November 19, 2021

The Weekly Gist: The Real Cranberry Sauce Edition

by Chas Roades and Lisa Bielamowicz MD

It’s almost Turkey Day! Our favorite holiday of the year, even if it will still be slightly more challenging thanks to the combination of lingering COVID worries, rising inflation, and supply chain delays that will make this weekend’s preparatory grocery outing more exciting than usual. So steel yourself for close combat as you attempt to secure the last remaining can of gelatinous, cylindrical cranberry sauce! (PSA: Please make your own cranberry sauce. Here’s the recipe—combine one bag of cranberries, one cup of sugar, and one cup of water in a pot. Boil 10 minutes, then cool. That’s it! Why do people eat the canned stuff?)

As a reminder, we’ve put the Weekly Gist on a slimming diet in advance of the holidays, so below you’ll find some quick thoughts from the road and our usual infographic. We’ll be off for Thanksgiving next week, then back with a few more editions to close out the year. Bigger things in store for 2022!


A key insight or teaching point from our work with clients, illustrated in infographic form.

Understanding the mechanics of the 340B drug pricing program

The 340B Drug Pricing Program, designed to increase access to specialty pharmaceuticals for low-income patients, is a perennial area of concern for health policy. The program has grown exponentially since its inception almost 30 years ago: 340B providers increased purchases of discounted drugs from $4B in 2009 to $38B in 2020, five times faster than the overall growth rate of US drug sales. Insurers and drug manufacturers are advocating for significant changes to the program, or even favor eliminating it entirely, claiming that 340B has grown beyond its original intent to help safety net facilities, and simply enriches providers without directly benefiting patients. Indeed, the profits from 340B have become essential for many hospitals’ sustainability; some systems tell us that 340B accounts for their entire margin.

In the graphic below, we outline the basics of revenue and product flow within this complex program. The 340B program is meant to allow hospitals that treat low-income, underserved patients to purchase drugs from manufacturers at a 25 to 50-plus percent discount, but still be reimbursed by payers at standard network rates. The discounts are intended to help hospitals overcome losses they incur in providing uncompensated care, but apply to drugs for all patients, regardless of income and insurance status. 340B providers often partner with independent pharmacies to dispense the drugs, and payers are billed the full list price for the medication. Thus, insured patients pay co-payments on the full price of drugs, leading to criticism that 340B savings are not passed on to patients. 340B providers share an estimated $40B in total annual profit with partner contract pharmacies. The program has been targeted for overhaul by both the Trump and Biden administrations, and faces another threat later this month, when the US Supreme Court is set to hear a case between the hospital industry and the Department of Health and Human Services (HHS) to decide whether the Centers for Medicare & Medicaid Services (CMS) has the authority to enact payment cuts through rulemaking. If the court rules in favor of the agency, 340B providers could see significant cuts in payment rates. In our next edition, we’ll dive deeper into the potential impact of that ruling on the industry.


What we learned this week from our work in the real world.

CVS wants to employ doctors. Should health systems be worried?

We recently caught up with a health system chief clinical officer, who brought up some recent news about CVS. “I was really disappointed to hear that they’re going to start employing doctors,” he shared, referring to the company’s announcement earlier this month that it would begin to hire physicians to staff primary care practices in some stores. He said that as his system considered partnerships with payers and retailers, CVS stood out as less threatening compared to UnitedHealth Group and Humana, who both directly employ thousands of doctors: “Since they didn’t employ doctors, we saw CVS HealthHUBs as complementary access points, rather than directly competing for our patients.” As CVS has integrated with Aetna, the company is aiming to expand its use of retail care sites to manage cost of care for beneficiaries. CEO Karen Lynch recently described plans to build a more expansive “super-clinic” platform targeted toward seniors, that will offer expanded diagnostics, chronic disease management, mental health and wellness, and a smaller retail footprint. The company hopes that these community-based care sites will boost Aetna’s Medicare Advantage (MA) enrollment, and it sees primary care physicians as central to that strategy.

It’s not surprising that CVS has decided to get into the physician business, as its primary retail pharmacy competitors have already moved in that direction. Last month, Walgreens announced a $5.2B investment to take a majority stake in VillageMD, with an eye to opening of 1,000 “Village Medical at Walgreens” primary care practices over the next five years. And while Walmart’s rollout of its Walmart Health clinics has been slower than initially announced, its expanded clinics, led by primary care doctors and featuring an expanded service profile including mental health, vision and dental care, have been well received by consumers. In many ways employing doctors makes more sense for CVS, given that the company has looked to expand into more complex care management, including home dialysis, drug infusion and post-operative care. And unlike Walmart or Walgreens, CVS already bears risk for nearly 3M Aetna MA members—and can immediately capture the cost savings from care management and directing patients to lower-cost services in its stores.

But does this latest move make CVS a greater competitive threat to health systems and physician groups? In the war for talent, yes. Retailer and insurer expansion into primary care will surely amp up competition for primary care physicians, as it already has for nurse practitioners. Having its own primary care doctors may make CVS more effective in managing care costs, but the company’s ultimate strategy remains unchanged: use its retail primary care sites to keep MA beneficiaries out of the hospital and other high-cost care settings. Partnerships with CVS and other retailers and insurers present an opportunity for health systems to increase access points and expand their risk portfolios. But it’s likely that these types of partnerships are time-limited. In a consumer-driven healthcare market, answering the question of “Whose patient is it?” will be increasingly difficult, as both parties look to build long-term loyalty with consumers. 


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Coming up on the Monday after Thanksgiving, we’ll dive deep into what’s at stake for hospital specialty pharmacy programs, as the Supreme Court hears the case challenging Medicare’s reimbursement cuts to 340B hospitals. The podcast will be on holiday for the Thanksgiving holiday, but don’t forget to download the latest episodes before you travel!

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That’s all for now. Thanks for reading the Weekly Gist—we really appreciate your time and engagement. Let us hear from you! We’d love for you to get in touch with your comments and feedback, and we’d be grateful if you’d share this with a friend or colleague, and encourage them to subscribe, and listen to our daily podcast.

If you’re traveling for the holiday, please stay safe. And as always, if we can be of assistance in your work, let us know. You’re making healthcare better—we want to help!

Happy Thanksgiving,

Chas Roades
Co-Founder and CEO

Lisa Bielamowicz, MD
Co-Founder and President