340B Drug Pricing Program and rebates: A Q&A with Sarah Hearn

As a Strategic Hospital Advisor for RxBenefits, specializing in 340B, Sarah Hearn works with hospitals and health systems to help them leverage 340B to reduce their overall employee drug spend, as well as with commercial employers to mitigate the effect of 340B-related rebate loss to their pharmacy plan. She expands on her thoughts below.

Can you give a brief background on the 340B Drug Pricing Program, and the goal of the program?

The federal 340B Drug Pricing Program was enacted in 1992 in a bipartisan effort to enable safety-net health care institutions to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.   The law requires drug manufacturers to offer discounted prices (roughly 20%-60% below Wholesale Acquisition Cost, or WAC) to eligible safety-net health care facilities on certain outpatient drugs. In return, congress approved having Medicaid and Medicare Part B cover the participating manufacturers’ product, a deal that has been highly profitable for drug manufacturers.

Savings generated through 340B allow safety-net institutions to carry out incredibly meaningful programs, such as funding free and low-cost medications, dental and primary care clinics that serve our most vulnerable citizens, as well as research into HIV/AIDS, diabetes, and cancer. It is also important to remember that none of these 340B savings provided to eligible health care institutions are taxpayer funded. One hundred percent of 340B savings are funded by Pharma which is mandated to offer these savings to sell their drugs to Medicare and Medicaid.

How has the growth for 340B in the past decade created challenges with rebates?

Due to a number of factors, such as the explosion of 340B contract pharmacy arrangements, the expansion of Covered Entity types under the Affordable Care Act, and the rising cost of specialty drugs over the past decade, the market size of the 340B program has grown exponentially. The total spend on 340B purchases grew from $12.2B in 2015 to $43.9B in 2021, and 340B now accounts for nearly 20% of total rebates and discounts provided by manufacturers for brand name drugs. Given this growth and the program’s negative financial impact to manufacturers’ bottom lines, it is not surprising that manufacturers have started taking increasingly aggressive measures to try to limit the growth of the 340B program. They’ve become more diligent about policing the practice of double dipping, where 340B savings are paid out on a claim for which the PBM has also passed through a manufacturer rebate.

This type of double dipping can easily happen as the majority of claims are not qualified as 340B until post adjudication and the PBM may not realize it is a 340B claim when they submit it for a manufacturer rebate. Manufacturers have gotten savvier about using mechanisms, such as wholesaler chargeback data and proprietary sales ratio data, to identify retrospectively where this double dipping may have occurred and pull back rebates on claims they suspect were in fact 340B qualified.  

Why are employers who use commercial plans starting to feel the impact of 340B on their rebates?

In the realm of pharmacy benefits, it is a bit of a misnomer that 340B only impacts hospital employers. Any employee, regardless of whether they work for a hospital or a private company, can be seen at a 340B institution and have their outpatient pharmacy claim qualify for 340B. Typically, on the front end, that employee’s claim would adjudicate exactly as it normally would and the employee would have no knowledge that their claim would qualify for 340B. However, on the back end, the 340B institution reviews all the dispenses written by their eligible providers and can qualify that claim as 340B post-adjudication. The 340B institution can then purchase the replenishment of that claim at a discounted 340B price enabling the 340B institution to keep the delta between the 340B price and what it normally would have cost them to replenish that claim.

Meanwhile, the PBM submits the same claim for a manufacturer rebate. Because the 340B institution was never obligated to notify the PBM that their institution qualified the claim as 340B post adjudication, the PBM is none the wiser and treats the claim as it would any other claim. Manufacturers have started to become more diligent about using different mechanisms to identify which claims likely qualified as 340B and are bumping that data up against the claims on which they paid rebates, and in instances where they suspect double dipping has taken place, they are pulling back rebates on those claims.

How can employers work with a pharmacy benefits optimizer to implement strategies to combat the ever-changing 340B environment?

A pharmacy benefits optimizer can help a commercial employer better predict and estimate what percentage of its employees’ claims likely will be ineligible for rebates due to 340B and plan accordingly for that rebate loss. A pharmacy benefit optimizer also can help offset 340B-related rebate losses by identifying other areas of optimization, such as contracting, creating and managing a specialty strategy, implementing manufacturer assistance programs, and combining stop-loss solutions, just to name a few.

Additionally, in instances where a large percentage of 340B claims are being written from one 340B institution, a pharmacy benefits optimizer may be able to help broker a mutually beneficial cost-sharing partnership between the commercial employer and the 340B institution. The 340B institution wins because the commercial employer agrees to drive more foot traffic through the 340B health system’s doors, which results in more scripts through the health system’s pharmacy and ultimately drives greater 340B savings for the 340B health system. The commercial employer wins because it is supporting its local 340B health system, and in return, the employer can negotiate better rates with that health system.

Is there anything else hospitals and health systems should be aware of in 2023 as it relates to 340B?

The 340B employee benefit approach for a (340B eligible) hospital/health system client is different from the 340B strategy for a commercial employer. For 340B hospitals and health system clients, our strategy will always revolve around how we can help clients maximize and leverage 340B savings to reduce overall employee drug spending. This involves helping hospital/health system clients maximize 340B capture through their entity-owned pharmacy to avoid 340B contract pharmacy fees and any 340B-related manufacturer restrictions.

Recently, we have seen a trend where drug manufacturers have begun withholding rebates on claims they deem eligible for 340B, not just those processed as 340B. We work with 340B clients to make sure they are qualifying any claims that could be deemed 340B eligible, because the 340B savings will almost always be greater than any rebate savings.

Another big development, which may have a huge impact on 340B covered entity clients in 2023, is a decision issued by the court of appeals for the Third Circuit on January 30, 2023. The decision essentially said that the three drug companies involved in the case are not required to offer 340B discounts to a covered entity on any of its claims filled through community and specialty pharmacy partners. Considering that currently around 30% of all 340B volume is being filled through these contract pharmacy channels, the decision has the potential to dramatically reduce the amount of 340B savings a Covered Entity can generate.

Related: PBMs, the brokers who control drug prices, finally get Washington’s attention

We still are awaiting two other federal appeals courts companion decisions which are expected early this year: one on Eli Lilly’s conditions on 340B contract pharmacy use, and another on Novartis and United Therapeutics’ policies. It remains unclear whether the courts will rule in favor of the Health Resources and Services Administration (HRSA) or the manufacturers, but those will be extremely important cases to keep an eye on.