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BREAKING: Kalderos Wants to Give Drug Manufacturers a Way to Pay 340B Rebates in Lieu of Discounts

Kalderos Wants to Give Drug Manufacturers a Way to Pay 340B Rebates in Lieu of Discounts

Prescription drug information technology company Kalderos announced today it is launching a platform called 340B Pay on Sept. 8 “to facilitate 340B discounts via a rebate.” Several drug manufacturers are adopting the platform, Kalderos told 340B Report, including “some emerging manufacturers that will leverage our innovative platform from launch.”

Kalderos Founder and CEO Jeremy Docken and prescription drug economics and drug supply chain blogger Adam Fein are co-hosting a webinar on 340B Pay on Sept. 11 beginning at noon Eastern, in part to explain “how covered entities, manufacturers, state Medicaid programs, and other stakeholders will benefit from 340B rebates.”

In an Aug. 21 guest post in Fein’s Drug Channels blog, Docken made a case for relieving manufacturers from paying 340B discounts and Medicaid rebates on the same drugs, both in fee for service and managed care settings, by converting 340B discounts into rebates. Kalderos told 340B Report, and company fact sheets indicate, that manufacturers also may use 340B Pay to address duplicate payment of 340B discounts and Medicare Part D and commercial rebates on the same products. Duplicate 340B discounts and Medicaid rebates are forbidden by law, the other duplicates are not.

Docken said in the blog that duplicate discounts are due mainly to the virtual inventory / replenishment model of 340B drug purchasing prevalent in hospital mixed-use settings and contract pharmacies. He said the solution is to share the claims data in these systems “within the drug channel.”

Docken pointed to the option state AIDS Drug Assistance Programs (ADAPs) have to receive 340B pricing in the form of a rebate, instead of as a discount, in support of his company’s model.

“ADAPs provide claims data for all transactions that the ADAP considers to be 340B eligible…to both the state Medicaid agency and the drug manufacturer,” Docken said. “The Medicaid agency can then match the claims data provided by the ADAP and identify instances where both parties—the 340B covered entity and the Medicaid agency—have asked for a 340B discount from the manufacturer for the same prescription. This simple matching process can allow Medicaid to avoid causing a duplicate discount.”

“This rebate option has eliminated duplicate discounts involving ADAPs,” Docken said. “Most importantly, a rebate option allows manufacturers and covered entities to work more closely with one another in a transparent manner.”

“At Kalderos, we believe it’s time to make 340B rebates available to everyone,” he said.

Attorneys for Providers React

Jason Reddish, an attorney who represents health centers enrolled in 340B, said he does not believe that drug manufacturers can “unilaterally mandate the use of a rebate model instead of providing the 340B discount to safety net providers at initial purchase under current law and the current Pharmaceutical Pricing Agreements between [the U.S. Health and Human Services Department] HHS and manufacturers.”

“Many covered entities cannot afford to pay for drugs at non-340B prices up-front,” said Reddish, Partner at Feldesman Tucker law firm. “They certainly do not want to be reliant on the assumption that manufacturers will approve their rebate claims faithfully and in a timely manner after the recent maneuvers by Eli Lilly, Sanofi, Novartis, and AstraZeneca to flout the basic statutory requirements of the program.” Reddish was referring to recent unprecedented actions by drug manufacturers either to stop paying discounts on 340B-purchased drugs dispensed by contract pharmacies or require providers to supply their 340B contract pharmacy claims data so the companies can act on duplicate 340B discounts and Medicaid, Medicare Part D, and commercial rebates.

William von Oehsen, an attorney who represents hospitals and federal grantees enrolled in 340B, said, on the one hand, “it’s hard to see” how 340B Pay will be successful if manufacturers use it “to withhold rebates that would otherwise be payable to Medicare Part D and commercial payers” on drugs on which 340B ceiling prices apply. “Covered entities will have no incentive to cooperate because the payers are likely to cut their 340B reimbursement rates to compensate for the loss of the rebates,” said von Oehsen, a Principal at Powers Pyles law firm, a 340B Report sponsor.

On the other hand, von Oehsen continued, if 340B Pay “is used solely to protect manufacturers from paying rebates on Medicaid managed care drugs bought through 340B, it would allow contract pharmacies to start carving in Medicaid managed care drugs without having to place claims modifiers on the 340B claims at the point of sale.”

In this way, he said, “the model could help address the problem of duplicate discounts involving Medicaid managed care drugs.”

How 340B Pay Works

The 340B Pay platform consists of two web-based tools: Request for providers, and Verify for manufacturers.

