The healthcare system has lost billions of dollars that could have fueled innovation because of noncompliance and confusion around drug discount programs such as 340B and the Medicaid Drug Rebate Program (MDRP).
One major problem revolves around duplicative claims for the same dispensed product under both programs, which ultimately undermines the goal of assisting consumers and covered entities (CEs), such as federally qualified health centers, critical access hospitals, and rural referral centers, that may be facing financial challenges. A recent court ruling in the Genesis case is only likely to sow more uncertainty, meaning that issues like duplicative claims seem likely to proliferate.
Let’s be clear: Drug manufacturers are not seeking to dodge their obligations under the 340B and MDRP programs. However, they are seeking to eliminate double-paying discounts to both programs for the same drug dispense. While this seems simple in concept, in practice, it has proven far more challenging.
Though perhaps an esoteric topic, problems with drug discount programs are an important consideration because they sometimes stand in the way of critical health-system goals like increasing patient access to novel and affordable therapies and improving health outcomes.
However, outdated processes, fragmented information systems, and middlemen raking in billions of dollars contribute to the general dysfunction around drug discount programs, and, ultimately, patients are the ones who pay.
3 factors that reduce the effectiveness of drug discount programs
The scale: Today, problems associated with drug discount programs have reached unsustainable proportions. The 340B program now reaches almost $60 billion and is growing rapidly. Recent legislation, such as the Inflation Reduction Act and the introduction of the Maximum Fair Price, have added complexity to an already complicated process. Poorly defined standards, such as exactly who qualifies as a “patient,” add to the confusion and fuel further misunderstandings.
The silos: Misaligned incentives with drug discount programs have created systemic waste and abuse, while the exponential growth of the 340B program has outpaced stakeholders’ ability to effectively manage it. Information is siloed and stakeholders don’t have a way to work together effectively, lacking the trust to do so.
The middlemen: Vertically integrated insurance companies, pharmacy benefit managers, and group purchasing organizations are deeply involved in the drug industry’s current model, but they bring additional complexity. As these middlemen take their cuts of the profits, they drive up costs at each step of the way that are eventually borne by consumers. These added layers of complexity contribute to an environment already lacking trust and transparency among stakeholders, as data discrepancies and misaligned incentives further erode the prospects of cooperation.
A better way
Traditionally, drug discount programs have relied on modifiers as the primary means of managing compliance. However, this approach falls short because the process is often delayed by 340B eligibility evaluations and complex unit conversions. Regulations from HRSA, which require good-faith inquiries, potential audits, and HRSA reviews for duplicate discount discrepancies, add even more layers to the process. However, a lack of unified data sets available to all stakeholders continues to hinder this approach. The system we have arrived at today relies heavily on self-policing while all parties are working in silos. This lack of coordination delivers a predictable result for drug discount programs: Compliance has become nearly impossible.
Fortunately, a better way is possible – with a proactive solution. Look no further than Oregon, which has adopted an approach that 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, allowing MCO plans to match those units to claims paid and remove them before submitting an MDRP rebate invoice to the manufacturer. This approach is innovative in that it creates more transparency and collaboration between key stakeholders such as drug manufacturers, CEs, and state Medicaid agencies. While Oregon’s approach represents a step in the right direction, fully addressing the complexities and inefficiencies of the current system will require continuous improvements to systems and processes.
Today’s model for government drug discounts is broken, but we can do better. Enhanced collaboration, transparency, and incentive alignment can create a more just and equitable drug discount program that serves the needs of all stakeholders – especially patients.
Gavin Magaha
Gavin Magaha is the senior director of external affairs and policy at Kalderos.
