8-20-25 - 9am - 340B Drug Pricing Program

Episode Transcript

Speaker 1 (00:00):
The nice thing about my targeted ads is that I
know everything I ever needed to know about peripheral neuropathy.

Speaker 2 (00:11):
See, you just take it as a learning opportunity.

Speaker 3 (00:14):
It's a learning opportunity. But I don't know why he's
concerned about peripheral neuropathy. If I was him, I would
be concerned about brain neuropathy. Dead up there, just dead.

Speaker 2 (00:29):
Yeah, he's one of the twelve that listens to this.

Speaker 3 (00:31):
Show and he gets up at you know, three am
or whatever it is listen.

Speaker 4 (00:38):
To and Alaska time. Yeah.

Speaker 3 (00:40):
Yeah, so clearly brain dead and you're gonna be brain
brain dead after this this segment too. This has been
in my pos for a while and I've been trying
to find as many.

Speaker 4 (00:55):
Examples as I can. I've come up with a few.

Speaker 3 (00:59):
And the reason I decided to do it today is
one of the conversations with my ophalmologists yesterday was about
you know, we have all of us tend to have
a little bit of dry eyes in Colorado because of
the climate. And mine's exacerbated because my as my eyes
tear and water up, you know, to keep the fluid

(01:19):
on the on the eye is it just dries incredibly fast.
So I'm just constantly with eye drops in my eyes
to reduce the strain and the tiredness. And some time ago,
well last year, he prescribed reristasis. Pristasis is a compound,

(01:41):
and it's not necessarily for dry it's it's not for
my condition, but he thought it might help, So you
want me to try it. So I tried it, except
I had a heart attack because the retail price for
a thirty day supply with stasis is like over six
hundred dollars. Now I forget what it was with my insure,
but it was still, you know, three hundred or four

(02:02):
hundred dollars. So I tried it, and I came to
the conclusion doing a cost benefit analysis.

Speaker 4 (02:07):
That it just was not worth it.

Speaker 3 (02:10):
I there was no perceptible difference between with restaces or
without restasis. So yesterday I'm talking about there is a
generic available cycle spore into some sort, and he goes, yeah,
it's He says, I really don't think it's quite as good,
But I don't think you ought to be using it all.
You know, if you didn't see I was hoping you

(02:32):
would see an immediate benefit, and if you didn't, then
you shouldn't do anything, and he gave me a different
type of eye drop to use, and I haven't priced
yet because he gave me a sample. But it's a OTC.
It's over the counter, so it can't be that expensive.
But that brought me back to this drug pricing program

(02:53):
that I've been studying. It's called the three point forty
B Drug Pricing Program. It's just one of thousands of
these chaotic federal interventions into our healthcare system that increases
our costs, makes healthcare incredibly inefficient, and.

Speaker 4 (03:12):
It's a good example also of just.

Speaker 3 (03:14):
Some basic economic problems. So here's three forty B. It's
a federal program that forces so there, so you know,
in terms of economics, it's stupid, right. It forces drug
companies to sell drugs to certain hospitals at a deep discount.

(03:36):
Now the hospitals can then take that same drug and
sell it to a patient via private or government insurance
at the same price as everyone else charges, so the
hospital can make a huge profit. Source stasis, which is
not part of the three forty B program, but let's

(03:57):
use it as an example as if it were.

Speaker 4 (04:00):
Retail.

Speaker 3 (04:02):
Let's just say six hundred and fifty dollars the discounted price.
I'm just now, I'm just pulling numbers out of my
butt here just for purposes of example, retail six fifty.
Federal government says, hospital, if you're going to use it
on a patient, you have to sell it to the

(04:22):
The drug company has to sell I.

Speaker 4 (04:24):
Don't remember who the manufacturer is, but.

Speaker 3 (04:26):
The manufacturer of a stasis has to sell it to
the hospital.

Speaker 4 (04:29):
For two hundred dollars.

Speaker 3 (04:32):
But the hospital, through their hospital pharmacy, if they use
it on me, can then charge the full six hundred
and fifty dollars, so they make a four hundred and
fifty dollars profit. Which is why your band aid costs
five dollars instead of fifty, you know, instead of fifty cents.
That's the three point forty B federal drug program are here.

