can find it on our website, and it enables an employer to, you know, sort of straightforward tool, pick a state, you know, where are your covered lives. Say how many covered lives you have, or it’ll give you sort of an estimate based on your, based on your employee count, and estimate what is the impact of 340B on you as an employer? I will say it is a, it’s a broad estimate, right. It’s based on sort of national averages, adjusted a little bit by state. New York tends to have pretty high 340B penetration, got a lot of big hospitals in New York, and and then you know, estimates based on your size. It’s to get sort of a figure that might say this is how much money that may be at stake for you, it’s enough, hopefully, to then kind of go into a conversation with PBMs, or if maybe if you have a direct contract with the hospitals to say, I want to talk about this, because this is my best guess. There’s a lot else out there that just kind of help explain, you know, the underlying sort of nature of 340B and how it works, and then the National Alliance itself has been doing some work at the at the federal policy level, and our goal has been to really focus on, like, asking people to take a look at the question, talking about how this program is impacting self-funded employers, because I think most people don’t understand it. Most self-funded employers don’t understand it, certainly most policymakers don’t understand it, and then you know, push for change, right? The goal, our goal is always just like this is a good program, right? It’s designed to do the right things.
Kim
Good intent.
Shawn
Great intent. Clearly, community health centers, rural hospitals, big urban safety hospitals, all of them struggle financially. All of them are doing the things we want them to do. Sure, how do we make sure we protect those guys, but also protect employers, right? Protect working families that we all know. I mean, we are paying extremely high prices for prescription drugs, in the United States, 340B is a part of that. It’s by no means the whole reason, sure. But, like, if we’re ever going to sort of bend the cost trend on drugs, we’ve.. I think we sort of need an about all of the above approach.
Kim
Yeah, Shawn, you know, at NEBGH, we are sort of in a multidisciplinary coalition. We sort of, the entire healthcare ecosystem is represented at NEBGH, and so we try to stay sort of neutral. We’re sort of Switzerland in these conversations, and obviously there are a lot of players that do have a dog in the fight on this. I’m just wondering, have you seen any sort of independent research on on 340B, looking at its origins, looking at is there any academic or published research or data or anything that we could also reference that might provide some, some truly independent insights for our employers in terms of what they should know and understand?
Shawn
You know, it’s really, it’s hard to find Kim. As you said, most people who engage in this program already have a dog in the fight, right? If you’re a hospital system, you’re like, “I care a lot about this, it’s a big source of revenue, and I need it.” If you’re a drug manufacturer, you’re like, “I care a lot about this, it’s costing me a lot of money, I want to do something about it.” The, you know, one place that I would point to is a truly independent researcher who I just have a lot of respect for. I’ve gotten to know recently a woman by the name of Sayeh Nikpay, I believe I’m pronouncing her first name correctly. She is a researcher at the University of Minnesota, has been working on 340B for some time, does health economics, and has published two things just in the last six months that I think are really interesting and insightful. So, one is at qualitative research about the origins of the program, because you can imagine that’s such a big political football, everybody keeps going back to me like, “Well, this is what Congress intended. No, that’s what Congress intended.” Yeah, and so she actually sat down with, like, some of the people who were on staff on the committees of jurisdiction in 1990 to 1992 and said, like, all right, what did you intend, like, what were the origins, what were the conversations, who did you talk to, etc. and produced a really good research report on, like, this is kind of what the program was at least originally intended to be, that necessarily mean that’s what it is now, but it’s just, you know, what the thinking was at the time, and even then you can imagine there were big political fights, right? Pharma had a position, hospitals had a position, you know, this was not, this was a political compromise like anything else. And then she has also been involved in working with the state of Minnesota to craft, now this is the second year where they have done a report on 340B within the state of Minnesota, and it was the first state to do this. Other states are now going down this path. I think New York might be going down this path to just say, “Let’s look at, like, you know, how much money is it, and where’s the money going?” So, what the state of Minnesota has done, and again, they produce two years worth of reports now, is to say, you know, asking each covered entity, so each hospital, Ryan White Clinic, Community Health Center, etc. to calculate sort of how much money they’ve made on 340B, so you sort of take the, or the purchase price, you know, subtracted that from the selling price, and then take out any sort of money that you’re spending on paying contract pharmacy, and all that kind of stuff, and just get sort of a net, and just looking at sort of what is, you know, where’s the money going, who’s getting it, is it going to the right places, and I think it’s really insightful, it’s the first state that we can sort of say, like, “Huh, I’m not sure, is that really what Congress intended?” And from my perspective, I would say it’s actually to me a little bit disappointing. Right, community health centers are getting, at least in Minnesota, a very small amount of money, rural hospitals are getting a very small amount of money, and some fairly large hospitals within. In kind of greater Minneapolis are getting a lot of money, which I think is is worthwhile information for state lawmakers to say maybe we need to think about how this program is running, and I’ve encouraged other states to say just do the same thing, like I’m not telling you what the answer is, but like it’s better to just find out, and that’ll give you more insights as you think about what future legislation might look like great.
