Thread by @sean_r_dickson

For health policy nerds, one of the great (ok, mildly interesting) questions of our time has been: why did manufacturers lower the list price of HCV treatments rather than offer the same price reduction through a PBM rebate? Here's one explanation: 1/9

jamanetwork.com/journals/jaman…

@Ian_Reynolds_ and I explain that manufacturers found it profit-maximizing to reduce their HCV list prices rather than offer the same discount via PBM rebate because of the 340B program, that great enigma of the drug-pricing landscape. 2/9

As a refresher, the 340B program allows federally-designated hospitals and clinics to purchase drugs at the discounted Medicaid price while still receiving full reimbursement from payers. The difference is to be spent consistent with their non-profit provider status. 3/9

That Medicaid/340B discount is a 23.1% discount off the average price of a drug at retail community pharmacies. So if manufacturer has an inflated list price at pharmacies, it must offer the discount off that inflated price, not the net price to PBMs/insurers. 4/9

We hypothesized that for drugs with lots of 340B sales, manufacturers would see higher profits from harmonizing the list price and the net price to PBMs, as they would only have to offer a 340B discount on the net price. And they did! 5/9

For these HCV drugs, manufacturers saw a 28% increase in net revenue by moving the net discount from a PBM rebate to a list price reduction. So why don't all manufacturers move their discounts from PBM rebates to list price reductions? 6/9

Manufacturers want high list prices for a lot of reasons, but one big reason is to set price floors for future drugs. It's unlikely that we'll see many more HCV drugs, though, so the benefits of high list price may not outweigh the high 340B discounts. 7/9

The HCV space also has nearly the highest amount of sales subject to 340B discounts of any therapeutic class, with about 35-40% of sales subject to discounts. That's significantly above the 14% average across all therapeutic classes. 8/9

So what does this mean? It suggests that 340B discounts can put downward pressure on drug list prices, contrary to the narrative that they drive prices up. And it reinforces that manufacturers only lower prices to increase net revenue, not because they're feeling altruistic. 9/9