(04:58):
Here are a couple of examples the real prices for
the cancer drug Key Trudah added particular hospital in the
standard non three point forty B case, That hospital likely
practices what it calls as many hospitals do buy and bill.

(05:19):
They buy the drug from a distributor for somewhere close
to the average sale price the ASP, the average sale
price in this case Key Trudah. This cancer drug goes
for more than eleven thousand dollars for a two hundred
milligram dose twelve thousand dollars almost ninety.

Speaker 4 (05:45):
Eight to be examt exact.

Speaker 3 (05:47):
Next, that hospital would then administer key Trudah to a
cancer patient. Now, let's assume the cancer patient has commercial insurance.
The cans the health insurance will reimburse the hospital for
a negotiated price of Now remember key Truda's retail price

(06:11):
to the hospital is eleven one hundred ninety eight dollars.
The hospital gets the insurance company reimburses the hospital at
their negotiated rate of eighteen thousand, five hundred twenty dollars
for that exact same dose. So the hospital makes seven thousand,

(06:34):
three hundred twenty two dollars. That's eighteen thousand, five hundred
twenty dollars minus eleven thousand, one hundred ninety eight dollars. Now, clearly,
you and I know not all of that is profit,
because you have to you know, you have the handling,
you have administration, you have storage, you have all of
those built in costs of handling that drug. But nonetheless,

(06:55):
that's taken out of a seven thousand, three hundred twenty
two dollars profit for a single dose of that cancer drug.
All right, Now, that's in the real that's in a
normal world. Now, let's go to the three forty B case.
Same hospital, which happens to be a three forty B
covered hospital, buys the same two hundred milligram key true

(07:18):
to dose at a discount. Here the discount I'm estimating
at a negative twenty three point one percent, but maybe
much higher. I'm just not sure. So in this case,
the hospital they say at least two thousand, five hundred
and eighty six dollars that's the original price minus the
discounted price. Because they're in the three forty B pro

(07:41):
pricing program. They administer the drug to the cancer patient,
they bill the patient's health insurance. The negotiated rate stays
the same at eighteen thousand, five hundred and twenty dollars
for that cancer dose for the drug, for that one dose.
A key truth, the hospital now, instead of making a

(08:05):
seven three hundred and twenty two dollars profit outside the
federal government program, inside the three forty B program, now
makes nine thousand, nine hundred and eight dollars with the
two thousand, five hundred eighty six dollars in acquisition cost
savings getting added directly to their profits. Are you pissed

(08:31):
off yet?

Speaker 2 (08:32):
Yeah, I'm just sitting here and thinking. Need weren't we
all mad about the grocery stores for making a one
percent and two percent profit? And here we are the
these pharmacy companies or the hospitals are making you know,
like sixty and seventy percent profit.

Speaker 4 (08:46):
Now, why why don't you go back and watch porn again?
All right to you?

Speaker 3 (08:49):
Yeah, yeah, you're just you're you're you're paying way too
much attention to the details of this.

Speaker 2 (08:55):
That's the only thing that was going through my head
to that entire time. It's like, wasn't it like six
months ago, eight months ago, barely even a year ago,
we were so mad at the grocery stores for charging
so much and only getting less than three percent profit?

Speaker 3 (09:11):
Here, and you're not going to the grocery store because
you're dying of cancer. You're going to the hospital because
you got cancer, and they're making money off you having cancer.
I mean, I don't get me wrong, I'm not opposed
to having in cancer, but the government being in the
government three or three forty B program actually makes you

(09:33):
more money than in the private sector. That is some
fed up system right there. And you want socialized medicine.
Can you imagine, because this is kind of what this
is right now. Now, three forty B covered hospitals are
not limited to giving only three forty B drugs to
patients that have commercial insurance. They can also give them

(09:57):
two publicly insured patients Medicare, and I figured out that
they can also do a nen to Medicaid, but it
was too complex for my stupid brain to understand. So
let me walk through a three forty B program with
a Medicare patient. Once again, the hospital gets the three
forty B discounted price for key key Trudah, the cancer drug,

