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Non-compliance Costs Hundreds of Millions in Revenue


Pharmaceutical Executive

A look at the systemic problems resulting from the overlap of MDRP and 340B.

Mandatory government drug discount programs have been our tool of choice for attempting to control spending in the pharmaceutical space for more than a quarter-century. The intent of these programs was to maximize taxpayer dollars used to improve access to needed therapies for some of the nation’s most vulnerable patients. But as existing programs have expanded and new ones have been created, the overall system has become more entangled and complex-a fact that becomes even more concerning as more government discount programs are being proposed to augment those which are perceived as ineffective.

Among drug discount programs, the Medicaid Drug Rebate Program (MDRP) and 340B Drug Pricing Program (340B) are two of the most widely relied upon, and the overlap of these two programs is rife with the potential for duplicate discounts. This article will examine the systemic problems resulting from the overlap of MDRP and 340B.

Why it matters

For drug manufacturers, this complicated ecosystem adds significant financial and administrative burdens to their operations. In 2018, non-compliant drug discount claims burned through an estimated $8.5 billion, according to industry estimates. Non-compliant discounts create inefficiency throughout the prescription drug supply chain and equate to big losses in dollars, efficiency, and compliance for all stakeholders.

The repercussions are grave. The stakeholders in the space believe wholeheartedly in a mission to improve patient lives. But when non-compliant discounts result in these types of problems, resources may be pulled from core missions to instead focus on administering discounts.

How we got here

The 340B Program continues to grow, providing more prescription drugs to patients in need. However, much of the growth isn’t due to an increase in the number of covered entities. There was a 61% increase1 in purchases at the 340B price from 2015 to 2017, but only a 6% increase in the number of covered entities over the same time period, while net drug sales have grown less than 5% year-over-year.

Over the last decade, the proliferation of contract pharmacies has been significant. In 2010, the law surrounding 340B was expanded so that covered entities could contract with multiple retail and specialty pharmacies in order to expand access to patients. As a result, a single covered entity can now work with hundreds of contract pharmacy locations to dispense 340B drugs.

The scope of the problem

Among manufacturers who have drugs that face high 340B and Medicaid utilization, Kalderos research found an average of 3.8% of overall Medicaid claims resulting in 340B duplicate discounts. Kalderos also found that 72% of Medicaid claims coming from covered entity pharmacies, which states believed were rebate-eligible, were actually filled with a 340B drug and were therefore ineligible for an MDRP discount.

Recent years have seen an explosion in the 340B program, but no similar increase in 340B compliance audits by the Health Resources and Services Administration (HRSA), which have remained consistent at 200 annually from 2015-2017. Not only have the number of audits remained stagnant, a report by the Government Accountability Officefound that HRSA’s audits don’t test for duplicate discount risks related to managed Medicaid plans, a significant deficiency given the majority of Medicaid patients are covered under such plans.

Due to a lack of federal guidance, state-specific checks and balances on drug discount programs like MDRP and 340B are often ineffective and highly fragmented, having been implemented and modified by thousands of disparate stakeholders.

A path forward

States all have different methods to identify whether or not 340B drugs were dispensed, and none have a comprehensive process in place to monitor closely for duplicate discounts. Existing financial and data management infrastructures are not equipped to effectively manage drug discounts. For this reason, pharmaceutical executives cannot rely on states to ensure that all discounts are compliant.

Pharmaceutical executives can gain more control over the process and minimize revenue leakage by taking three important steps.

First, analyzing data acquired through collaboration between manufacturers and covered entities to understand what types of drugs and transactions are high probability for duplicate discounts. Second, supporting the building of a drug discount infrastructure to support data coordination. Third, designing the system to scale with the assumed creation of additional government programs in the future (i.e., futureproofing).

Synchronizing the data that covered entities and pharmaceutical executives already have allows the conversation around good faith inquiries to evolve from finger-pointing to facts. Unfortunately, the 340B infrastructure was not built to account for other drug discount programs, and neither was the MDRP infrastructure. 340B discounts are not effectuated in a way that is conducive to preventing duplicate discounts from MDRP and vice versa. These programs have to play nicely, yet data cannot easily be synced from stakeholder to stakeholder or program to program, so we need to bridge the gap.

Although different drug discount programs are viewed as part of the same system, they’re not currently managed in the same way. Truly solving the challenges of duplicate discounts requires a new, dedicated drug discount management infrastructure that solves for the whole picture.

A dedicated, intelligent infrastructure to support the complex data and financial needs of drug discount programs will prevent non-compliant discounts by facilitating the exchange of data between different drug discount programs-like 340B and MDRP-and different stakeholders.

Solving for duplicate discounts requires different stakeholders to accept change to solve problems facing the system. A new intelligent infrastructure can close the data gap to allow covered entities, drug manufacturers and states to work toward the same goal of drug discount programs that work as intended.



Jeremy Docken is a founder and the CEO of Kalderos


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