Strategies for Managing Duplicate Discounts Under the 340B Drug Discount Program

Gavin Magaha, Senior Director, External Affairs and Policy, Kalderos 

Please provide a brief overview of your professional history.

After college, I worked for 7 years as a high school anatomy and physiology teacher (and coached football and golf). I returned to school to earn a PharmD degree from Wingate University. 

My first job out of Wingate was at Wake Forest Baptist Health, where I worked for nearly 6 years, most of that time as a pharmacy manager for medication control and compliance. While employed full-time at the health system, I earned a master’s degree in health systems pharmacy administration from the University of North Carolina at Chapel Hill.

I moved on to Apexus LLC, where I began developing my expertise in the 340B Drug Discount Program. I rose to director of 340B policy and compliance before leaving Apexus after nearly 7 years to join Kalderos last October. 

There is a lot of attention on the topic of 340B in Congress.  What kinds of reforms are being debated?

While 340B has remained essentially unchanged in the more than 30 years since it was enacted by Congress, the environment around the statute has changed drastically and will continue to do so. The program has grown beyond the ability of stakeholders to manage it effectively, leading to waste and abuse in the form of increasing duplicate discounts between 340B and the Medicaid Drug Rebate Program (MDRP) or commercial rebates.

Reforms to the 340B program are being discussed across the executive, legislative, and judicial branches of government at both the federal and state levels. It’s challenging to keep up with all the activity, but both drug manufacturers and covered entities need to stay abreast of potential legislative and legal reforms to the program.
In a recent House Energy and Commerce Subcommittee meeting, there was a focus on transparency in the 340B program and how the money being saved through the program is being utilized by covered entities. And those are two of the common themes through the various federal, state, and judicial reform initiatives: transparency and accountability.

Why are duplicate discounts an important area of focus? 

Duplicate discounts create revenue leakage for the manufacturer that has an impact on the consumer. The problem arises when a manufacturer that has given a discount upfront to the covered entities is asked to also give an additional discount on that same dispense. 

Let’s say we’re talking about a $100 drug. Theoretically, a manufacturer could offer a $50 discount on that drug to a covered entity and then provide a $50 rebate to a state Medicaid program for the same drug. Which leaves the manufacturer giving away a $100 drug for nothing. That’s hardly a sustainable business model. Further, revenue leakage from duplicate drug discounts makes it more difficult for manufacturers to finance innovations in their products that could benefit consumers. In the end, duplicate discounts hurt all stakeholders in the drug discount ecosystem.

What are current industry trends you are seeing in value delivery and innovation in health care?

The Inflation Reduction Act and the implementation of the maximum fair price (MFP) and drug negotiation programs have created an environment where stakeholders now must pay close attention. The intersection of 340B and MFP is interesting because, per that statute, when the 340B price point is lower than MFP, manufacturers have to offer that 340B price to covered entities. 

If a covered entity dispenses the drug on Day One and is paid Max Fair Price by the manufacturer, the Centers for Medicare and Medicaid Services (CMS) would pay up to the MFP. But what happens if, 2 weeks down the road, that claim is tested for 340B eligibility, and it’s determined the covered entity should have paid the 340B price instead of the lower maximum fair price? It can be very confusing. 

What do you see being major changes on the horizon for the next 5-10 years? What are the key priorities that should receive attention? 

The first thing is that the status quo simply isn’t sustainable. We’ve reached a point of critical mass where something must be done, or drug discount programs will be increasingly dysfunctional. While federal and state governments can try to direct activity through legislation and executive actions, the American way historically has been for the private sector to come up with innovative solutions to a problem.   

Drug discount disputes must be resolved quickly. The Health Resources and Services Administration (HRSA) has published its new finalized Administrative Dispute Resolution (ADR) process for 340B. Whenever there's a disagreement between parties, the process is supposed to start with good-faith inquiries by manufacturers. If a manufacturer has a concern, then that would be the next step. If they don't get a resolution, HRSA will conduct an audit. 

This process must happen within a 3-year window. So, one of the things we're forecasting is that manufacturers will want to do good-faith inquiries sooner rather than later to ensure they meet that 3-year threshold because if they can't resolve the issue, they must go through ADR. This puts a burden on covered entities because they lack the resources to navigate this process.