Podcast

Matt Stoll (00:00)
Welcome to episode nine of On Background, a podcast about the collision of US health policies and the realities of the healthcare marketplace in the US. Today, we are hosted by Steve Parente, Health Economist extraordinaire, Brianna Meyer, pharmaceutical maven, Tom Gunderson, former healthcare analyst for Piper Jaffrey, now Piper Sandler. My name is Matt Stoll, I’m a MedDivise guy. And our guest today is Reena Conti.

Rena had two roles in HHS and is now the Associate Professor of Markets, Public Policy and Law at Boston University’s Questrom School of Business. Rena, thanks for coming on.

Rena M. Conti PhD (00:35)
Thank you so much for having me.

Matt Stoll (00:37)
Steve, why don’t you kick it off today?

Steve Parente (00:38)
Yeah, Marina, we’re thrilled to have you do this. This is really kind of a treat for all of us to be engaged with you for this. So basically, I know that, you know, we…

Everyone’s probably picked easy topics like why is healthcare so expensive? But 340B, you know you’re starting something complicated when it begins with a number, right? Even when we go from the acronyms, know, like CMS, we can like kind of guess what the C might be. But I mean, I guess from just a get go, how would you describe this program? Where did it come from? What are the big concerns that are driving it right now?

Rena M. Conti PhD (00:57)
You

Sure, maybe I’ll back up and provide a little bit of context. The US spends approximately $4 trillion on healthcare every year, and approximately one quarter of that spend is on prescription drugs currently. 340B is a program that provides the lowest prices on the acquisition of prescription drugs

to pharmacies, hospitals, and certain safety net clinics that largely serve poor, uninsured, or underinsured patients.

Steve Parente (01:47)
That’s it’s designed to do, but I guess the question is then, I mean, this is, we’re gonna get into this, a lot of oxygen has been taken up about concerns. It started with very well-intentioned pieces back, guess 1992 is when it came into play. And I mean, actually lot of exciting things happened back then, you know, go back to sort of drug pricing for Medicaid, VA. I mean, there’s a lot of initiatives to try to, even as prescription drugs are just becoming a thing in terms of major costs, because I remember when I worked in insurance industry,

Rena M. Conti PhD (02:14)
Mm-hmm.

Steve Parente (02:16)
back in the 80s prescription drugs weren’t even that big of a chunk of what we had to worry about. So this is great to think about it back then, but what are the concerns now that’s really risen this to a fever pitch?

Rena M. Conti PhD (02:29)
Sure, so the program comes into effect because before there were health insurance expansions, there were a lot of underinsured or uninsured poor patients that were seeking care at the hospital and the hospital wasn’t actually receiving any reimbursement for the care that was being provided.

Congress did two things to fix that problem. The first is it expanded health insurance through state Medicaid programs and federal support to state Medicaid programs for prescription drugs. And secondly, required that hospitals that were going to, it required discounts or rebates.

that would be mandatory on prescription drug companies if they were going to sell these drugs to hospitals that were serving the safety net. So that’s the intent of the program. That’s how it started. The problem with the program as it exists now is that it has expanded well beyond servicing

poor indigent patients and many other entities including pharmacies. ⁓

and even plans are making money off the arbitrage of buying very low cost prescription drugs through the 340B discount and selling them to insured patients like myself and others at the full price. So in a sense, or in essence, the 340B program

acts to inflate the prices that I pay at the pharmacy counter, you pay at the pharmacy counter, and taxpayers and insurers and employers pay for prescription drugs.

Steve Parente (04:17)
Okay, that gives us a good good sense. actually feel pretty bad about when I go to Scotland now and I go to the grocery store and I buy Talisker for 20 pounds and then I go back to the US and then I sell it to others for a hundred dollars a bottle, but I it’s similar but but we’ll let it go. I’m going to turn over to Brianna who has another question about this.

Bryana Mayer (04:38)
Serena, I’m interested in your take on an article that came out earlier this year in the Wall Street Journal titled, employers get big drug discounts through program for hospitals that serve poor patients. It talked about the 340B drug policy, but really what it highlighted is that there’s some startups that are now really acting as a new breed of middlemen and they’re using an unusual cost saving strategy that lets employer clients tap into

the 340B program that really, as you said, is meant for hospitals to serve the poor. So these companies are selling pharmacy benefit plans that save employers money by funneling workers to the 340B hospital pharmacies instead of their traditional drugstores down the block. And the workers get 340B discounted price.

on the plans, so that’s how they’re benefiting. The hospitals participate because it expands their customer base, and then they receive fees for dispensing the prescriptions. What are your thoughts on this newer business model?