(10:21):
for eighty six hundred twelve dollars. However, this time that
drug goes into a Medicare patient. Medicare reimburses at the
average sale price that is one hundred ninety eight dollars
plus six percent, so it's instead of one hundred ninety

(10:45):
eight dollars the average sale price, Medicare reimburses at eleven thousand,
eight hundred and seventy dollars. Now, since the reimbursement is
so much lower than commercial insurance. The hospital makes a
lot less three thousand and two in fifty eight dollars
despite the discount of the three forty B program. But

(11:05):
without the discount, they would have made only six hundred
and seventy two dollars. So the three forty B program
increase their profits by almost five times for a Medicare patient.
What was there was something about we were going to
negotiate Medicare drug prices, and everybody stood up and sang

(11:27):
the halloliga course because we thought that was going to
be a great deal. Now here's the it In one
story that I found, let me just read what is said.
The government hopes the government hopes anytime the government hopes
run the government hopes that the hospital would use the

(11:48):
profits that they make to help the targeted patient populations.
In other words, they hoped that those profits are then
used to help low income, rural illegal aliens. But there's
nothing beyond hope for that result. That it's not required,

(12:09):
it's not a regulation. It is just hoped that by
giving them additional profits, they can then offset their costs
with those additional profits. Now, I'm sure when it finally
comes to the final accounting of a P and L
statement for a hospital. Yes, it probably did help them
on their profit and loss statement, But do you think

(12:30):
they directly sat back there and thought, oh, look, guys,
we just made you know, an eleven thousand dollars profit
off this drug. Let's make sure we direct that to
an illegal alien we're treating over here somewhere, or some
low income person that doesn't have in sut aside medicaid.
For a seconds, they probably would have medicaid, but that's
way too complicated, so let's go help that low income

(12:52):
family over there. Now, in theory, those profits aren't supposed
to be passed on to patients. You used to provide
uncompensated care, offer community benefits, expand access to care, subsidize
otherwise unprofitable lines of business, whatever those might be. I've
quite figured out what those are, but some unprofitable part

(13:13):
of your hospital. But the program does not require hospitals
to report their three P forty B derived spending, or
even how much they make from the sales. The law
doesn't specify, so the providers, the hospitals are free to
do whatever they want to with those three forty B savings. Now,
where does the money come from you thought about that,

(13:35):
where's all this money come from. Congress isn't pay. Taxpayers
aren't paying. Well, ultimately we pay for all of this,
but Congress isn't pay. It's not like Congress has an
appropriation for this program. Well, do the drug companies raise
prices on everybody to fund the discounts? Think about that.

(13:59):
The discount that going to the hospital, that's going to
the prescriber, that's funded by increasing the retail price that
you pay or that I pay. So if rastaceis, for example,
is it and I don't think it is. But if
Rastace's was a three forty B drug program in the

(14:20):
drug program that six point fifty I pay, I'm paying
whatever you know amount that might be. I'm paying that
higher price because I'm the patient. Am paying for that
hospital profit. Thank you, Michael. This is essentially a direct

(14:42):
transfer from drug companies to hospitals. If pharma companies can't
make money on certain three forty B drugs, then they'll
find other ways to generate profits. But there is no
transfer from drug companies. It's a transfer from other customers
most likely most likely other customers or from workers or shareholders.
But somebody pays. We You and I know that, because

(15:04):
we know that nothing is free. Somebody pays for those profits.
So there are some outstanding economic lessons here. This program
seems to operate as a sales tax on drugs and
that's used to fund a subsidy for the selected hospitals.
Plus you get a whole bunch of distancitives. But why

(15:27):
would you do it that way. Well, taxes and transfers
show up on the budget, but a mandated cross subsidy
does not show up in the budget. So it looks
free to the government. But you and I know that
it's not free. We do a whole lot of crap
in this country, starting with thou shall provide health insurance

(15:50):
for thy employees. Mandated cross subsidies are much more efficient
than just taxing and spending. And one reason is that
our general tax system, for its stupidly complex, well, for
its complexity, is a little less distortionary than a tax

