The Impact of 340B on Commercial Contracts
Duplicate rebates have resulted in revenue leakage for manufacturers.
The 340B drug pricing program has been a source of increasing revenue loss for manufacturers in recent years. As the program has grown, so too has the problem of duplicate rebates, which cause revenue leakage for manufacturers. This has inevitably resulted in higher prices for consumers, essentially undermining the initial purpose of the program. Some might even say that the 340B program today bears little resemblance to what Congress envisioned three decades ago.
Unfortunately, the Inflation Reduction Act (IRA)1 may create additional opportunities for duplicate discounts. While the legislation calling for Part B and Part D inflation rebates is designed to protect manufacturers from paying discounts already paid to 340B participants, the exclusion for 340B discounts in Part D cases won’t go into effect for several years.
In addition, the maximum fair price section of the IRA, which covers the price negotiated between manufacturers and the US Department of Health & Human Services, lacks duplicate discount protection, raising the risk of duplicate discounts at maximum fair prices.
The seeds of 340B
The 340B drug pricing program was designed to solve a problem with how the Medicaid Drug Rebate Program (MDRP) was launched. Congress launched2 the MDRP in 1990, mandating that if a manufacturer wants a state Medicaid agency to pay for the drug, the manufacturer must agree to provide that state with a Medicaid rebate.
In the calculation of that rebate, there is what’s called the “best price provision” for branded drugs. If the manufacturer had a single sale at a very low price to an entity not excluded from the calculation of best price, that single transaction could set the best price. And the bigger the difference between the average manufacturer price and the best price, the bigger the rebate.
Prior to 1990, many manufacturers were voluntarily offering safety-net providers lower pricing. But in 1992, Congress created3 the 340B program, which made these rebates mandatory. Under the program, if a manufacturer wants to participate in Medicaid, it must offer these discounts to safety-net providers. During the first several years after 1992, the program was pretty small because not all the providers knew about it or understood how it would benefit them.
Over time, however, more and more entities learned how to use the 340B program and how they could benefit financially by buying a drug at a very low price and selling it at customary prices. In 2010, the program took off when the Health Resources and Services Administration (HRSA) allowed4 an unlimited number of contract pharmacies to participate. This led entities, such as chain pharmacies, to realize they also could financially benefit from 340B.
Addressing conflicting interests
Pharmacy benefit managers (PBMs) often offer manufacturers contracts without 340B exclusion language, which forces manufacturers to either lobby for duplicate protection during negotiations or accept contracts that set precedents, which put manufacturers at a disadvantage in
future negotiations.
It’s also difficult for manufacturers to negotiate with PBMs due to lack of data. PBMs want to use data from the National Council for Prescription Drug Programs to determine 340B duplicate discount exclusions, but the data set is incomplete and could result in unnecessary revenue leakage.
To address the growing gross to net (GTN) gap caused by duplicate rebates, leading drug manufacturers now are adding contract language into their agreements with PBMs to limit commercial rebates on 340B dispenses.
Using data to close the gross-to-net gap
A major challenge in managing drug discount programs is that payers and manufacturers don’t always know a drug’s 340B price; only providers know this information. Providers also realize that if payers had a better understanding on a transaction-by-transaction basis of a covered entity’s 340B utilization, then payers would reduce reimbursements.
Another challenge in preventing a duplicate discount is that commercial rebates are based upon a claim for reimbursement, while 340B is largely managed as a chargeback, which does not have the same identifiers that a claim does. Consequently, there is no ability to link up on a one-to-one basis with a claim a manufacturer might see from a PBM.
Manufacturers want to gain greater transparency by receiving claims data from covered entities. Transparency is a sensible goal, but when some stakeholders fear that transparency will lead to financial harm, it could be difficult to attain.
Establishing transparency and cooperation
One could make the argument that understanding how 340B affects commercial contracts and the potential for duplicate rebates should be the foundation of every contract negotiation between manufacturers and other discount program stakeholders. That understanding begins with transparency of data. Requesting additional data from PBMs, including prescriber ID and pharmacy ID, makes it easier for manufacturers to effectively identify and prevent duplicate discounts through contract pharmacies.
It also is imperative that manufacturers have a drug discount monitoring tool that allows data validation and adds transparency to negotiations with payers and providers. The only way manufacturers can reduce 340B duplicate discounts is to work collaboratively with covered entities and share data transparently.
References
1. On the First Anniversary of the Inflation Reduction Act, Millions of Medicare Enrollees See Savings on Health Care Costs. US Department of Health and Human Services. August 16, 2023. https://www.hhs.gov/about/news/2023/08/16/first-anniversary-inflation-reduction-act-millions-medicare-enrollees-savings-health-care-costs.html#:~:text=Starting%20in%202024%2C%20there%20will,Part%20D%20enrollees%20and%20taxpayers
2. Dolan, R. Understanding the Medicaid Prescription Drug Rebate Program. KFF. November 12, 2019. https://www.kff.org/medicaid/issue-brief/understanding-the-medicaid-prescription-drug-rebate-program/
3. Mulligan, K. The 340B Drug Pricing Program: Background, Ongoing Challenges, and Recent Developments. USC Schaeffer. October 14, 2021. https://healthpolicy.usc.edu/research/the-340b-drug-pricing-program-background-ongoing-challenges-and-recent-developments/
4. Notice Regarding 340B Drug Pricing Program-Contract Pharmacy Services. Federal Register. March 5, 2010. https://www.federalregister.gov/documents/2010/03/05/2010-4755/notice-regarding-340b-drug-pricing-program-contract-pharmacy-services
About the Authors
Micah Litow is the President and Chief Operating Officer of Kalderos, while Rob Philo is the Founder and CEO of Philanthros Consulting.
