Kyle Forcier

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. 

 participate in the program. These organizations purchased around 

 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.

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.

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

, 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.

 requiring a lump sum payment as a remedy for 340B drug payments from CY 2018-2022 in response to the Supreme Court ruling in 

. If the rule passes, pharmaceutical companies may face a hurdle in calculating their required payment.

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.

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.

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.

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

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.

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.

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.

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

Articles

How drugmakers can navigate the program’s pricing challenges and regulatory developments.

A 340B Navigation Guide for Pharmaceutical Manufacturers

Outcomes-based contracting is one of today’s catchphrases in pharma commercialization. Government regulations and employer groups are now shifting the focus of healthcare and placing more pressure on manufacturers to prove their value to patients and dispensers. As a result, manufacturers and payers are structuring more contracting arrangements around a drug’s performance and the resulting patient outcomes.

		This evolution in clinical and payment methodologies aims to create quality and cost outcomes and foster greater accountability. The contracting models are unique in that they rely on patient-level data to measure success as opposed to sales or utilization data. For example, an $85K specialty drug that treats hepatitis C will need to show proven value. A contracting arrangement should create a productive dialogue around whether the drug truly improves patient outcomes and will give solid data to help all stakeholders understand why.

		The end result is an agreement between manufacturers, providers, and payers that puts the onus on manufacturers to prove the value of the drug. In the past, the payer has maintained responsibility for positive outcomes; new contracting arrangements now place some responsibility on the manufacturer as well.

		This sounds like a win-win situation, but in reality, this process is very complex. Successful contracts can be difficult to achieve and in some cases, it can take up to a year to receive data that demonstrates if the contract was structured correctly. Furthermore, structuring such an agreement requires a deep understanding of health economics by many of the parties involved.

		In order to implement outcomes-based contracting effectively, pharma manufacturers need to be aware of the potential for complexity and the risk of simply lowering prices without accurately evaluating the drug’s outcome. To give a program the best chance of success, there should be initial research and analysis of current patient-level data to determine the metrics for success. By engaging in a negotiation process with the manufacturing account manager, payer and provider (doctor, pharmacy, etc.), each stakeholder in the process can arrive at an agreed-upon goal that will provide the best chance of success. Manufacturers who can collaborate effectively with clinicians, who best understand what treatments can provide the best patient care, can make tremendous headway in creating an effective contract.

		In fact, many rebate programs are set up to reward all parties: the manufacturer, the provider and the patient, for following the drug administration guidelines. We recently helped a manufacturer set up an agreement for a drug that needs to be taken every 29 days. Our client set up a rebate agreement that rewards providers who are properly administering the drug and ensuring patients are taking it on-schedule as it is prescribed. This allows the manufacturers to reap the benefits of proper compliance by patients, while also allowing them to communicate externally their commitment to proper administration. Finally, patients are encouraged to stick with a drug in order to give it the best chance of success.

		In terms of managing these agreements, manufacturers should consider setting up a system that allows them to systematically view all of their rebates in a single location. This ensures they have a handle on reporting and government pricing. Revenue management technology provides an integrated system that also allows comprehensive reporting, tracking and managing of contract rebate processes (see box).

		There’s no foolproof way to measure patient compliance. Manufacturers usually have to rely on limited data from tracking prescriptions in order to either reward the provider with a rebate, or inquire about why metrics are not being achieved. Pharma manufacturers can also make revisions to the program after evaluating initial data. For example, perhaps the manufacturer set up an agreement that rewarded providers/clinicians who had 85% of their patients achieve their 13-dose requirement, but they were only achieving 75%. If 85% isn’t a realistic goal, they might revise it to 78%, which is more achievable, but encourages a reasonable improvement. In some cases, the contract may be deemed a success even if the numbers aren’t achieved simply because they are seeing the numbers headed in the right direction.

		The lack of available automated technology solutions means evaluating these contracts is still a time-consuming manual process for many. It takes a lot of time to gather data and determine how to calculate success. Some manufacturers have more experience and may have established a streamlined set of processes. The advantage of bringing all data into a centralized application, such as revenue management, means that manufacturers have access to detailed reports and analysis that can be queried to track and compare customers and monitor trends. This allows them to determine quickly if an agreement is working or not.

		There are potential risks involved in creating a contract structure that may not accomplish the end goal and demonstrate the value of the drug. The most significant risk is the potential to waste time and effort creating, administering and evaluating a program that is not successful. Personnel are not always familiar with how to manage these contracts. Although rebate analysts are experienced in analyzing market share and interpreting contract data, they are typically not well versed in focusing on patient-level data. The learning curve can be steep and may require consultation with a third party.

		Pharma manufacturers also need to be prepared for possible unknowns that could change a provider’s approach. A payer may make changes to its formulary and move a drug from one tier to another, resulting in a significant drop in participation by providers.

		Furthermore, as these agreements become more popular, all parties should be aware of potential scrutiny from outside regulatory bodies, which may become critical of any contracting agreement that incentivizes clinicians inappropriately. Although outcomes-based contracting is not currently regulated, manufacturers should anticipate this possibility and ensure their programs truly have the patients’ best interests in mind.

		The bottom line is that manufacturers should be selective when creating these programs. One way to mitigate risk is to set up a few test cases and build upon them. Once the programs are tried and true, they can be replicated and rolled out to different customers/payers.

		Outcomes-based contracting is undoubtedly picking up steam as one potential tool to maintain a competitive edge in the marketplace. In fact, we have received feedback from some customers that health outcome rebates are one potential area of differentiation in a competitive marketplace. If these contracts are designed and administered appropriately, they can provide benefits to manufacturers by encouraging doctors, pharmacies and payers to participate, while also ensuring their drugs are utilized by patients as prescribed. This process should keep the individual patient top-of-mind with the goal of prescribing needed medications in a timely manner, ensuring medication is taken appropriately, and identifying potential gaps in care.

		As Solution Architect at Model N, Kyle Forcier has worked with life sciences manufacturers to set up and manage processes surrounding outcomes-based contracting. You can follow his company on Twitter at https://twitter.com/modeln. Model N solutions enable customers to maximize revenue and reduce revenue compliance risk by transforming their revenue life cycle from a series of tactical, disjointed operations into a strategic, end-to-end process.

Contracts with payers that contain terms based on outcomes can highlight a drug's value