We’ve come a long way from President Donald Trump telling the pharmaceutical industry it was getting away with murder.
His administration’s Center for Medicaid and Medicaid Services (CMS) on Thursday proposed deep cuts to reimbursement rates for the 340B drug-discount program, which mandates big price cuts for “safety-net” hospitals that treat a lot of poor patients.
The Trump administration is selling the move as delivering on a commitment to lower drug prices. It doesn’t.
The change won’t directly affect drugmakers. It will instead hit about half of U.S. hospitals. And it will weaken a program the pharma industry dislikes.
The 340B program has issues; it can create market distortions and is costly. But this particular reform won’t help many consumers with high drug prices. And it leaves the pharma industry’s unfettered pricing power intact.
It also reinforces the perception the Trump administration isn’t the populist bogeyman the sector once feared.
The 340B program grew from nearly $6 billion in 2010 to more than $13 billion in 2015 and is projected to keep growing for the foreseeable future, according to Berkeley Research Group. The CMS’ proposed change to the program would threaten that growth by cutting the hospital reimbursement rate for drugs from a medicine’s average sales price plus 6% to that price minus 22.5%. That will make the program far less lucrative for health care providers.
Hospitals are likely to cry bloody murder over this proposal and argue it will lead to service cuts. You likely won’t hear a peep from drugmakers, though. These are very low-margin sales, and pharma firms have complained for years about what they say is abuse of the program and the extension of 340B discounts to patients and hospitals they don’t think should be eligible. If the CMS change means more sales go to higher-margin areas of the market, then pharma will profit.