POST OUTLINE

Introduction: Overview

  • Review of Johnson & Johnson’s drug rebate payments in 2023
  • J&J’s 2023 profit margin
  • Johnson & Johnson’s real rebate problem

340B and the drug industry as a whole

  • Estimated percentage of drug sales supporting 340B health systems
  • Why the actual number is lower than reported
  • The importance of 340B savings & revenue to non-profit hospitals
  • Number and percentage of failing rural hospitals
  • Percentage of major non-profit hospitals losing money

The whole truth about where 340B rebates are going

  • Percentage of 340B revenue going to specialty medications
  • Percentage of specialty revenues going to top specialty pharmacies
  • Top 15 specialty pharmacies owned by PBMs +/or private insurers
  • Percentage of total 340B revenue going directly to PBM-owned specialty pharmacies

Problems with PBM ownership of specialty pharmacies

  • PBMs can steer prescriptions to their own pharmacies
  • Patients and health systems further suffer, due to lack of choice
  • PBM pharmacies lack personal service common to hospital-owned specialty pharmacies

Analyzing Additional Drug Manufacturer Objections To 340B

  • Manufacturers claim expansion of contract pharmacies is unlawful
  • And yet, manufacturers impose 340B restrictions that are clearly unlawful
  • More contract pharmacies means better care for 340B patients
  • Manufacturers call 340B entities’ integrity into question
  • ProxsysRx offers personal experience to counter that claim
  • Example of manufacturer “shell game” with pricing of insulin
  • HRSA threatens severe response to latest J&J restriction announcement
  • Johnson & Johnson backs down

ProxsysRx is here to help, if you have questions.

There are so many ways to optimize your 340B drug program savings and benefits while overcoming manufacturer restrictions. For more information on any aspect of developing & managing a successful 340B program AND/OR retail and specialty pharmacies, contact:

HOWARD HALL C: 214.808.2700 | howard.hall@proxsysrx.com

 

FULL POST 

According to a graphic published on its website, in 2023 Johnson & Johnson provided $42.8 billion in rebates, discounts and fees to insurers, pharmacy benefits managers (PBMs), hospitals, government programs and other healthcare entities. The company’s gross profit margin in 2023 was 69.2%, and yet they’re one of the drug manufacturing industry’s loudest voices in blaming the 340B program for their so-called “woes.”

However, as their own reporting clearly indicates, fully 47% of the rebates they provided went to recipients they’re NOT legally bound to pay.

Here are the recipients of that 47%:
Private insurers and PBMs: 31% ($13.4 billion)
”Other healthcare entities” 9% ($4 billion)
Non-340B hospitals: 2% ($.7 billion)
Distributors: 5% ($2 billion)

Conclusion: J&J’s overwhelming problem is not the 340B program. It’s the outrageous rebate payoffs they’ve negotiated themselves.

Let’s give Johnson & Johnson its due

J&J has complained loudly and repeatedly about the amount of rebates it pays to 340B entities — $6 billion, or 14% of its total rebates in 2023. In the company’s defense, that percentage is double the estimated 7% of all drug industry revenue that goes toward 340B rebates. Even at 7%, it’s understandable why drug companies might complain about the amount of money going into the 340B program.

However, a closer look at the actual distribution of Johnson & Johnson’s 340B rebates (which, it can be assumed, are broadly representative of the drug industry as a whole) reveals that a lower amount ends-up supporting non-profit hospitals (and other entities) — many of which rely on 340B revenue for their very survival.

That last statement may sound dramatic, but it’s far from an overstatement. According to a July, 2024 report from the Center for Healthcare Quality and Payment Reform “More than 700 rural hospitals — over 30% of all rural hospitals in the country — are at risk of closing because of the serious financial problems they are experiencing. Over half (360) of these rural hospitals are at immediate risk of closing because of the severity of their financial problems.” What’s more, according to available data, the majority of rural hospitals are non-profit, with estimates suggesting around 80% of private rural hospitals are classified as non-profit institutions.

The problem of maintaining a positive operating balance isn’t limited to small, rural hospitals. According to a 2023 analysis by HealthExec.com, “nearly 20% of major non-profit hospital systems lost money in both operating and non-operating activities.”