(16:14):
on one good drugs. There's real there's no real reason
that a sales tax on drugs should subsidize a hospital.
But the bigger reason is that mandated cross subsidies cannot
stand competition. If a supplier gets to overcharge a in

(16:35):
order to subsidize b we obviously can't allow anybody else
to charge a competitive at a competitive price. So now
patented drugs are a bit special in that they have
a temporary monopoly in order to pay for their development costs,
you know, before you get to generics. Then this program,

(16:56):
as well as the larger negotiation over drugs, under cuts
that monopoly, or it at least involves a fight over
who pays the fixed cost of the development of a drug.
Perfect price discrimination is in fact efficient, but price discrimination
makes people pay according to the elasticity of demand. For example,

(17:18):
the price point on Mistasis was such that not only
did I not see a health benefit, but it was like,
I don't want to pay six fifty a month for
this stupid thing, So they're not getting any money from me.
Lots of restraint and competition still stays in place, but
you can't allow secondary market, right.

Speaker 2 (17:42):
Hey Mike, I don't eye problem today too. I couldn't
see my ass going to work, so I decided.

Speaker 4 (17:49):
To stay home.

Speaker 3 (17:51):
Wait a minute, you skipped work, and then you listen
to me instead of of I don't know, going fishing, uh,
going hiking, taking the dog for a walk.

Speaker 2 (18:07):
Yeah, but it's gonna be too hot today, Take nap.
It's gonna be ninety five day.

Speaker 3 (18:12):
Oh, that's scorching, scorching, jealous hurricane.

Speaker 4 (18:20):
There's a hurricane where to hit the Atlantic?

Speaker 2 (18:24):
The Atlantic coast?

Speaker 4 (18:25):
Oh, that's the Atlantic the Atlantic.

Speaker 2 (18:27):
Ocean like North Carolinakonta.

Speaker 4 (18:29):
The Atlantic Ocean.

Speaker 2 (18:31):
No, the coast.

Speaker 3 (18:33):
Well, you know, some of the outer bands are going
to cause some you know, probably some a little bit
of undertow at some of the beaches. There'll be a
little bit of wind, and there may be some you know,
localized flooding. There'll be a lot of rain. But no,
the hurricane did not make landfall. But that's all we've
heard about for like five days. In fact, I'm looking
up right now Fox News. Oh my gosh, threatening conditions

(18:55):
to the East coast. Seriously, why does everything have to
be so A should take a moment and explain what
a cross subsidy is. You probably understand that, but in
case you don't, across subsidy is when you take money,

(19:17):
you take revenue, You take revenue from a group of
your customers, and you use that revenue to lower the
cost or the price for another group, maybe your customers,
not your customers, but for another group, but all within
the same organization or maybe the same market. And that's
pretty common in health insurance, but it's also common in

(19:39):
like utilities. Do you don't think that when you pay
your Excel bill that part of the rate that you're
paying is designed so that they can lower a they
can offer a lower rate to a low income consumer
of their electricity, and then on top of that they
then ask you, do you want to con shoulbut additional

(20:01):
payment to do it?

Speaker 4 (20:02):
No, I know what you do.

Speaker 3 (20:04):
I'm not going to pay extra on my utility bill
because I'm already paying a cross subsidy in my electric
bill for you to help somebody with lower income. And
by the way, who decides what's lower income? You know,
my income fluctuates, not a lot, but it fluctuates based
on you know, the number of sponsors. And you know,

(20:25):
some sponsors take a break and they're gone for two
or three months and then they come back. Well, you
know that's money that I don't make for two or
three months. I'm lower income. I'm lower income than say
the three months before. For that you know, quarter year Xcel,
where's my discount? One product or customer segment is priced

(20:49):
above cost, so they can support lower pricing elsewhere.

Speaker 4 (20:56):
And cross subsidies.

Speaker 3 (20:58):
You know, you can probably make an argument for it,
but it really distorts the market. But most importantly, for
our conversation, cross subsidies obscure the true cost and the
value of whatever it is that you're paying for. In
the case here, oh, the stupid drug. I just went

(21:22):
totally blank on.