Rena M. Conti PhD (05:42)
So again, I think this is yet another exhibit or example of the program spinning out of its original intent and really not serving the people who are most in need of medicine access, which are poor, underinsured and uninsured individuals. So the program…

qualifies entities for these discounts based on the inpatient census and their poverty for hospitals and for clinics, essentially the poverty or vulnerability of the patient population that served. And these plans,

just like contract pharmacies have absolutely nothing to do with that and could never have qualified for program participation based on the original rules. Instead, they’re finding loopholes to participate in the program and make money off of it. This is just to be really clear, this is not serving poor people and the interests of the safety net in any way.

Steve Parente (06:49)
So Tom you you you’re new to learning about this, but I guess you you did a little bit of a deep dive I guess there was I the Wall Street Journal editorial board paid a little bit of attention to this very recently I guess I Mean it did it surprise you and then you throw it back to Rena here for a second like that But this even existed as a concern. I mean you’re a med device guy ⁓

Thomas Gunderson (07:15)
So,

yeah, I had to look up when you said we were gonna do this a while ago on 340B, I had to look up what 340B was and you go through all of that. You get in your silo and you know a lot about one thing, but not so much about others. It surprised me that there was a program like this. Did it surprise me that our system looked, found and…

loopholes and gameplay to their benefit. That part didn’t surprise me. The detail is out there. guess, Rena, the question I have for you in looking at this from an outsider’s point of view is number one is this was created in 1992. This is 33 years ago and the gaming of the system has only accelerated in the last

several years, it doesn’t seem, I was looking at a back and forth that you did with some people in health affairs back in the early part of the century, right? And there seem to be differences of opinion. Now there doesn’t seem to be a whole lot of differences of opinion. I did read some things positive about the system from the American Hospital Association, but there’s gonna be bias there as well.

Rena M. Conti PhD (08:19)
Mm-hmm.

Thomas Gunderson (08:36)
The question I have for you is, do you fix a 33-year-old system that’s being misused, or do you erase that system and replace it with something else? And to Steve’s point on the editorial that was in the Wall Street Journal, they were talking about a pilot study where instead of getting deep discounts and not being watched over very carefully,

⁓ but instead the pilot would have the drugs coming from the manufacturer and then you would apply as a hospital or pharmacy for a rebate based on patients that you had. So all of that is two questions. Number one, can it be fixed? Number two, what do you think about this pilot system?

Rena M. Conti PhD (09:20)
thank you for the question. So I don’t think you can eliminate three 40 V in its entirety. And that’s because the original problem still needs to be solved, which is not everyone who is.

poor or otherwise vulnerable qualifies for Medicaid and therefore gets access to low or no cost prescription drugs that they need to keep take care of themselves. And no matter what happens in healthcare in the US, we will still have people who are uninsured or underinsured and who are not or not.

Thomas Gunderson (09:39)
you

Rena M. Conti PhD (10:04)
tied to either the public programs or to traditional employment that provides health insurance. So you have to find ways to provide affordable health care to people who are the most vulnerable and needed. 340B is part of that solution to that problem. The problem is that

The discounts don’t automatically benefit patients at the pharmacy counter. In other words, the program doesn’t require that poor people get the discounts at the pharmacy counter. Instead, it just allows

hospitals and other entities to acquire the drugs at low discounts, not necessarily to pass them off to real patients. So that’s one fundamental problem. The second fundamental problem is that

We have essentially subsidized hospitals and other entities in the system based on buying low and selling high off the availability of this program, which creates a huge amount of revenue that is sitting in hospitals, pharmacies, and now plans.

for which there’s very little accountability for actually serving people in need. And in fact, there are some hospitals for which a third of their annual operating revenue is being generated off of this program. And they’re not just financing safety net care for this office program, they’re financing

hospital buildings and the sponsoring of sports teams and all sorts of stuff, right? So the opportunity for gaming and not really helping real people who are increasingly complaining about medicine affordability is a fundamental issue that needs to be solved. So I guess that’s a long-winded way of saying

I’m…

I believe that this program has a place in US healthcare system, but what the place is, is, but it should be reined in. What to do? So I think that the proposal to make this a, instead of an upfront discount, no questions asked.

And instead, move it to a trust but verify type system where rebates are given conditional on the hospital or contract pharmacy being able to show this patient really is a real patient that really is in need. Makes sense. I think.