Kim
We’d love to share some of that research out with our, with our membership, and I just want to go back, Shawn, we’re kind of wrapping up here, but you sort of alluded to an employer, you know, we love storytelling at NEBGH, and we always love to hear from employers, but you, and I’m not asking you to name names here, but you alluded to an employer in the south who is sort of a real world example of how 340B has impacted their cost or perhaps their benefit strategy. Can you just say a little more about that employer and what they have learned in that analysis?
Shawn
Sure, yeah, and actually just a real credit to this employer, you know, they came and they listened to me and our folks talk about this, and they said, “You know, I’m going to go talk to my PBM. Well, like most PBM contracts, they had a – they had a rebate guarantee, right? And for a couple of successive quarters, their PBM wasn’t hitting the rebate guarantee, and so, you know, and as you know, probably there’s the guarantee, and then there’s like the guarantee is only as meaningful as you know it’s like guarantee with exceptions, and this, you know, they’re sort of citing exceptions, and so this person went and the sort of benefits leader, it’s a mid market retailer, went to their PBM and said, “What gives? You know, I lost $2 million off of the guarantee that I was, I had, you know, where is this going to?” And they didn’t have a great answer, and finally, because she’d been a little bit educated on this, she said, Is this 340B? And they’re like, yeah, this is basically this is 340B.
Kim
Yeah.
Shawn
So they had, and they figured this out, sort of at the end of their plan year, they had a $2 million hole in their pharmacy benefit, and you know, it wasn’t something they could just easily fix. Again, this is not a giant company, and in the end, what they had to do, and I think they were disappointed that this is the decision they had to make, but it was just kind of the way I had to do it, is they actually increased their premiums on their pharmacy benefit substantially, right? So you know working people, you know, working, I think high paying for retail jobs, but retail, you know, hourly jobs are actually paying more money for prescription drugs, because you know the 340B program impacted them, and again, you can have conversations about, is that is that the right move, is that the wrong move, etc. but, but there are now people where we can certifiably say are actually paying more because of 340B. I think a lot of that is already happening within companies. The companies just don’t know it yet, because they’re seeing their prices go up every year, they’re seeing their trend go in one direction, and they don’t necessarily know why. 340B isn’t the only reason, sure, it’s one of the reasons, but again, I think it’s something that employers really need to understand, and then consider, you know, what are their, what are their options moving forward.
Kim 28:08
Great. Listen, Shawn, this has been a terrific conversation. You’ve given us some good, good tips and good food for thought. It, and we will share out some of those resources that you mentioned from the National Alliance, and also some of the research that you referenced out of Minnesota. We will get that out along with our discussion today. So I’m just thrilled. I want to thank you for joining and sharing your expertise and your perspective on this important topic. We know that our listeners will walk away with a clearer understanding and practical insights that they can apply within their own organizations. This has been NEBGH Voices. Thank you for listening. As always, we wish you wellness.
Multiple Speakers
I am one of the voices… I am one of the voices…. I am one of the voices….
Shawn
I’m Shawn Gremminger, and I’m one of the voices of NEBGH.