Speaker 2 (21:25):
True.

Speaker 4 (21:26):
What's it called true? Where my notes? I don't worry?
Where's my tab with my notes in it? The cancer drug?

Speaker 3 (21:39):
You are paying a greater cost because they want the
government wants to do two things. They want to the hospital.
They hope the hospital will provide that drug at a
lower cost to somebody who cannot afford it, predominantly Key True,

(21:59):
to someone like oh in illegal alien or quite honestly
a poor person. But I think the more important reason
is because they want to hide the real cost that
people are paying. When they tell me that they're negotiating
Medicare drug prices, I just laugh. Oh, they're negotiating them.

(22:25):
Here's how the negotiation goes. Okay, pharmaceutical company, what's your price?
What's your retail price for Key Truder? It's eleven thousand.
In fact, I think if you go to their website,
it's eleven thousand, seven hundred and forty nine dollars or something.
It's it's generally speaking, eleven eight hundred dollars or something.

(22:48):
That's what it is, mister government official. Okay, well, we'd
like to negotiate that price. What if we offered you
twelve thousand dollars for or fifteen thousand dollars for it? Okay,
but here's what you have to do. You have to
sell it to the hospital at a higher rate. But
they're going to take that extra money and then they're
gonna use they're gonna cross, You're gonna subsidize everybody else

(23:10):
that is using that drug elsewhere.

Speaker 4 (23:13):
Uh.

Speaker 3 (23:16):
That really distorts the marketplace. And in terms of healthcare,
we're paying out the wazoo in many cases for substandard care.
The this is all part of our entitlement fiasco broadly,

(23:38):
when you think about it broadly, three forty b hospitals
as as best I can tell, looking at a chart
of them, looks like they're in less wealthy areas, but
then they have satellite clinics usually you know, child health
care facilities that often extend into wealth or wealthy or areas,

(24:00):
because why they want to capture the greater returns from
commercially insured patients to subsidize those in.

Speaker 4 (24:09):
Those rural areas or those poorer areas.

Speaker 3 (24:12):
So again distorting the marketplace, distorting the free market. Every
three point forty b hospital could have an unlimited number
of childcare I don't mean childcare like in taking care
of them, but child healthcare, child health care, healthcare entities.
And they could have any number of contract pharmacies. Instead
of having the well, it could be inside the hospital

(24:34):
but not actually owned by the hospital, but contracted out
for you know, for a CVS or some other pharmacy
company to come in and provide those pharmaceutical services inside
the hospital. So you walk into a University of Colorado,
And I don't know whether this is true with u
SEE Health or not, But let's say you walk into
a u SEE Health hospital, the big one over at

(24:56):
Highland's Ranch or out out at Anshoots. I don't know
whether those are really run by nd shoes or whether
they're contracted out. My guess is most of them are
probably contracted out. And if I'm a hospital administrator, that's
what I would do you know why, Because now somebody
else has to worry about who the pharmacist is, how

(25:17):
much they get paid, their health benefits, their vacation time,
all of those costs associated with running that pharmacy. In fact,
I would rent out the space too. I would go
to CVS and say, hey, you want some you want
some built in patients, why don't you pay us? Will
provide you the space, and you pay us and come

(25:39):
in here and provide all these pharmaceutical benefits. Now the
cross subtanies get even worse. This is dysfunction by design
because the three P forty B program encourages growth and
invites malfeasance. So Congress create to this open ended discount.

(26:02):
And you know what, there are no reporting requirements, and
the providers respond rationally when there are no reporting requirements
by treating it as a general subsidy rather than a
charity fund. You think about And I forget which program
it was during COVID, but the Department of Treasury had

(26:23):
a pot of COVID money that they handed to the states.
And I got a phone call one time from a
consulting firm in DC that wanted to know if I
would help in Colorado and California, And I said, well,
so tell me about the tell me about what the
program is. Well, the states, you're going to get all
these this big pot of money and it comes with

(26:46):
literally no strings attached. And I said, I've never heard
I've never heard of that. What do you mean there
are no rules, there are no regulations on the spending.
What we're concerned about, and what we're trying to convince
in in my case, Colorado and California to do is
to pretend that there are some rules and regulations so