According to Kalderos, manufacturers using 340B Pay will be able to choose which drugs to pay rebates on in lieu of 340B discounts, on an NDC by NDC basis, and on which drugs to pay traditional 340B discounts. If a manufacturer opts to pay a rebate instead of a discount on a particular NDC, covered entities will have to use 340B Pay or connect their pharmacy software to Kalderos’ software to request reduced 340B pricing. Manufacturers will then use the platform to identify “noncompliant discounts,” including Medicaid, Medicare Part D, and commercial managed care rebates. After this validation process, manufacturers will “approve appropriate 340B rebate requests and authorize electronic 340B discount payments to 340B covered entities.”

340B covered entities now use a separate Kalderos tool, called Review, to examine claims data Kalderos collects from multiple drug manufacturers and payers. Manufacturers suspect they have paid both 340B discounts and Medicaid rebates on these claims. Entities voluntarily review the claims to demonstrate their good-faith compliance with 340B program requirements.

Steve Zielinski, Kalderos Senior Director, Industry Relations, said 340B Pay will be configured by default “to honoring the request from the covered entity where a covered entity and state Medicaid agency both request a discount on a drug dispensed to a Medicaid MCO patient.”

“If a covered entity and a PBM both request a discount on a drug dispensed to a private insured patient, Kalderos 340B Pay defaults to honoring the request from the covered entity,” he continued. “Whether the request from the PBM will also be honored depends on the contract between the manufacturer and the PBM. If the manufacturer’s agreement with the PBM excludes 340B utilization from rebate eligibility, the request will not be honored.”

The manufacturer, however, “ultimately elects and acts on the business rules in our solution,” Zielinski said.

“Fixing a Broken System”

Zielinski said Kalderos is “fixing a broken system.”

“Government watchdog groups…have found time and again the 340B program suffers from serious compliance challenges, specifically regarding duplicate discounts,” Zielinski said. “These problems need to be addressed, as the 340B program has grown to nearly $30 billion in size and become a critical component of the U.S. drug channel. Kalderos’ solutions are designed to correct these problems.”

He elaborated:

A major reason for non-compliance today is the complex and convoluted 340B replenishment model that most covered entities and nearly all contract pharmacies use. Under the replenishment model, first you give a non-340B drug to a patient. Days/weeks later, you determine that the patient qualified for a 340B drug. As a result, you buy a 340B drug. You then sell this lower-cost “replenishment” 340B drug to a different patient. It’s crazy to think this model is simple or easy. We have watchdog report after watchdog report saying duplicate discounts remain a problem, and the replenishment model is the reason.

340B Pay works with the replenishment model, but fixes the compliance challenges. You buy a drug at a non-340B price, just like you do today. You dispense the drug to a patient, just like you do today. You qualify the transaction as 340B eligible, just like you do today. Then, you submit the qualified claim to Kalderos, and the manufacturer pays you a cash rebate.

“We’ve been testing 340B Pay with covered entities and manufacturers since the beginning of 2020,” Zielinski said. “Both sides who participated in testing found 340B Pay to be a better experience than managing their 340B program via an on-invoice discount.”

Zielinski said Kalderos has communicated with the U.S. Health Resources and Services Administration (HRSA) during 340B Pay’s design and testing. “We are happy to report that HRSA has not identified any enforcement issues raised by our model,” he said.

Should Manufacturers Get to Define the 340B Program?

Madeline Wallack, co-founder of Rx|X Consulting, told 340B Report she is concerned that “pushing for a ‘rebate’ system will create another retrospective accounting process that doesn’t address the fundamental issues with the program, and that it shifts the power of defining how to use the 340B program out of the entities hands and into the manufacturers. Between this and the other manufacturer requests, our clients who are already heavily invested in compliance and program integrity are stressed about the additional burden.”

Wallack said the replenishment model of 340B drug reimbursement “evolved as a solution for the complex task of meeting [the U.S. Health Resources and Service Administration’s] HRSA’s high expectations for managing multiple inventories and accounts. “As with all solutions for really complicated processes, it is imperfect; however, the technology on mapping and setting filters has drastically improved over the last several years.”

Suzanne Herzog, Rx|X Consulting’s other co-cofounder, adds that Kalderos appears to legitimize HRSA’s 1994 340B program guidance letting ADAPs elect to get 340B pricing as a rebate, while it simultaneously appears to delegitimize HRSA’s 2010 340B guidance permitting multiple contract pharmacy. “Are they picking and choosing?” she asks.

A consultant who works with 340B covered entities and requested anonymity said the replenishment model, while flawed, has worked well for a long time. The consultant said Kalderos’ model avoids contracting and patient-privacy issues raised by prescription drug IT company Second Sight Solutions’ competing 340B ESP platform. “A rebate model could work if applied universally,” the consultant said. But in the present environment, 340B Pay “simply adds to confusion with the emergence of multiple systems for 340B contract pharmacy implementation.”

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