By Dr. Gavin Magaha, PharmD, MS, Senior Director of External Affairs and Policy, Kalderos
LinkedIn: Gavin Magaha
LinkedIn: Kalderos
Hospital and health system pharmacy leaders are likely aware of the current turmoil surrounding the 340B Drug Pricing Program and Medicaid Drug Rebate Program (MDRP). Bloomberg Law, for example, recently reported that pharmaceutical manufacturers and a trade organization have filed at least 23 lawsuits in eight states that extend 340B drug discounts to an unlimited number of contract pharmacies.
These lawsuits are another consequence of the highly dysfunctional state of drug discount programs. Their continued problems – lack of data transparency, growing complexity and misaligned incentives – further undermine the programs’ founding missions of assisting patients, hospitals, health systems and other covered entities (CEs) that may be facing financial challenges.
Duplicative Claims Proliferating
The heart of the problem from the drug manufacturers’ perspective is the high volume of pharmacy claims filed for both 340B and MDRP for the same patient and fulfillment, resulting in a double discount. Drug manufacturers are not seeking to dodge their obligations under the programs, but rather close this double-billing loophole that creates more problems down the road and hinders their ability to invest in R&D and additional patient assistance programs. While closing this loophole may seem simple, in practice, it has proven far more challenging.
Reforming drug discount programs should be an important consideration for hospitals and health systems, too. Continued financial losses for pharmaceutical manufacturers involved in the programs could end up hindering critical healthcare provider goals, such as increasing patient access to novel and affordable therapies and increasing medication adherence.
However, outdated processes, fragmented information systems, and middlemen raking in billions of dollars contribute to the general dysfunction around drug discount programs, and, ultimately, patients are the ones who pay.
A Runaway Train
The spending associated with the 340B program alone reached $54 billion in 2022 and is on pace to surpass all Medicare Part D spending. This trend shows no signs of slowing down as recent legislation, such as the Inflation Reduction Act and the introduction of the Maximum Fair Price, have added complexity to an already complicated process. Poorly defined standards, such as exactly who qualifies as a “patient,” and inability to accurately attribute specific dispenses back to a purchased package add to the confusion and fuel further misunderstandings.
Misaligned incentives with drug discount programs have created systemic waste and abuse, while the exponential growth of the 340B program has outpaced stakeholders’ ability to effectively manage it. Information is siloed and stakeholders lack a standardized, non-adversarial method to resolve discrepancies, lacking the trust to do so.
Vertically integrated insurance companies, pharmacy benefit managers, and group purchasing organizations are deeply involved in the drug industry’s current model, but they bring additional complexity. As these middlemen take their cuts of the profits, they drive up costs at each step of the way that are eventually borne by consumers. These added layers of complexity contribute to an environment already lacking trust and transparency among stakeholders, as data discrepancies and misaligned incentives further erode the prospects of cooperation.
Short-Term Financial Gain
To date, many hospitals and health systems rely on 340B discounts as an additional revenue stream to support operations. Yet systematic uncertainty and suspicions of non-compliance could cost the covered entity more if manufacturers challenge the claims and trigger an audit that further stresses financial and staffing resources.
Billing modifiers for 340B drugs have been the primary means of attempting to maintain compliance, avoiding these disputes between CEs and manufacturers. However, the approach falls short because the process is often delayed by 340B eligibility evaluations and complex unit conversions. Regulations from the Health Resource and Services Administration, the federal agency that manages the program, require manufacturers to engage in good-faith inquiries before audits, as well as its own reviews to identify duplicate discounts. This adds even more layers to the process and is another compliance drain on CE resources.
Resolving disputes is further inhibited by a lack of unified, mutually agreed upon data sets available to all stakeholders. In short, the system we have arrived at today relies heavily on self-policing while all parties are working in silos. The most frequent result of this lack of coordination and transparency is sadly predictable: Compliance has become nearly impossible.
A Step in the Right Direction
There are encouraging indicators, however, that stakeholders can agree to collaborate in the best interests of patients. Look no further than Oregon, which has adopted an approach that involves using claims level information proactively to prevent 340B dispenses to be included in the Medicaid drug rebate invoice totals. In Oregon’s managed Medicaid programs, the 340B program operates by having CEs supply the state with a list of all 340B units dispensed during a given quarter, allowing managed care organizations to reconcile those units against claims paid and remove them before submitting an MDRP rebate invoice to the manufacturer.
This approach is innovative in that it creates more transparency and collaboration between key stakeholders such as drug manufacturers, CEs, and state Medicaid agencies. While Oregon’s approach represents a small, bright spot, fully addressing the complexities and inefficiencies of the current system will require continuous improvements to systems and processes. Using claims-based data elements to proactively identify 340B utilization at the unit level would bring multiple drug discount programs into alignment (MDRP, 340B, Commercial Rebates, and IRA). Additionally, it would permit direct discounts to be effectuated faster than most current package-based ordering and so called up-front purchasing practices.
The focus throughout this reform effort should remain on ensuring patients can access services and afford needed medications, just as when the 340B program was founded in 1992. More than three decades later, we have the tools available to make these programs operate with greater efficiency, transparency and trust. We just need to embrace that times have changed and harness the collective will and leadership across all stakeholders to make it happen.