Washington Watch

How can drug discounts be improved for clinics?

By Adam Sonfield
Senior Public Policy Associate
Guttmacher Institute
Washington, DC

With drug manufacturers retreating in recent years from voluntary discounts to family planning and other public clinics, providers increasingly rely on federally mandated discounts. The 340B Drug Pricing Program, established in 1992 and run by the federal Office of Pharmacy Affairs, creates a "price ceiling," calculated quarterly for every drug, that caps how much drug companies can charge eligible safety-net providers, including Title X–supported family planning centers and community health centers. The Prime Vendor Program, run by a private contractor, Apexus of Irving, TX, seeks to negotiate even steeper discounts for drugs, as well as for products not covered by 340B, such as medical devices and pharmacy-related services.

Family planning centers piece together these discounts with those from other sources. Larger nonprofit and public agencies, such as Planned Parenthood Federation of America in New York City, negotiate their own contracts with manufacturers, as do private cooperatives, such as the Family Planning Cooperative Purchasing Program (a nationwide effort for Title X–supported centers run by the Los Angeles-based California Family Health Council) and purchasing programs designed for community health centers. Many of these programs also negotiate discounts for condoms, medical and office supplies, and lab work.

Nearly all Title X–supported providers are enrolled in 340B, and most are also a part of Prime Vendor, according to a 2009 study commissioned by the Office of Population Affairs and conducted jointly by The Lewin Group of Falls Church, VA, and the New York City-based Guttmacher Institute.1 Nevertheless, providers reported a wide range of problems in making use of these programs.

Family planning centers reported that they do not have a central source of information to gauge their drug purchasing options, work within program rules, and learn about and compare prices across products and sources. Instead, they rely on a patchwork of information from purchasing programs, drug manufacturers and distributors, and family planning programs, grantees, associations, and advocates.

Little of this information is appropriately tailored to their specific needs and level of understanding. Moreover, drug manufacturers tightly control information on pharmaceutical pricing, and the formulas underlying the 340B price ceilings prevent providers from predicting changes in advance. Taken together, these issues mean that family planning centers are forced to spend substantial resources attempting to track down the best prices for the best mix of drugs and devices.

Discounts too small and unstable

The second major set of problems reported by study participants is that, despite their best efforts, the discounts they were finding were neither large enough nor stable enough to meet their needs. The 340B ceiling prices are in most cases only marginally lower than the actual average prices manufacturers offer to private-sector customers, although the newly enacted health care reform legislation will increase those discounts significantly. In addition, the price ceilings are adjusted quarterly and without advance notice, creating an instability in prices that may force providers to switch the products they stock and force clients to adjust to a new drug and dosage. Providers sometimes find better or more stable prices through Prime Vendor or other purchasing arrangements, but manufacturers are not required to negotiate with these programs.

Finally, family planning centers reported numerous administrative problems in dealing with 340B and Prime Vendor. Rising and unstable prices posed serious problems for maintaining a budget, and they often force providers to seek additional funding or cut back in services midyear. Shifting drug prices also raise issues for how frequently Title X–supported centers must recalculate their sliding-fee scale. Under that scale, clients are assessed a fee based on their income that is equal to a percentage of the provider's actual per-client costs. Similarly, health centers serving clients on Medicaid must face complicated inventory and billing issues to ensure that drug companies are not forced to provide duplicate discounts — first to the provider, and then to the state Medicaid agency in the form of rebate. They also must deal with the bureaucracy and payment delays common to state Medicaid programs and Medicaid managed care plans.

What can be done?

Although the Lewin-Guttmacher study was not designed to look for potential solutions to these problems, provider representatives volunteered numerous suggestions, particularly for the Office of Population Affairs.2

The agency could serve as a centralized information source for family planning centers on available discounts, program rules, current prices, and best practices. It could pull together information in a way that best fits the needs and understanding of Title X–supported providers. It also could coordinate efforts with 340B, Medicaid, and other government programs to identify ways in which program rules conflict and how best to respond. The agency could go further, even — for example, by gathering and analyzing purchasing data and providing technical assistance — to help its providers leverage their collective purchasing power to negotiate better prices with manufacturers. The most expansive solutions, however, would require action by Congress, to go beyond its limited efforts under health care reform to improve the discounts required of drug manufacturers. For example, Congress could expand the list of providers and supplies included in the 340B program or increase the stability and predictability of the 340B price ceilings.

References

  1. Lewin Group and Guttmacher Institute. Analysis of the Effectiveness of Title X Family Planning Providers' Use of the 340B Drug Pricing Program, prepared for the Department of Health and Human Services, Office of Population Affairs/Office of Family Planning, 2009. Available at www.hhs.gov/opa/pdf/304b-analysis-of-effectiveness.pdf.
  2. Sonfield A. How the federal government's drug discount programs could work better for family planning centers. Guttmacher Policy Review 2010; 13:13-17.