A critical year for drug discount management

Two programmes created in the early 1990s with the intention of helping consumers pay for their prescribed medications are expected to expand substantially in 2024.

While the 340B Drug Pricing Program and the Medicaid Drug Rebate Program (MDRP) have grown in recent years, provisions of the Inflation Reduction Act (IRA), as well as a recent federal court ruling, are likely to spur significant additional expansion in the coming months and beyond.

More opportunities to benefit from 340B discounts and Medicare rebates sounds like great news for eligible consumers. However, for other drug discount system stakeholders – manufacturers, covered entities (CEs), and state Medicaid agencies – an uptick in discount and rebate claims is sure to exacerbate the costly and unresolved challenge of duplicate discounts.

Non-compliant discounts cost drug manufacturers in the form of revenue leakage and increasing gross-to-net (GTN). As the volume of drug discounts and rebates rises, pressure on drug manufacturers to identify, dispute, and resolve duplicate discounts will intensify.

Systemic flaws

At least 5% of commercial rebates are duplicates of 340B discounts, our data shows. These duplicates cost manufacturers approximately $6 billion in lost revenue. That money could have been used to enable lower drug prices for consumers.

Duplicate drug discounts are caused by several factors. Among them is that the 340B and MDRP programmes operate on parallel tracks. While 340B uses a chargeback model, MDRP employs a rebate system. The lack of intersection between the two programmes makes it extraordinarily difficult to ensure transparency, collaboration, and accountability. These systemic flaws are a breeding ground for confusion, mistrust, and duplicate discounts that impose a financial and administrative burden on all drug discount stakeholders.

The goal of the 340B programme, created by Congress in 1992, is to assist financially constrained CEs – such as disproportionate share hospitals, critical access hospitals, and rural referral centres – by offering price discounts for drugs and enabling them to offer value-based patient care. Not only would this benefit Medicaid recipients who could purchase prescribed drugs at lower prices, the savings would allow CEs the option of spending more on clinical and administrative staff, medical equipment, and patient services.

Confusion and low compliance

Both 340B and MDRP can serve patients by controlling drug prices and allowing CEs to offer free or low-cost care. Unfortunately, these programmes can be confusing to consumers. Many patients may not comprehend the difference between (1) drug prices at the point of sale based on insurance plans and (2) negotiations with pharmacy benefit managers (PBMs). If consumers don’t fully understand how to take advantage of available discounts – or don’t even know they exist – the effectiveness of these programmes is diminished.

In addition, an analysis of 340B outcomes published in JAMA Health Forum concluded that “audits of covered entities found low rates of compliance with 340B program[me] requirements.” This non-compliance can be attributed to uncertainty among CEs and state Medicaid agencies surrounding programme rules, the failure of stakeholders to extract and share data, and little or no collaboration. Then, there are the inadequate tools: CEs and state agencies are typically working with productivity software from the 1980s, which is simply not up to the task.

A shifting landscape

A confluence of political and legal events is exerting pressure on drug manufacturers in 2024. The IRA – which covers the price negotiated between manufacturers and the federal government – includes no mechanisms in its maximum fair price section to safeguard against misapplied discounts, thus increasing the risk of duplicate discounts at maximum fair prices. Further, manufacturers are under pressure to effectuate MFP within 14 days of the point of sale, even as they await guidance from the Centers for Medicare and Medicaid Services (CMS).

A federal court ruling in November in the Genesis case that broadens the definition of a “patient” beyond what was defined under 340B will also impact discount claims. This new definition likely will result in multiple CEs claiming the same patient for a single dispense. As 340B expands, there will inevitably be more cases of non-compliance, leading to further revenue leakage for manufacturers. Excel spreadsheets won’t be sufficient to handle the anticipated extra volume.

And while it's anyone’s guess what impact election politics may have on 340B and MDRP, it’s apparent that drug manufacturers must rely on technology to handle the predicted surge in discount claims volume this year and beyond.

A recent study by my company shows that 99 of 100 drug manufacturers view technology as the key to managing drug discounts. These manufacturers recognise the need for a powerful technology platform that ensures drug discount data is both accessible and transparent and which facilitates collaboration between all stakeholders – manufacturers, CEs, payers, PBMs, and patients.

Revenue leakage is far more than an issue that impacts the bottom line of drug manufacturers; it is a problem that undermines the ability of drug discount programmes to help consumers. As 340B and MDRP grow, this problem will only worsen. Consumers deserve better.