How to Handle Increased Manufacturer Inquiries…From Manufacturers With Extraordinary Price Increases

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So you’ve received a “good faith” inquiry from a manufacturer questioning your purchases and utilization. You have run the numbers and don’t see anything that indicates an issue. It may seem like it’s out of the blue because these products may have low overall spend or low volume and may not hit your internal markers for audit flags.  340B covered entities often conduct self-audits on drugs with high 340B expenditures, but it is the difference between the commercial and 340B price that matters more. In the end, the inquiry may have nothing to do with you and everything to do with the manufacturer’s pricing strategy.

We have recently observed more requests from manufacturers with drugs at a 340B penny price due to extraordinary price increases made by the company. Covered entities are accustomed to looking at inventory, purchasing, dispensing and accumulation records, but sometimes overlook the pricing history.  As an expert in drug pricing, this is a great opportunity to explain how this happens and provide actionable items for entities to level set when dealing with this phenomenon.

Starting with the basics, sharp price increases in the commercial market can drive down the 340B price to a penny per unit and increase the rebates paid to state Medicaid agencies. This was an intentional move by Congress when creating these public programs to “pump the brakes” on rising drug prices. It is a penalty that all manufacturers participating in these federal programs are aware of when determining their pricing strategy. But it is all too often mischaracterized to illustrate the big gaps between retail and 340B pricing instead of the desired outcome of an effective tool for managing prices.

It is important that entities have all the facts at hand when handling an inquiry, including the historical pricing and clinical indications. Recently, entities across the country received an inquiry from Zyla Life Sciences for utilization of Indocin. While there are a number of these types of inquiries where the 340B price is a penny per unit, this same drug was highlighted in my 2008 testimony during my time at the University of Minnesota’s PRIME Institute to the U.S. Senate Joint Economic Commission on Extraordinary Price Increases. As such, I felt it was worth further investigation.

Indocin was initially approved by the FDA in 1965, so it is not a new product. Over the past 10 years the use of rectal indomethacin has increased primarily due to a 2012 study showing the efficacy of the product for the prevention of post ERCP Pancreatitis.  Currently in the US, there are no treatment options or alternatives that are comparable to rectal indomethacin and Zyla is the sole manufacturer. From 1985 to 2006, the Average Wholesale Price (AWP) unit price ranged from $0.74 to $2.50.  During this time period, there were a total of five different manufacturers that entered and exited the marketplace.  Since Zyla has had what is known as “a monopoly by default,” the AWP unit price has increased by 4918% from $8.25 to $414 from 2008 to 2022. In May 2022, the WAC price for a package of 30 is $10,350.00.[1]   By comparison, during the period of 2008 to 2022 total inflation was about 35% with an average inflation increase of a little over 2% annually.[2]  Therefore, it is no surprise that the 340B price is based off the penalty created by Congress to deal with a sustained increased just like this. 

While it makes sense that a company facing this pricing dynamic would want to examine 340B sales, it is important for entities to understand this context when the inquiry asserts diversion. While the following advice applies to all types of inquiries, they are particularly relevant in regards to pricing matters. Rx|X recommends covered entities should:

  • educate themselves about the pricing history and clinical use for products where they receive “good faith” inquiries and consider in relation to the date range in question.
  • look for what is being asked—what is being asserted? Is there a question or general suggestion of an issue?
  • maintain records on these types of inquiries, particularly related to the staff/time burden for production and response.

If you are facing challenges handling inquiries, know you don’t have to do it alone.  With over 23 years of experience in the 340B space working with all possible stakeholders, Rx|X can help.

Madeline C. Wallack, PhD, MS is the co-founder of Rx|X, a 340B auditing and consulting firm and leader in 340B program education.  She can be reached at mwallack@rxxconsulting.com.


[1] Drug pricing history analyzed using pricing history from Red Book. Micromedex.

[2] Drug pricing history analyzed using pricing history from Red Book. Micromedex.

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