Improving Cross-Industry Collaboration on Drug Discount Programs

Daryl Todd

Some could make the argument that the 340B drug discount program¹ is broken and bears little resemblance to what its creators envisioned in 1992.

It was designed to ensure that safety-net healthcare providers, called covered entities (CEs), could continue to access low-cost drugs for their patients from drug manufacturers. The program mandates that manufacturers provide outpatient drugs at reduced prices to CEs, which is certainly an important goal, but unfortunately, there are aspects of it that have not gone according to plan.

In 2000, about 8,100 providers participated in the program, but that number skyrocketed to 50,000 in 2020, Axios reported.² As the program has expanded so rapidly, drug companies have accused participating providers of using 340B to pad their own profits.

Many of the more recent challenges associated with 340B stem from duplicate discounts, which occur when a provider and a state Medicaid agency both receive a discount on the same drug. A lack of accountability related to noncompliance has led to billions of dollars of overpayments, with Kalderos estimating³ that at least 5% of commercial rebates are duplicate discounts with 340B.

Now, there is more cause for concern, as a recent US District Court ruling in the Genesis case⁴ has some industry stakeholders fearing that the 340B program could double in size. In the case, the court ruled that the Health Resources Service Administration’s (HRSA) interpretation of “patient” as applied to one covered entity was contrary to the statute. Specifically, the court disagreed with HRSA’s position that the 340B drug prescription must originate from the ongoing relationship between the individual and the CE. While the holding is limited to the participants in the case, many industry observers are expecting providers to loosen their patient eligibility criteria.

As a result of the ruling, more people may become eligible “patients” under the 340B program, which would lead to a sharp increase in claims—and a virtually inevitable rise in duplicate claims along with it.

Absent detection, multiple claims for single drug dispense can add up to millions of dollars in noncompliant claims for drug manufacturers. The key to remedying this issue revolves around greater collaboration between critical stakeholders, including drug manufacturers, CEs, and state Medicaid agencies.

Creating more trust and collaboration

The stakes are high, as mistrust among stakeholders in the 340B program could lead to an even greater level of dysfunction related to drug discounts. However, with greater collaboration and better alignment of incentives, the industry can do better for patients who need access to low-cost and potentially life-saving drugs.

The following are three steps drug manufacturers and CEs can take to create more trust and foster more effective collaboration:

1. Prioritize transparency: Without trust, effective collaboration is nearly impossible. In the 340B program, a lack of transparency is probably the most significant reason why CEs and drug manufacturers often distrust one another. While this lack of transparency has incentivized some bad actors to take advantage of the program, many CEs are only guilty of inadvertent noncompliance. Uncertainty about program rules among CEs and state Medicaid agencies is a common cause of noncompliance. Too often, 340B stakeholders rely on archaic tools such as spreadsheets that simply cannot handle the surging amount of 340B claims, compounding the transparency issue.
2. Data democratization: To work productively together, separate organizations need to unite around a shared set of facts. Such unity around 340B is unlikely when one partner is unable to access data regarding a discount claim or dispute. Accordingly, when a CE submits data for a rebate under the program, it is essential that drug manufacturers have the ability to see the same data. However, this data sharing becomes far more difficult when CEs, manufacturers, and Medicaid agencies each use different tools to track 340B claims.
3. Reduce disputes: While transparency and better data sharing can help reduce mistrust over drug discount programs, disputes will inevitably arise in a program with so many claims like 340B. To this end, a new version of the 340B program’s Administrative Dispute Resolution (ADR) process could help.

The most recent version of the ADR, an administrative complaint process that establishes a formal way for HRSA to resolve claims disputes between CEs and manufacturers, sets new rules for how CEs and manufacturers can file complaints with the goal of shortening the process. This is important because if disputes aren’t resolved within a short time frame, a manufacturer may have to launch a HRSA-approved audit of the CE, which must be completed within three years.

Drug discount programs such as 340B are important avenues for enabling patients to obtain lower-cost pharmaceuticals, but these programs have often become plagued by mistrust between drug manufacturers, CEs, and state Medicaid agencies. However, with more transparency, equal access to data, and a better dispute-resolution process, stakeholders can foster trust and collaboration.

About the Author

Daryl Todd is the chief strategy officer of Kalderos, a data infrastructure and analytics company.

References

1. Mulligan K. The 340B Drug Pricing Program: Background, Ongoing Challenges and Recent Developments. The Leonard D. Schaeffer Center for Health Policy & Economics. October 14, 2021. https://healthpolicy.usc.edu/research/the-340b-drug-pricing-program-background-ongoing-challenges-and-recent-developments/

2. Dreher A, Goldman M. Federal drug discount program faces renewed scrutiny. Axios. August 11, 2023. https://www.axios.com/2023/08/11/340b-federal-drug-discount-scrutiny

3. Kalderos 2023 annual report. Kalderos. https://www.kalderos.com/2023-annual-report?utm_campaign=RP-223-06-13-annual-report&utm_medium=pr&utm_source=prnewswire&utm_content=annual-report

4. Genesis HealthCare, Inc. v. Becerra, No. 20-1701 (4th Cir. 2022). Justia. 2022. https://law.justia.com/cases/federal/appellate-courts/ca4/20-1701/20-1701-2022-07-01.html