A Different Kind of Drug War: 340B Drama and Pickleball
(Part of the Healthcare Revolution Series- TJS Consulting)
There is a 340B drama unfolding and it has the potential to change our entire healthcare system in the United States— in my humble opinion! I have been reading, listening to podcasts, and chatting to experts and have learned a lot, but have much more to uncover. It’s importance cannot be understated and it is complicated. One thing that did strike me during my exploration of the topic is the parallel with an intense pickleball showdown while we all sit on the sidelines and watch the historic rally between both sides of the debate.
You don’t know what pickleball is? Oh my! You have to try it!
As a quick reminder, the 340B program has a genesis in 1990 with the Medicaid Drug Rebate Program (MDRP) to combat drug price inflation and when the Department of Health and Human Services (HHS) established an Office of Pharmacy Affairs. In 1992 to further the war on drug pricing and as part of the Veterans Health Care Act the 340B program was born requiring manufacturers to supply outpatient drugs at significantly reduced prices to safety net providers (Covered entities). This allows covered entities to “stretch scarce federal resources as far as possible” with the ultimate outcome being to provide more services to more patients who may not be able to access those resources otherwise. (www.HRSA.gov) The drama we’re witnessing is a challenge by a select few manufacturers over the government’s right to mandate these discounts to the covered entities who are using community pharmacies to dispense the drugs. Any outcome here has a significant impact on our healthcare system but, how many people are aware this intense rally between their own government and drug manufacturers is taking place? Who stands to benefit on each side? There are no clear answers and has it reduced drug pricing is an even greater question?
Let’s look at this issue more closely and through a pickleball analogy!
1- Introducing the teams:
Team A: Pro-340B Discounts
The Eagle: Health and Human Services (HHS) which include Health Resource Service Administration ( HRSA ) is there to verify that the manufacturers are providing the ceiling pricing, or discounts, to the covered entities. Although they are a veteran player, they are handicapped by limited authority to ensure compliance of manufacturers to 340B mandates. By being on the frontlines at the net, they position themselves to protect their teammate from fast-flying shots but are not impervious to lobs that could end up leaving covered entities to pick up the costs, or in this case, make the return shot. As such, they rely heavily on covered entities reporting “overcharge notices” that suspect or have evidence they did not receive the discount. The HRSA and HHS do not receive any funds directly from the program, but support it so the covered entities have a revenue source to to remain financially viable. This video does a great job explaining their perspective.
The Teddy Bear: Covered entity or Safety net provider. The agency for Healthcare Research and Quality defines covered entities succinctly as “those providers that organize and deliver a significant level of health care and other needed services to uninsured, Medicaid and other vulnerable patients." (www.ahrq.gov) These are a group of not-for-profit disproportionate share hospitals, children's hospitals, rural centers, cancer hospitals, and critical access providers. Covered entities partner with community pharmacies in order to dispense the 340B medications to their patients— expanding access to care. However, they are battered and the stuffing is coming out; covered entities operate on very narrow margins (~2%) and have a disproportionately high percentage of uninsured and lower-reimbursement Medicare patients. The COVID-19 Pandemic forced many to close non-essential departments which further exacerbated their financial struggles compounded by a risk of losing their eligibility for 340B discounts as these closures have reduced their Medicaid patient populations, affecting their Medicaid patient ratio, and thereby impacting their percentage mix required to qualify as a “covered entity”. The 340B program offers them the ability to buy low, sell high and generate critical revenue which is necessary for their survival.
Team B: Anti - 340B Discounts
The Lion: Pharmaceutical manufacturers. Though there are hundreds that participate in 340B discount programs, currently 8 are challenging the HHS/ HRSA authority to mandate the discounts, specifically for drugs dispensed on behalf of a covered entity at a community pharmacy. Of these 8, 6 represent 90% of the insulin market share and 91% of all the Part D diabetes spending according to Maureen Testoni in her September 30th podcast episode on 340BHealth.com. (4) The drug companies do not want the margin loss to continue and see huge financial stakes in the outcome of this match. How much is it worth? In an article by Adam J. Fein - Drug Channels June, 2020 (1) he states HRSA reported $29.9 Billion in discounts for 2019, 8% of the drug spend.
The Fox: Prescription Benefit Managers (PBM). This is a relative newcomer to the match. A few PBMs— definitely, not all— are now reimbursing the covered entities at lower rates reducing the revenue for the not-for-profit entities. They know the entity is purchasing at a discount and so are paying claims at a lower rate. There are 13 states with discriminatory pricing rules to combat this and, at this very moment, there is a PROTECT 340B Act “on the desk” of congress. The PBM would prefer these claims for 340B drugs to go through the regular prescription adjudication process so they can benefit from the contractual rebates provided by manufacturers.
