A 340B Navigation Guide for Pharmaceutical Manufacturers

Kyle Forcier
Senior Director of Life Sciences
and Product Marketing
Model N

The federal 340B Drug Pricing Program allows millions of underserved patients to access lifesaving medicines while enabling hospitals to extend federal resources. The program provides a crucial service to the US healthcare system, but some may argue that it poses operational challenges for pharmaceutical companies.

The 340B program requires pharma manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to eligible healthcare organizations, referred to as covered entities (CE). CEs include hospitals or clinics with a high proportion of uninsured or underinsured patients, cancer centers, rural healthcare facilities, and other providers. More than 50,000 CE sites participate in the program. These organizations purchased around $45 billion in covered drugs in 2021, equating to $110 billion in gross sales. Pharma manufacturers have seen a 163% increase in 340B sales over the last five years, and 340B is on pace to be the largest federal drug program by 2027.

With 340B's rapid growth and impact, drug manufacturers must explore ways to improve their data management and pricing processes to sustain their business, while also providing discounted medications to those in need.

The complexity of 340B price management

Managing a 340B pricing program involves dozens or hundreds of entities and extensive number-crunching.

Manufacturers calculate the 340B price from related price calculations, including average manufacturer price (AMP), best price (BP), and the Medicaid unit rebate amount (URA). Determining each of these rates requires extensive, accurate, real-time data. If just one of these figures is incorrect, the 340B price is wrong, causing manufacturer problems, such as fines and lost revenue.

Tracking who pays what for which medication—and when—can be complex. Pharmaceutical manufacturers sell the drugs to wholesalers, which then distribute to CEs and their contract pharmacies (CPs). CEs engage CPs to dispense prescription drugs to the CE’s patients. Depending on the situation, manufacturers may charge wholesalers the 340B discount or full price. If they do not give the discount up front, the pharma company will eventually receive wholesaler chargebacks or claims from insurance or government entities.

Regulatory developments surrounding 340B

There have been several recent developments concerning the 340B pricing process that pharma manufacturers ought to be aware of:

CMS CY 2023 OPPS Final Rule: Under the new rule, CMS authorized a general payment rate of average sales price plus 6% for drugs acquired through the 340B Drug Pricing Program, meaning CEs will now be able to receive the same payment rate for 340B-acquired drugs as they do for drugs purchased at non-discounted prices.

CMS is also considering a proposal requiring a lump sum payment as a remedy for 340B drug payments from CY 2018-2022 in response to the Supreme Court ruling in American Hospital Association v. Becerra. If the rule passes, pharmaceutical companies may face a hurdle in calculating their required payment.

Integrity provisions: In January 2019, Congress enacted the 340B CMP Final Rule establishing civil monetary penalties for drug manufacturers that knowingly and intentionally overcharge CEs for prescription drugs. Under this provision, manufacturers must resolve all overcharges, even if the wholesaler is responsible.

When it comes to dispersing refunds, on top of determining the correct amount, manufacturers must provide the money to the right recipient. Without accurate data from CEs, the manufacturer may unwittingly refund an entity not entitled to 340B pricing. Additionally, drugmakers must know whether to send the rebate to a third party or directly to the CE and confirm the payment is received. Failure to issue refunds to the proper entity can result in significant fines.

Rise of contracted pharmacies: Establishing a contract with a pharmacy saves CEs money and provides patients with flexibility. But some may argue that tracking which medications these pharmacies dispense via 340B inventory versus inventory purchased at the wholesale acquisition cost (WAC) can be involved. If CPs don’t diligently separate 340B and retail inventories, they could be a risk for selling incorrectly discounted medicines. More than 32,000 pharmacy locations—more than half of the retail pharmacy industry—act as a 340B CP, greatly exacerbating management challenges.

Duplicate discounts

The 340B supply chain logistics can generate duplicate discounts. Manufacturers are not required to offer both a discounted 340B price and a Medicaid or commercial drug rebate for the same prescription. Instead, CEs should be dispensing drugs for Medicaid or commercially insured patients using non-340B inventory and 340B drugs for patients who meet the eligibility criteria and are not eligible for Medicaid or commercial reimbursement.

CEs should maintain separate inventories for drugs with and without 340B pricing. But expanding CP networks can cause CEs to lose visibility into how the 340B inventory is managed and ultimately dispensed. Consequently, manufacturers may receive rebate claims for 340B-priced products given to patients covered by commercial insurance, Medicaid, or other government healthcare programs. If a manufacturer issues a rebate on top of the original discounted price, they've arguably provided more discount on that product than they should, resulting in significant revenue loss for the manufacturer.

With so many CEs and CPs, duplicate discounts happen too often, compromising the effectiveness of the 340B program.

Three steps to manage 340B pricing

Managing 340B pricing can be broken down into three strategies that will help ensure an organization is compliant with federal law:

1. Create a single system of record. Data silos prevent companies from seeing the complete picture of who paid which price, when, and for what. A centralized repository stores the data necessary to properly manage program pricing and eligibility, including the quarterly 340B prices, covered entity and contract pharmacy eligibility, and the identifiers assigned to each respective facility.
2. Automate 340B price calculation. Internal data controls, standard operating procedures, and automated processes are imperative to properly manage the process commonly known as “government pricing.” By leveraging centralized data encompassing direct and indirect sales, rebates, fees, and various eligibility rules, technology automates the calculation of the essential components necessary to determine the 340B price for each national drug code (NDC). Automation increases price accuracy and timeliness.
3. Create a strategy to monitor 340B program compliance. Preventing a duplicate discount scenario is not a one-size fits all process. Over the last 2-3 years, manufacturers have made significant progress in developing strategies to prevent paying 340B discounts and Medicaid or commercial rebates on the same prescription while maintaining compliance with each program. For example, some pharmaceutical manufacturers review commercial and Medicaid prescriptions to determine if an ineligible service provider dispensed them. Others require more detailed data directly from the CE and any eligible CPs.

Regardless of the approach, defining a compliance strategy for the 340B program ensures all parties involved receive the appropriate discount as defined by the state and federal government.As the 340 program grows in complexity, pharmaceutical manufacturers should embrace automation to streamline management and compliance and maximize revenue results.

About the Author

Kyle Forcier is a senior director of life sciences product marketing for Model N.