This health tech startup is trying to disrupt the drug discount system. Here's how

Technology executive Jeremy Docken spent several years advising drug manufacturers and saw an opportunity to help solve some intrinsic problems in the drug discount market.

In his previous work at consulting firm KPMG and healthcare information company IMS Health, which merged with Quintiles and is now IQVIA, Docken said he recognized ongoing compliance challenges resulting in duplicate discounts.

"You can’t address these problems by only thinking about what the drug manufacturer needs to do, but you have to look at what the state needs to do and what the covered entity needs to do. To meaningfully move the needle and prevent these compliance challenges, you need a multi-stakeholder platform approach that's designed from the ground up," Docken told Fierce Healthcare.

Docken founded Kalderos in 2016 along with Dave de Vogel and Jim Bonkowski to use technology to help eliminate waste and improve efficiency in drug discount management to ultimately benefit patients.

Compliance with drug discount programs, such as the Medicaid Drug Rebate Program or 340B, has long been an opaque and complex process. The startup uses artificial intelligence to analyze hospital, state and discount drug claims to make sure they’re compliant and are not duplicating federal drug discount claims.

RELATED: Drugmakers getting bolder in fight over 340B drug discounts

By using machine learning processes, Kalderos' drug discount management platform checks, identifies and resolves noncompliance issues and can detect inconsistencies overlooked by existing methods, according to Docken.

The company currently connects 10 drug manufacturers to more than 3,000 healthcare providers to gather claims data, then uses its machine learning system to identify noncompliant discount requests and resolve disputes. The company said it has reviewed more than 500,000 discount requests. And, over the past year, Kalderos has identified approximately $100 million in noncompliant drug discounts.

The company secured $28 million in series B funding in June led by Bain Capital Ventures and Mercato Partners. Kalderos has raised $35 million to date.

Providing more transparency in the 340B program

The company sees an opportunity to use its technology platform to fix some of the 340B drug pricing disputes.

In exchange for participating in Medicaid, a drug manufacturer is required to offer discounts to safety net hospitals that participate in 340B. But the program has been beset with controversy in recent years as drug companies claim the program has gotten too large and patients aren’t benefiting from the discounts.

Disputes between drug manufacturers, pharmacy benefit managers, contract pharmacies and 340B-eligible providers have even led to Congress stepping in and demanding solutions.

RELATED: AHA analysis touts community benefits made by 340B hospitals as spat with drugmakers continues

The desire to avoid duplicate discounts is behind a growing movement among several drugmakers to restrict sales of 340B drugs to contract pharmacies, which are third-party entities that dispense drugs for the 340B entities.

The Department of Health and Human Services (HHS) finalized a long-awaited rule that sets up a process to resolve disputes surrounding the controversial 340B drug discount program.

While regulators and Congress are pulling different levers to address drug pricing practices, companies in the private sector like Kalderos also are trying to tackle the problem using technology.

Kalderos recently launched a 340B Pay solution as a real-time tool for drug discount effectuation. The tool is the first real-time, compliant solution for requesting, verifying and paying 340B rebates, according to the company, and provides a more simplified, streamlined and transparent 340B rebate process.

The company spent 18 months developing the product and directly communicated with HHS and the Health Resources and Services Administration about the technology. The agencies have not identified any compliance concerns with the 340B Pay solution, Docken said.

The platform was initially designed to enable providers of any size to request 340B rebates and manufacturers to verify and pay them through a third-party payment partner.

However, providers raised concerns regarding how a 340B rebate model may affect their cash flow.

In a letter to HHS Secretary Alex Azar in November, a group of federal lawmakers voiced concerns about potential changes to the 340B drug pricing program and cited Kalderos' approach, according to media reports.

RELATED: HHS finalizes rule to set up dispute resolution process for 340B program

"The platform could make participation in 340B more difficult for covered entities, effectively reshaping the 340B program in a way that only serves manufacturers’ and these third-party vendors’ financial interests," the lawmakers wrote.

In response to providers' concerns, Kalderos recently updated the platform to give providers the flexibility to choose whether they want to use the rebate model for their own pharmacies or maintain their existing process of upfront discount and wholesaler chargeback.

"While our own economic analysis did not find a working capital issue with our rebate model, due to the speed and frequency at which rebates are paid, we empathize with covered entities who are fearful of any changes that may impact working capital during a healthcare and economic crisis," Docken said.

The rebate model will still be required for any product dispensed at contract pharmacies. With 340B rebate funds from contract pharmacy dispenses flowing directly to covered entities, providers will benefit from greater control over program savings, enabling them to better serve patients, the company said.

As the conflicts around the 340B drug pricing program heat up, there will be greater demand for technology platforms that connect different sides of the industry and enable more transparency, Docken said.

"We're going to watch Congress step in and federal agencies step in to solve these conflicts. There will be more need for Kalderos in 2021, especially with the direction that the [President-elect] Biden administration is going to go," he said.