2- Complicated scoring - (10- 8 -2- pickleball peeps will know what this means)
If you’re confused, you’re not alone. In fact, it helps illustrate the confusing “scoring” in this 340B showdown. In this whole process, the actual price paid for the drugs is not disclosed. This leaves players with no reference point, inability to know how pricing should be, and how it is changed through subsequently purchased and then charged claims. The lack of transparency leads to suspicion and confusion for all players who each want to get the best end of the deal and score.
3- Fierce Competition
This isn’t a new conflict, instead “providers and drug manufacturers have been at odds for years over the 340B drug discount program”. (Rebecca Pifer Sept 24th, 2021 - HealthcareDive) (2) That isn’t to say that there haven’t been developments in this conflict or that it is in any way stagnant. On the contrary, it’s better described as an involved back-and-forth rally!. Most of the action has been between the HRSA and Pharma. The hottest issue in contention right now are community pharmacies dispensing the drugs on behalf of the “covered entities”. That being said, there are several other players tapping their feet waiting to jump in - Medicaid and organizations like Community Oncology Alliance (Great video and read by Ted Okon— Executive Director of OCA to give you a flavor of their perspective.) (3)
Here are just a few recent community pharmacy at the net “shots”:
8 manufacturers have refused to provide discounts for drugs dispensed in community pharmacies. The most recent 2 having joined in August and September 2021.
HRSA issued warning letters in response to these refusals in September 2021.
Merck issued a deadline for covered entities to share claims data from community pharmacies in September 2021.
HRSA referred 6 of the 8 manufacturers to the Office of the Inspector General to levy fines in October 2021.
The Kitchen - the high risk zone of sudden death if you fall in.
This describes the penalties both sides can receive if they “overstep”. 340B has complex qualification requirements, billing submission requirements and non-compliance penalties on both sides which can lead to fines, audit recoveries and disqualification.
A ball full of holes - the flow of the dollars is very difficult to predict and determine for all players
There are many moving parts: drug price inflation; ceiling pricing or sub pricing; community pharmacies and drug wholesalers as middlemen; claim pricing and reimbursement. The typical principles of running a balance sheet with these 340B drugs do not apply - a lot of holes. In addition, there is a self-perpetuating problem -- the “spinning ball”-- where manufacturers increase prices to offset the loss incurred by the discounts. This therefore increases the monetary value of the discount offered. If the prices inflate beyond a threshold set by the HRSA, then there is a penalty further adding to the dollars the manufacturers leave on the table. Leading them to potentially further increase prices.
No matter which side of this huge battle you feel aligned to, I’ve learned that we all need to be watching. The risk is low income patient access to care, health equity, viability of the safety net providers and healthcare costs.
I am curious where the patient is while this match is played. Are they watching in the stands cheering? Or are they, as I fear, uninvited and unaware of the battle being raged and potential impacts to the total healthcare system? Hopefully through this explanation, the issue is accessible and the importance is realized (while being amusing). All of us are impacted by the outcome of this match and further matches yet to be "played".
Please feel welcome to leave comments and suggestions about this piece and your involvement in the discussion!
Here are just some of the resources I found very useful - there is an ocean full of perspectives and articles:
(1)June 9th , 2020 - New HRSA Data: 340B Program Reached $29.9 Billion in 2019; Now Over 8% of Drug Sales- Adam J. Fein, Ph.D. Dr. Fein is CEO of Drug Channels Institute https://www.drugchannels.net/2020/06/new-hrsa-data-340b-program-reached-299.html
(2) September 24th, 2021 - 6 drug companies could face steep fines for violating 340B law- Rebecca Pifer - HealthcareDive. https://www.healthcaredive.com/news/6-drug-companies-could-face-steep-fines-for-violating-340b-law/607145/
(3) Ted Okon, MBA, executive director of the Community Oncology Alliance, discusses what influence the new administration may have on payment reform in oncology and issues regarding the 340B drug pricing program- Ted Okon - AJMC https://www.ajmc.com/view/ted-okon-addresses-payment-reform-in-oncology-issues-of-340b
(4) There are a variety of Podcasts/ Interviews that are very informative. https://www.340bhealth.org/members/podcast/
(5) January 5th, 2020 - The Scoop on Specialty Pharmacy with Brad Trom -Ask Your Pharmacist https://podcasts.apple.com/us/podcast/the-scoop-on-specialty-pharmacy-with-brad-trom/id1266493289?i=1000461646960
(6) September 5th, 2021 - Report claims 340B hospitals are leveraging discounts to increase profits from cancer drugs- Jeff Lagasse , Associate Editor , Healthcare Finance. https://www.healthcarefinancenews.com/news/report-claims-340b-hospitals-are-leveraging-discounts-increase-profits-cancer-drugs
(7) October 5th, 2021- HRSA orders Boehringer Ingelheim to comply with 340B drug pricing- Susan Morse, Managing Editor, Healthcare Finance. https://www.healthcarefinancenews.com/news/hrsa-orders-boehringer-ingelheim-comply-340b-drug-pricing