The past year has seen a great deal of controversy surrounding the 340B Drug Pricing Program, in which drug manufacturers make prescription drugs available to safety net healthcare providers at deeply discounted prices.
Many people with passing knowledge of the program—even lawmakers and healthcare industry insiders—appear surprised by the passion this debate has generated. How could the challenges in this seemingly small program make such a major impact?
In fact, the 340B program has grown and evolved rapidly over the past 10 years, and the widespread perception of a “small program” no longer matches reality. As the program has grown, the challenges it faces have become more pronounced, and the consequences to ignoring these challenges more dire.
It’s an issue I’ve been involved with closely over the years. From a $5 billion program in 2014 to a $30 billion program in 2019, 340B saw a 47% compound annual growth rate in five years, significantly outpacing other government pricing programs. Current estimates place it at about $34 billion today.
This rapid growth is driven almost solely by the rise of contract pharmacies, which dispense 340B discounted drugs to eligible patients on behalf of their healthcare provider partners. In 2010, there were about 1,300 contract pharmacies in the program; today, there are around 30,000.
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The revenue generated by this program is essential for many safety net healthcare providers. Without the revenue generated by 340B, many of these organizations would struggle to continue providing needed services. They might have to lay off staff, turn away patients or even close their doors.
Yet even as the growth in the program has enabled safety net healthcare providers to maintain viable operating margins, it’s also magnified the stress points, such as duplicate discounts.
The law prevents drug manufacturers who participate in the program from being compelled to pay a discount to both 340B and Medicaid on the same drug. But dated technology, incompatible systems and an inadequate infrastructure often make this hard to prevent, despite the best intentions of all participants.
A conservative estimate is that at least 3% to 5% of discounts are duplicates between 340B and Medicaid. In 2014, when the 340B program was smaller, that would amount to anywhere between $135 million and $225 million annually. But as the program has grown, the annual financial impact of duplicate discounts is now anywhere from $933 million to $1.6 billion—or higher.
As manufacturers look for ways to stop this revenue leakage, a few have chosen an aggressive approach, taking actions that reduce patient access to medicine as well as covered entities’ ability to fully benefit from the program, causing strife between participants.
The underlying conflict is driven by the fact that the program has grown substantially over the past decade, but the infrastructure to support it has not.
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The data breakdown begins with the fragmented, incompatible systems that are burdened with managing information about drug discounts (provided when the pharmacy or covered entity purchases a drug) and drug rebates (determined after the drug is dispensed to a patient). Covered entities, Medicaid, private insurers and manufacturers all have their own systems, formats and invoicing practices.
It’s not unlike the challenges that providers face with electronic health records systems trying to talk to one another. Every organization is working off of a different framework or technology infrastructure—or both.
In the case of 340B, key identifiers for specific drugs, pharmacies, providers and dispensers are often inconsistent, missing or lost in transit between multiple parties. Then, when disputes arise, they’re handled by phone or email on a case-by-case basis, which is time-consuming, inefficient and often leads to heated conflicts.
State agencies and providers are doing their best, but the situation is so complex and cumbersome that duplicate discounts continue to happen at increasing velocities. And with a lack of transparent data—and little trust between the parties—drug manufacturers have few ways to identify and correct these duplicate discounts, either. The resulting friction and mistrust are now threatening the health and longevity of an essential program.
It’s a central challenge that platform-based infrastructure is rising to meet. Platforms are already handling a number of challenges in healthcare, and the market for them is growing. Investment in digital health platforms increased 430% between 2017 and 2020, according to a 2020 market report from Summit Health.
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One example is Surescripts, a platform technology company that enables transparent communication between EHR vendors, pharmacy benefit managers, pharmacists and doctors. By developing a secure, consistent way to exchange patient health information between different parties, the company made e-prescribing a viable way to serve patients. Surescripts reports that it processed more than 17 billion transactions in 2020.
Other popular platforms in healthcare include CoverMyMeds, GoodRx and Teladoc, each of which connects formerly fragmented groups of stakeholders—including healthcare providers, patients, pharmacies and payers—to resolve inefficiencies and make it easier for patients to access the care or the prescriptions they need.
A similar approach can resolve the current challenges in 340B. Friction can be replaced with efficiency. Mistrust can be conquered with transparency. A digital platform can enable easy, open communication and make it easier for all stakeholders to participate in the program.
Most importantly, platform technology can ensure the 340B program is working as intended so it can thrive for the long term and continue to benefit the vulnerable patients it was designed to serve.
Jeremy Docken is founder and chief strategy officer of Kalderos.