Adam Fein, Ph.D., president of Drug Channels Institute, hosted a June 21 webinar that discussed the IRA's interaction with the 340B program.

IRA Could ‘Crush the 340B Margin,’ Force Transparency into Program, Says Adam Fein of Drug Channels

The Inflation Reduction Act (IRA) may reduce 340B margins for certain high-cost drugs and drive more transparency into the program, an influential pharmaceutical supply chain analyst who has been a frequent 340B critic told an audience of stakeholders late last week.

Adam Fein, Ph.D., president of Drug Channels Institute (DCI), an industry research firm focused on pharmaceutical economics, hosted a June 21 webinar on the 340B program’s “trends, controversies and outlook.” Fein said the IRA’s implementation could have the “unintended consequences” of slowing 340B growth and increasing transparency among manufacturers and covered entities to meet new regulatory requirements.

The webinar’s nearly 4,000 registrants included representatives of manufacturers, wholesalers, pharmacy benefit managers (PBMs), 340B covered entities, trade associations and pharmacies, Fein told 340B Report. DCI was acquired in January by HMP Global, a healthcare events and market insights firm, and neither Fein nor DCI currently provides consulting services, he said.

Fein’s DCI blog has frequently criticized 340B program growth, including the role of hospitals, contract pharmacies and PBMs, though a 340B hospital advocacy group previously called his presentation of 340B data “misleading.”

‘Crush the 340B Margin’

Under the IRA, the Centers for Medicare & Medicaid Services (CMS) can negotiate the prices of certain high-cost drugs covered by Medicare Part D (beginning in 2026) and Medicare Part B (beginning in 2028) to determine their “maximum fair price” (MFP). Manufacturers can then either accept the MFP or lose access to the entire Medicare and Medicaid markets.

Once the MFPs are in effect, manufacturers must offer drugs to covered entities at the lower of the MFP or the 340B ceiling price, according to regulatory guidance.

If the MFP is lower than the 340B price, covered entities will purchase and be reimbursed for the drug at the MFP—no longer receiving 340B revenue in the form of the spread between the 340B price and the higher average sales price, Fein said. As a result, 340B hospitals will begin to purchase certain Part B drugs at the same price as standalone physician practices, he said.

This could reduce incentive for 340B hospitals to acquire those practices in order to convert their Part B purchases to 340B pricing, which has been a “primary driver” of hospital acquisitions, Fein said. Conflicting recent journal research has both supported and refuted the claim that 340B program participation influences the rate of Medicare Part B drug spending.

Similarly, if the MFP is greater than the 340B price, there will still be a reduction in savings, Fein said. This is because covered entities will earn savings from the spread between the 340B price and the lower MFP, rather than the larger previous spread between the 340B price and the average sales price, he said.

“The IRA is going to crush the 340B margin, and the money is going to be captured by the federal government,” Fein said.

340B Report previously reported that a separate Medicaid policy regarding inflationary rebates, which took effect Jan. 1, also could indirectly lead to lower 340B savings.

‘Accelerate’ 340B Transparency

CMS guidance on the IRA’s implementation does not require mandatory 340B claims modifiers, and it remains unclear how providers and manufacturers will identify 340B claims when the MFP is at play, attorneys previously told 340B Report. However, also under the IRA, drugmakers have civil monetary liability against overcharge violations related to the MFP, Fein said.

As a result, drugmakers may be allowed to require claims submissions to prevent deduplication of the MFP and be compliant with the IRA, Fein said. Deduplication refers to a method of eliminating a dataset’s redundant data. This may affect certain state 340B contract pharmacy access laws that prohibit manufacturers from requiring claims submissions as a condition for 340B drug access, he said.

“Another unintended consequence [of the IRA] is it is potentially going to force manufacturers and covered entities and contract pharmacies to become much more transparent,” Fein said. “The nature of what is required under the IRA is going to force, and in some cases require, manufacturers to drive this decision…this means some of these other state level regulations and some of the complaints about turning over claims data may vanish, and we may have a much more complicated situation.”

Fein also said the lack of clarity in existing IRA guidance could create regulatory “chaos” between CMS and the Health Resources & Services Administration (HRSA), which oversees the 340B program, in areas where the IRA and 340B interact. Both CMS and HRSA fall under the U.S. Department of Health and Human Services (HHS).

“This is going to be incredibly messy, and I personally do not believe that CMS or HHS has really thought about what’s happening here [with the IRA],” Fein said. “However, it is going to accelerate the attempt at bringing transparency to 340B.”