The whole truth about where 340B rebates are going

Multiple online sources report that specialty medications now represent 51% of the total cost of prescription drugs in the United States. That percentage also applies to the total spend on 340B prescriptions. What’s more, according to figures published by the industry blog Drug Channels and Becker’s Hospital Review, 78.8% of US specialty pharmacy revenues go to 10 of the top 15 specialty pharmacies — all of which are, or until recently were, owned by PBMs. Here’s a list of those pharmacies — including ranking, revenue and ownership.

1. CVS Specialty (CVS Health) — $73.3 billion

2. Accredo/Freedom Fertility (Cigna / Evernorth / Express Scripts) — $59.5 billion

4. Optum Specialty Pharmacy (UnitedHealthGroup / OptumRx) — $32.3 billion

5. Walgreens Specialty Pharmacy — $8.4 billion

6. CenterWell Specialty Pharmacy (Humana) — $6.2 billion

7. Onco360 Oncology Pharmacy / CareMed Specialty Pharmacy (BrightSpring Health Services) — $4.6 billion

10. Kroger Specialty Pharmacy (Elevance Health, purchase pending) — $3.2 billion

11. Acaria Health (Centene) — $2.9 billion

12. Biologics / RxCrossroads (McKesson) — $2.2 billion

15. Lumicera Health Services (Navitus Health Solutions) — $1.5 billion

Applying basic math (51% x 78.8%), that means more than 40% of the total cost of 340B prescriptions in the United States is going through ten specialty pharmacies owned by PBMs and/or private insurers — entities, let’s remember, to whom Johnson & Johnson is already paying 31% of its revenue in rebates the company itself negotiated.

NOW: Let’s assume, based on conservative estimates, that the average Dispense Fee for a 340B specialty pharmacy prescription is 15% of a drug’s total cost, and that the average gross profit margin for each 340B specialty prescription is 5%. Again, applying basic math, that means roughly eight percent of every dollar that’s supposed to support 340B entities (in the form of 340B rebates) goes directly into the pockets of ten specialty pharmacies owned by the very PBMs who already command the lion’s share of rebates that drug companies willingly pay.

NOTE: Our observations about the specific PBMs mentioned in this post should not be mistaken as censure of the PBM industry as a whole. Still, based on Johnson & Johnson’s own published numbers, that’s $480 million not supporting 340B hospitals and health systems, but further enriching businesses to whom it’s already voluntarily paying $13.4 billion in rebates. Let’s also remember that 340B hospitals still have to pay all the operating expenses associated with the 340B rebates they receive.

Is there an analogy to Johnson & Johnson’s 340B rebate structure?

Frankly, the situation reminds us of the Longshoremen’s union, which has 50,000 members for some 25,000 port jobs. On any given day, half of its members are at home collecting what its contract calls “container royalties.” Worse still, the union’s top-paying 590 positions are overwhelmingly held by individuals connected to organized crime and/or union leadership.

Applying the mob analogy one step further to PBMs’ role in the 340B program, a huge problem with the distribution of 340B-eligible prescriptions is what’s known as “steerage.” In determining where 340B specialty prescriptions go, PBM-owned pharmacies inarguably enjoy an unfair advantage over independent or hospital-owned specialty pharmacies, because their corporate owners can steer prescriptions to their own pharmacies. Not only is this a situation of the rich feeding the rich, but it robs 340B patients and health systems of choices.

Legacy Big Box PBMs and their centralized specialty pharmacies serve themselves first.

Worse still, given their outsize revenues and labrynthian corporate structures, the largest specialty pharmacies offer essentially none of the clinical care advantages that come with hospital-owned specialty pharmacies; namely, the advantages that come from close working relationships between specialty pharmacists and the hospitals, patients and providers they serve.

All of which is why, as we’ve maintained in a previous post, every 340B hospital should have its own on-site specialty pharmacy — provided, of course, that it’s an economically viable undertaking. The changes in market dynamics have made on-campus specialty pharmacies an affordable financial imperative for hospitals with the means and the resources. And with that comes an equally requisite moral imperative. Healthcare is local. Pharmaceutical care should also be local.