It will also improve transparency over exactly which drugs and exactly which entities and exactly which patients are claiming these benefits, which should move the system towards more accountability, which again, I think is welfare improving. What I am a little worried about

is that tagging each and every patient and each and every prescription as being 340B eligible in order to claim the rebate may cause some costs onto the system, especially in institutions that are particularly cash strapped.

and vulnerable.

current hospitals that qualify for the program are a very mixed bag. are hospitals such as the old St. Vincent’s in Lower East Side in New York and the kind of Cook County, really truly safety net hospitals. And then there are a bunch of hospitals that are really well resourced and have found a way to qualify for 340B off

a variety of different ways. The rebate system treats both of those type of hospitals equally and imposes the same types of costs on both. the hospitals that are the least resourced, that are truly doing God’s work, taking care of

the most vulnerable patients are the ones that are not, don’t, you know, now have to find additional resources and are worried about not receiving the rebate, which they are truly entitled to have. Whereas the ones that are, the hospitals that are more well-resourced will find a way to make it the same for them.

So I worry a little bit about the system actually harming the hospitals that we actually really do, that really do qualify for this program and really do, or really are providing the safety net services that we need them to do.

Steve Parente (14:44)
Well, this definitely defines a sticky, sticky problem, right? Because, I mean, you can’t, it’s one of those classic things where it’s like you can’t fix the plane while the wings are, you know, having concerns or while in air. I mean, normally, you know,

You and I have opened a government to know like there’s there’s like different categories of things that we think of for short-term fixes, right? It’s like well, maybe we’ll do a demonstration and see what could be different. Well, this is so the demonstration gone bad, right? There’s there aren’t many opportunities to really dial something like this back And I mean, I guess I mean I guess I’ll throw that question back to you. I mean

Pretend that, well not even pretend, people do listen to our little podcast. If there’s a way to say given the organs that exist within HHS CMS now to at least take a dent at something that tries to make a correction with doing the least amount of harm, what might you suggest? Something that’s doable in two years type of timeframe, which I’ll call that short term.

Anything possible?

Rena M. Conti PhD (15:46)
Yes, so with congressional authority, providing HHS authority to alter the qualification of contract pharmacies would be a huge, would make a huge difference in the operation of the program. And here, just to give listeners context,

So we’ve been talking about hospitals and clinics serving the poor qualifying for this program, but actually the biggest growth in the program, and I think probably the place where you could get the biggest bang for reigning in this program.

would be to rein in the contract pharmacies that contract with these hospitals or clinics to serve patients in the community for which these hospitals earn fees and don’t really have to show that they’re actually serving the safety net in any way.

So finding ways in which we can rein in the contract pharmacy piece. And there have been some attempts to do this, but right now HRSA doesn’t actually have the authority to do even more reining in. So either demo where

where there’s more reining in or more qualification, or Congress empowering HHS to actually clarify rules would be really helpful.

Steve Parente (17:20)
Yeah, okay, so that either one is a possibility. I mean, I guess this is this is one of those things that’s a classic that depends on whatever administration it is.

are really, it’s really Congress actually would do it. It’s like, you know, sticking on the end of something that’s an omnibus, a CR, or something that’s that we know there’s an issue just to give some authority. So for those listening out there, an omnibus is like known as the Christmas tree. It’s the holiday season when we’re doing this podcast. So we’re like basically it’s sort of a giant bill that sort of you stick in all sorts of other things in there. But then there’s also the continuing resolution bill, which is a budget bill, which could go on 50 votes. Does that mean

You could, the question is whether or not it’s a 60 vote issue or not in the Senate. Probably is, and probably, no it would be. But let me throw one more question, I’m gonna hand it back to Tom. You’ve been on the Hill talking about this, you’ve talked to other people about it for several times. You get the sense that there is at least a bipartisan consensus.

that someone would at least let, if you will give HRSA that ability to engage in this or give HHS, I should say, the ability to kind of, let’s do it with the contract pharmacies, give them the authority to regulate them better in layman’s terms.

Is there a bipartisan appetite for that?

Rena M. Conti PhD (18:32)
I think there’s a bipartisan appetite to rein in fraud and abuse and could a better look at what contract pharmacies are actually doing and if they really are serving patients in the community in the most effective way, especially the most vulnerable, could that

find bipartisan support, yes, I do.

Will there be bipartisan appetite to rein in hospital budgets associated through 340B more directly? I don’t think so, especially given the very significant Medicaid cuts that are already impending.

