Between 3% and 5% of 340B drug discounts and Medicaid drug rebates are duplicates, adding up to at least $933 million and potentially as high as $1.6 billion in additional costs to the pharmaceutical industry in 2019, according to new report by Kalderos. Kalderos is a drug discount management company that works on behalf of pharmaceutical companies to reduce its costs and find what it believes to be compliance concerns and inefficiencies in the supply chain.
The Chicago-based company recently announced it would offer a service, 340B Pay, to let drug manufacturers provide 340B pricing for drugs dispensed by contract pharmacies in the form of a back-end rebate. Covered entities could opt to keep getting up-front 340B discounts, but only for drugs they themselves dispense. The idea has received tremendous pushback from 340B provider groups and no drug companies are known to have adopted 340B Pay at this time.
Attempts to change 340B to a rebate-only program has generated significant concern among covered entities and policymakers. Last November, more than 200 Democratic and Republican members of Congress asked then-U.S. Health and Human Services (HHS) Secretary Alex Azar to stop both drug companies and Kalderos from converting 340B to a rebate model.
In its report, Kalderos said responsibility for policing potential duplicate 340B discounts and Medicaid rebates is left to covered entities and individual states. “Unfortunately, despite the best efforts of all parties, dysfunction in the system has made identifying and resolving duplicate discounts an ongoing challenge,” it said.
Kalderos estimated that 68% of 340B duplicate discounts arise in Medicaid managed care. “This is now the most common way that states deliver Medicaid services, but federal regulatory oversight of 340B is focused exclusively on Medicaid fee-for-service (FFS), in which Medicaid reimburses healthcare providers directly,” Kalderos observed. It said “dated technology, inadequate infrastructure and incompatible systems hamper clear communication between covered entities and state Medicaid offices, leading both parties to request a discount on the same dispense. Without transparent data, manufacturers can’t identify these duplicates either.”
Moreover, the “complex matrix of drug discount and rebate programs,” including Medicaid, Medicare Part D and 340B tends to create opacity to the point that “even players in the drug channel have little insight into the network as a whole,” Kalderos concluded.
The company also blamed contract pharmacies for exacerbating cost issues. “The growing power of contract pharmacies means they can charge increasingly high fees on each dispense,” the report said. “That means that some of the 340B savings aren’t going to patients or providers—the intended beneficiaries of the program—but to shareholders at big pharmacy chains like Walgreens and CVS.”