Granted, smaller and rural hospitals lack the footprint to justify their own specialty pharmacies — but for hospitals with the resources, a specialty pharmacy should be a necessary component of the mission to offer their communities the highest quality healthcare possible. Centralized specialty pharmacies simply cannot uphold that mission, or that standard of healthcare, on a local level.

Analyzing Additional Drug Manufacturer Objections To 340B

Contract Pharmacies

MANUFACTURERS ARGUE that the 340B program doesn’t explicitly allow hospitals and clinics to use an unlimited number of contract pharmacies.

AND YET they seem to have absolutely no problem imposing a seemingly endless raft of pricing restrictions that the 340B program explicitly doesn’t allow.

MANUFACTURERS ARGUE that the increased number of 340B contract pharmacies has led to increased costs and revenue loss for drug manufacturers.

IN TRUTH, the number of contract pharmacies has no impact on the number of 340B prescriptions written. But it does have a profound impact on the ability of 340B health systems to serve patients in need. One of the leading causes for medication non-compliance, particularly among 340B patients, is lack of convenient access to nearby pharmacies.

Too many patients in need simply don’t have the transportation resources needed to travel to remote pharmacies to fill their 340B prescriptions. The drug companies know that, so many have restricted the 340B contract pharmacies they’ll honor to those within a 40-mile radius of any given 340B health system. Many others have required 340B hospitals to limit their contract pharmacy networks to a single pharmacy — which, they know, means hospitals will have to choose between either a retail or specialty pharmacy as their single pharmacy. That is NOT, and never has been, explicitly allowed in the 340B law as written.

MANUFACTURERS ARGUE more 340B contract pharmacies contributes to “diversion,” which is the unlawful distribution of 340B drugs to nonpatients.

IN TRUTH, ProxsysRx has managed the 340B programs of 18 health systems since 2019, and not once has a client of ours ever been fined for a 340B violation.

340B program transparency and oversight

MANUFACTURERS ARGUE the 340B program lacks transparency and oversight. They question whether providers are using the savings from discounted drugs to improve care for low-income patients or to increase their own profits.

REALITY CHECK: Refer to our own experience serving 340B programs above. What’s more, our clients have reported numerous instances of using 340B savings to expand and improve the healthcare services they offer in their communities. To read about how two health systems have done just that, click here.

IN TRUTH, it’s the manufacturers themselves, and their Byzantine pricing policies, that lack transparency and oversight. Consider the cost of insulin, for which some drug manufacturers have charged (and some patients have paid) as much as $1000. Drug manufacturers establishing that price point actually have no expectation of receiving that amount.

It’s part of an elaborate poker-bluffing shell game they play with insurers, whereby they ask outrageous prices for their drugs — while insurers demand equally significant discounts — all with the intent of establishing quote-unquote reasonable prices somewhere between the two extremes. The problem with that model, as noted in Johnson & Johnson’s rebate structure, is that the kickbacks offered to PBMs make fair drug pricing all but impossible. Need proof? For the same dose of insulin that some drug manufacturers ask $1000, ProxsysRx pharmacies charge $38.

At the end of the day, drug manufacturers blaming the 340B program for their problems is a lot like passing gas, then blaming the dog. And while HRSA has largely stood on the sidelines and allowed the manufacturers to impose unlawful 340B restrictions, there’s hope for the future: In September, Johnson & Johnson informed 340B hospitals that, beginning in October, it would only offer 340B discounts on top-selling drugs Stelara and Xarelto — prompting 189 bipartisan members of the U.S. House of Representatives to urge HRSA to “use every enforcement tool” at its disposal against J&J’s “unapproved and unlawful” 340B rebate proposal.

Sure enough, less than a week later, the agency sent J&J a letter threatening to terminate its Pharmaceutical Pricing Agreement   — which would end Medicaid and Medicare Part B coverage for all J&J drugs — if it didn’t abandon its unapproved plans. Long overdue action, if you asked us — but it’s a start!

ProxsysRx is here to help, if you have questions.

There are so many ways to optimize your 340B drug program savings and benefits while overcoming manufacturer restrictions. For more information on any aspect of developing & managing a successful 340B program AND/OR retail and specialty pharmacies, contact:

HOWARD HALL C: 214.808.2700 | howard.hall@proxsysrx.com

Leave a Reply