Steve Parente (19:17)
And also every member has multiple hospitals in their districts. mean, this is that the, you know, there are there are many organizations that are quite well organized to hear to hear those voices across the land, shall we say. ⁓

Rena M. Conti PhD (19:30)
Yes. And

this is, I think, part of the reason that cutting Medicaid and changing 340-B rules in any way becomes very difficult is because of exactly that.

Steve Parente (19:41)
Yeah, I mean, in a way, this sort of reminds me of like the employer sponsored subsidy for health insurance, right, which is a classic gem that.

health economists talk about it all the time, people who are budget hawks talk about it. It was passed in the 1940s, well actually no, was designed in the 1940s in World War II for a short-term recessionary period that lasted six months, actually 43, and then got codified in the Revenue Act of 54 forever and ever with huge distortions. It is the number one tax subsidy this country has, bigger than mortgages, ethanol, you name it, combined. And no one wants to

unwinded. mean, I could tell you personally how no matter what the administration, Republican or Democrat, they do not want to touch it. It’s a third rail. thing. Tom. Yeah.

Rena M. Conti PhD (20:26)
Yeah.

Yeah, and this, I’m sorry, I think this is exactly the same thing, which is,

you want to do something on 340B, you have to be very careful that you have two separate institutions that both qualify.

Thomas Gunderson (20:36)
you

Rena M. Conti PhD (20:41)
One are the clinics that really are, again, serving the safety net. They have very significant reporting requirements. They must show the federal government and states that they really do serve patients in need. And then you have these DISH hospitals and other qualifying entities that may or may not be really serving the safety net. And certainly their reporting requirements are quite thin.

And yet we have this program that groups them together and anytime you want to change one you have to change them all and they all create a lobby group that’s very difficult to overcome.

Steve Parente (21:16)
Tom, you’re new to this, but I’m going to throw it to you for a few thoughts before we wrap up in the holiday season.

Thomas Gunderson (21:23)
All right. I want to bring up, I kind of dissed the hospitals earlier, I want to defend them a little bit here. From the standpoint of, Reena, you said that some of the better hospitals were getting up to a third, I think you said, of their operating income from the 340B program. My view of the hospitals in this country is

I wouldn’t want to try and run one. I think it’s an extraordinarily difficult job right now. They have razor thin margins if they have positive margins at all. ⁓ And if you are changing some of the things with Medicaid, if you’re taking away that third from some of the hospitals.

Steve Parente (21:55)
Yeah.

Thomas Gunderson (22:05)
you’re worried appropriately about, you know, some of the smaller or ⁓ less resourced hospitals, I’d worry about all of the hospitals from an unintended consequences standpoint. So when you say we have to make sure we do this and that, it seems like there has to be a way to serve the under-insured.

and for their pharmaceuticals without taking away from the hospital’s ability to function. I wonder since you’ve been, I’ve been thinking about this for, gosh, I’m going to say a day and a half. You’ve been thinking about this for years. What…

where do you see this eventually going? How do we satisfy the ability to deliver care and deliver care to the poor as well?

Rena M. Conti PhD (22:53)
I mean, think that’s the fundamental question facing our healthcare system. And that’s why it’s so difficult to do anything on this program because at the end of the day, let me end where we started, which is medicines are the most intimate and most commonly used healthcare that Americans use. At some point,

People need access to medicines that actually keep them well and out of the hospital and employed and taking care of their families and going to school. We have medicines that really do deliver on those promises now. And so exactly how our system is going to ensure that people, no matter their ability to pay, can get access to medicines that do all of those wonderful things.

is a it’s a fundamental question I don’t think our system is doing a particularly good job at that right now 340b is

one very imperfect way in which we do that. But.

I think it shouldn’t be the only one, certainly. Medicaid financing is the other, also not perfect by any way. Could we get to a system for which people could access needed high quality healthcare, especially those who are the most vulnerable outside of the system of very complicated subsidies and

cross-transfers, yes. But I don’t think we’re there. And everything that we’re doing, that we’ve been doing frankly for the past 20 years is just rearranging funding to kind of continue the system that we have.

having a little bit more fundamental rethink about exactly how the safety net should be financed seems really important to focus on.

Thomas Gunderson (24:41)
Thanks. ⁓

Rena M. Conti PhD (24:42)
Yeah,

thank you. I wish I had better answers, but I’m not worried about wealthy people in the United States continuing to get access to medicines that keep them well. I am really worried about poor people and the middle class increasingly finding that the financing of their healthcare is incredibly challenging.

340B is not part, well, 340B as it exists now.

help some institutions serve some patients, but doesn’t fundamentally solve the financing problem that we are all facing.

Bryana Mayer (25:18)
Alright.

