• Part B, ASP and 340B
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Part B, ASP and 340B

Recently RAND put out a study about prices paid to hospitals by private payers. Right in the summary is a statistic that made me pause – commercial insurance prices for administered drugs received in a hospital setting averaged 278 percent of average sales price (ASP) compared with 106% of ASP paid by Medicare for administered drugs.

278% compared to 106% (okay, sequestration but whatever.)

This statistic has been rolling around in my brain for the last week for two reasons:

  1. If hospitals are buying at 340B and getting reimbursed at 278% of ASP. Wow. Profit margins for hospitals yay, prices for employers boo. Real loser – patients.
  2. One of the concerns about the Inflation Reduction Act (IRA) is the downward spiral on Average Sales Price for Part B drugs, should we really worry?

Starting in 2028, the Medicare program will offer negotiated prices for some Part B drugs (Keytruda being a likely target.) These are drugs typically used in the provider office and are reimbursed at ASP plus 6%.

Whereas the IRA specially states that the negotiated price for Part D drugs shouldn’t be factored into Average Manufacturer Price, the statute is silent on Part B and ASP. The thought is that sales at the negotiated price will drag down the product’s ASP and make it harder for providers to get the product for the rest of their patients and thus put pressure on commercial payers and manufacturers to do something.

Example

$1000 product that is “negotiated” down to $600.

Let’s ignore 340B for now and say that the provider got a 3% discount and was able to purchase the product at $970. They were then reimbursed at $1,060 (ASP + 6%), securing a profit of $90.

If the “negotiated” price is $600 – then they would be able to buy the product at $600 (guaranteed as part of the IRA) and be reimbursed at $636. A profit of $36.

Not ideal. But wait, it may get worse. That lower negotiated price will likely drag down the overall ASP because typically more scripts are for Medicare beneficiaries than not, providers aren’t guaranteed a lower acquisition cost … and we see reduced the profit on non-Medicare claims.

As someone who has thought about this for the last 18 months, one idea was that we’d know what drugs would be negotiated ahead of time and providers could carve out those drugs from contracts and make sure they are paid based on another pricing metric. Or we could see that % over ASP increase. Or maybe all the small providers will close up shop and 340B will be acquisition rate so that this isn’t an issue.

The truth is probably a mix of all of the above. Surveys so far seem to indicate that providers aren’t worried (yet?) about it. Rest assured a lot of are worried on their behalf.

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