At the Breaking Point: The Unsustainable Future of Government Drug Discount Programs

Today’s guest post comes from Gavin Magaha, Senior Director of External Affairs and Policy at Kalderos.

Gavin discusses the three key reasons for duplicate discounts between the 340B Drug Pricing Program and the Medicaid Drug Rebate Program. He then explains Oregon’s novel approach to fixing the problem.

To learn more, register for Kalderos’ August 21, 2024, webinar: Revolutionizing Government Discount Programs: Why Traditional Methods Fail.

Read on for Gavin’s insights.

At the Breaking Point: The Unsustainable Future of Government Drug Discount Programs
By Gavin Magaha, Senior Director of External Affairs and Policy, Kalderos

Over the past decade, duplicative claims for the same dispensed product under both the 340B Drug Pricing Program and the Medicaid Drug Rebate Program (MDRP) have surged. This has led to confusion and noncompliance, costing the healthcare system billions of dollars.

These noncompliant discount claims undermine the goals of helping consumers and financially strapped covered entities (CEs). Unfortunately, there is no sign the 340B program’s exponential growth is going to slow down. Recent court rulings, such as that in the Genesis case, may drive further growth.

Drug manufacturers provide discounts as directed by 340B and MDRP programs, but they should not be expected to pay discounts to both programs for the same dispense. Unfortunately, under the current chaotic and confusing system, this happens far too often.

Despite the complexity, most stakeholders would agree that eliminating waste in drug pricing is essential to increasing patient access to novel and affordable therapies which would reach the ultimate goal of improving health outcomes for patients. But let’s face it, the pharmacy pricing and benefit industry is broken. Outgrown processes, disconnected systems, and middlemen making billions of dollars are all contributing to the dysfunction at the patient’s expense.

WHAT’S DRIVING THE PARADIGM SHIFT?

1. The scale of the problem is unsustainable (and growing).

Purchase under the 340B program now exceed $50 billion and continue to grow rapidly. Recent legislative changes, such as the Inflation Reduction Act (IRA) and the introduction of the Maximum Fair Price (MFP), add additional layers of duplication to an already complex system.

Loose and poorly defined standards, such as the definition of a patient, contribute to unintentional growth and further complicate compliance efforts. Additionally, Administrative Dispute Resolution (ADR) regulations require manufacturers to obtain extensive information to support a dispute, yet they lack the necessary means to effectively gather this information under the current system.

2. The system incentivizes silos.

Misaligned incentives lead to systemic waste and abuse, while the exponential growth of the 340B program has outpaced the ability of stakeholders to manage it effectively. Stakeholders don’t have a way to work together effectively and lack the trust to be motivated to do so.

3. The industry is plagued with middlemen.

Vertically integrated insurance companies, pharmacy benefit managers (PBMs), and group purchasing organizations (GPOs) are all core parts of the existing model, but add layers of complexity. What this means, though, is that costs incurred at each step along the way are driving up the price and ultimately come at the expense of patients. Aside from cost, the many layers create a lack of transparency and trust due to data discrepancies and misalignment between parties.

WHERE CURRENT SOLUTIONS BREAK DOWN

Modifiers have been the traditional method for managing compliance with drug discount programs, but they fall short in addressing noncompliance, compounded by delayed 340B eligibility evaluations and complex unit conversions. Recent Health Resources and Services Administration (HRSA) regulations add more layers, requiring good-faith inquiries, potential audits, and HRSA reviews for duplicate discount discrepancies, with a strict three-year petition window.

This retroactive approach continues to break down due to the lack of a unified data between stakeholders. The system relies heavily on self-policing, yet all parties are fully working in silos. The lack of coordination makes ensuring compliance near impossible.

As new programs get introduced, such as the IRA, there needs to be a better way. A proactive solution, like Oregon's approach, involves direct 340B discounts based on administered units.

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. This allows Managed Care Organization plans to match those units to claims paid and remove them before submitting an MDRP rebate invoice to the manufacturer. This offers a higher level of transparency and collaboration than currently exists among drug manufacturers, CEs, state Medicaid agencies, and other stakeholders.

While Oregon's approach is a step in the right direction, continuous improvement and innovative solutions are still necessary to fully address the complexities and inefficiencies of the current system.

CONCLUSION

The current model isn’t working. Without greater collaboration and better alignment of incentives, the corrosive existing mistrust among stakeholders will make the drug discount system more dysfunctional, resulting in more revenue leakage and lost opportunities. Patients need and deserve better.

To learn more about the evolving challenges of drug discount programs and discuss innovative solutions, register for our August 21, 2024, webinar: Revolutionizing Government Discount Programs: Why Traditional Methods Fail. This session will leverage insights from covered entities, policy makers, and industry leaders to propose new compliance models and technology solutions essential for the sustainable future of drug discount programs.

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