Steve Parente (25:19)
So Brianna, you have a request given the holiday season?

Bryana Mayer (25:20)
Well, yeah, so first of all, a big thank

you to Rena for coming on today’s podcast. Really appreciated all of your insights on the 340P policy and what we can do moving forward. To bring in the holiday spirit, I believe Steve had asked Rena which Christmas carol he should sing to close out today’s conversation. And Rena, what was your request?

Rena M. Conti PhD (25:42)
Well, I think that we should keep it in the family. And since Steve and I both have Italian heritage, my request is a simple one. The best, least played Christmas song, which is Dominic the Donkey.

Steve Parente (25:58)
This is so hard to do because…

Matt Stoll (26:00)
Do you know

this one? Steve?

Steve Parente (26:01)
I mean, yeah, but I mean, there’s lots of, you know, this is like, starting with on the mob hits thing from The Sopranos. This is a really, this is probably, this probably was in season five of The Sopranos and they cut it, you know? I mean, you know, I mean, if I’m gonna do this, I wish people could see the look of satisfaction on Gunnarsson’s face right now. I mean, it’s just.

Matt Stoll (26:23)
He is beaming. Yeah, he is.

Steve Parente (26:24)
You know, as I said to other people before, this reminds me of when my daughter in Stockholm, I her pick any karaoke song when we did the vowel lab there, and she picked nine to five. And at least I knew enough of that cadence, but like, I know some of this for you, so you’re gonna have to let me, like with many Italian songs, people make their different dialects or different things. You’re just looking at me like, I’m gonna suffer. Okay, here, I’m gonna suffer. I’m gonna suffer.

Brought this on myself. Here we go. Ready?

It’s Dominic the Donkey. It’s the Italian Christmas Donkey. Santa’s got a little friend, his name is Dominic. The cutest little donkey. You never see him kick. When Santa visits Peisans with Dominic, pee, because the reindeer cannot climb the hills of Italy. It’s Dominic the Donkey. Jing-Jong, hee-haw. Dominic the Donkey.

All

feet they present at the sled he looks at the mayor’s derby on top of Dominic’s head a pair of shoes or Louis a dress for Josephine the label in the inside says they made in Brooklyn that’s that that that that that that is Dominic the donkey jing-ha jing-ha the Italian Christmas donkey whoo all right that’s it

Rena M. Conti PhD (27:33)
Yes.

Matt Stoll (27:40)
Ha!

Rena M. Conti PhD (27:40)
That

was amazing! Well done! Well done!

Matt Stoll (27:45)
Bravo. Bravo.

Steve Parente (27:46)
Even Bright

Anna has turned red. All right. I hope that, mean, that was bad. That was really bad. But I I tried to get at least the rhythm and pacing of it. mean, thank God the words actually do rhyme. Tom, did I set my Minnesota membership of the state back five or six years with that?

Matt Stoll (27:53)
That was terrible, but that’s alright.

Rena M. Conti PhD (27:54)
Wait.

Thomas Gunderson (28:09)
Yeah, I don’t know. You’re going to be, you’re challenged now. You were right on the border of some of us long-term Minnesotans looking you in the eye and saying hello, but you might have taken a step back with this.

Steve Parente (28:20)
Yeah.

Yeah, I know. That provisional application to Lutheran Brotherhood is on hold. It’s on hold. Well, anyway, Brett…

Matt Stoll (28:29)
be revoked. ⁓

Steve Parente (28:33)
Thank you all. Rina especially, thanks for coming in. I know it’s so close to the holidays. We want to have you back to talk about this. You came to help with the Millie program for your trip to China teaching pharmaceutical policy in Shanghai. There’s a preview for hopefully you come back for a previous another conversation on that. Just because it’s, Brianna has been there, I’ve been there. It’s pretty amazing. And I think we’d be curious to see your thoughts. But we’re already out there.

wonderful studio audience. you for participating in our little conversation and hopefully you will forget about my Christmas caroling. There were other thoughts we could have done, you know, like so many different songs, I mean, but there we go. Well, that makes me feel that that sacrifice was worth it.

Rena M. Conti PhD (29:10)
So many, it’s true.

Matt Stoll (29:11)
So many.

Rena M. Conti PhD (29:15)
But you’ve made my week, so thank you.

Steve Parente (29:22)
Thank you all from the shores of On Background. We say goodbye to this wonderful year. So keep in mind, we are going to try to count down the 12 podcasts of Christmas on On Background. So stay tuned. might be a countdown starting right after Christmas Day for your favorites as recorded. Take care all.