(27:07):
that if they get audited down, you know, at the
end of the program. Of course, I interrupt and said
audited on what if you're telling me there are no
rules and regulations about how to spend the program, what's
the audit going to be about? Well, come on, Michael,
you know, did they just hire their friends and relatives
to do you know, make up work? And I said, yeah,

(27:30):
they probably will. And what's the consequence that they do, Well,
we don't know. It was so open ended with COVID money,
and you wonder why we're in such a huge debt problem.
So I turned down the consulting dig I didn't want
to eat part of it because there were no metrics,
there was no way to measure how am I to

(27:51):
advise the State of Colorado, which if they'd heard I
was involved, probably there would have done it, or California
to say, look, you shouldn't the money this way, you
have to spend it this way in this way just
to be safe. Do you think Jared Poles would have
cared about that? Absolutely not. Jared Pole saw a free
pot of money, is going to spend it any way
he can, so anyway. So back to back to this

(28:14):
three forty B program. The drug companies are actually trying
to stop this for at least five years. As best
I can tell, They've come up with all sorts of
restrictions to try to slow the program down. They've they
pulled some of the few levers left to left to

(28:35):
them by limiting contract pharmacies to a single location and
by switching reap to rebates instead of upfront discounts. So
even they recognize that it's in terms of how they
have to account for this and process it that it's
just way too complicated for them. But and the general

(28:56):
lesson from all of this is when you got these
kind of joint state programs. States have a big incentive
to fleece other states, and to even fleece some of
their own clients within their own state. It completely distorts
the marketplace and who ends up paying the tab the
taxpayers and those of us who actually have health insurance

(29:20):
and go to a hospital or to a clinic and
pay the freight.

Speaker 5 (29:26):
Michael, I just want to let you know that NPR
is promoting a new expose about the federal.

Speaker 2 (29:34):
Government's false claims.

Speaker 5 (29:36):
That they handle Katrina properly, and they they're promoting it
with this now world famous quote.

Speaker 2 (29:42):
Let me see if I can pull it up.

Speaker 4 (29:43):
Hang on a minute, Yeah, look for that row.

Speaker 2 (29:45):
You're going here a job anyway.

Speaker 5 (29:49):
I guess they're running out of stuff to talk about.

Speaker 3 (29:52):
Let me just tell you I I really dread the
next ten days. I do, and I did. I know
there's somebody that's gonna send me a text message. Almost
immediately I did write the editorial for USA today. I'm

(30:14):
now thinking about spiking it. I'm thinking about calling them
back and telling them, Nope, you don't have permission to
run it. And during this program, I get a request
from People magazine. So far, I've turned everybody down except
USA today, and I'm thinking about telling them, yeah, don't

(30:37):
print it. I might rewrite it, but what I wrote
is pretty scathing. I'd rather just I'm not gonna change
anybody's mind. The people that have seen the nat GEO

(30:59):
documentary are already hoping that I die. That I mean,
and I mean literally, sending me emails and on social
media and other places. We hope you die. We hope
your grandchildren know you know what a loser and racist

(31:21):
pig that you are.

Speaker 4 (31:22):
It's just, you know, it's just like, eh.

Speaker 2 (31:26):
You know, it was nice that they got your side
of the story, and you know they had you sit
down for an interview for those documentaries.

Speaker 3 (31:33):
Well, I'm glad that, you know, I'm glad when you
and missus Redbeard watched it that you realize that, oh
there's there's Michael giving his side of the story.

Speaker 4 (31:40):
Right yeah, yeah, not.

Speaker 2 (31:41):
Not just clips from twenty years ago. It was you know,
like last week when you recorded it.

Speaker 3 (31:47):
Well no, it was actually ten days ago, right, yeah, yeah,
my apologies in your imagination that I did that. Yeah,
you know I watched that. I actually did watch that one,
and I was astonished. I understand every documentary has a
point of view, and I think that documentary was probably

(32:09):
paid for in part by General Russell Honorey so much
so he was the hero, the hero