Nobody is fully happy

On Monday, I co-introduced landmark drug-pricing legislation. The bill reforms the 340B Drug Pricing Program, a cross-subsidy from drugmakers to hospitals. It’s wonky stuff, but give me 400 words to explain why it matters.

On the policy merits, it plugs one sinkhole of money in a healthcare system with too many. Politically, it’s sausage-making to be proud of. Politicians right now focus on fighting rather than fixing problems. Democrats need to do both.

The 340B program is a prime instance of a problem that needs fixing. Created in 1992, it was intended for safety-net hospitals and clinics to buy medicines from drugmakers at deep discounts. Those providers can then sell them at higher prices, and keep the difference to fund health delivery for low-income communities. 340B margins are now critical to hospitals and community health centers.

Cross-subsidies are a distortionary way to design a health system. I’d prefer direct government support for providers. However, if the program had stayed true to its intended purpose, it would be wise to leave well enough alone. Unfortunately, it jumped the guardrails.

Due to ambiguous directives and definitions in the statute, 340B became an industry. What started as a discount on medicines for 32 poor hospitals ballooned into a $100+ billion rebate pool for over 42,000 providers. Hospitals contract with pharmacies to gain access to that rebate pool, then buy discounted drugs and bill commercial insurers at full price. Drugmakers hike overall prices to offset losses from selling at the discounted prices. All this rebate-juicing results in higher health premiums, especially for the 160+ million Americans who get health insurance from their employer. It also, increasingly, cuts Medicaid out of rebate revenues that it claims through another longstanding drug pricing program. (Again, not sure that supporting public health insurance through drug subsidies is wise policy, but one problem at a time.)

The legislation I am co-leading is the first comprehensive, bipartisan effort since 1992 to address the inflation of the 340B program. It tightens up the loose definitions through which contract pharmacies misuse the program. It creates an independent clearinghouse to verify claims, end duplicate discounts, and follow the money. The bill also protects safety-net hospitals and community health centers, the intended recipients of discounted drug prices, by preventing drugmakers from imposing one-off verification schemes in which discounts are delayed.

Nobody is fully happy. But various hospitals, clinics, patient advocates, employers, drugmakers, and community oncologists all support the bill. It’s a compromise – not just across party lines but across sectors within healthcare. The reforms will lower health premiums and help strengthen Medicaid.

Facing mutiny in his ranks, Speaker Mike Johnson is barely able to keep the House in session, much less pass legislation. But Democrats should tee up legislation like this to pass when we take back the House. Show Americans that when trusted to govern, we are willing to challenge the status quo to lower prices.