As a pharma manufacturer, you are well aware of how recent 340B distribution trends – specifically, the accelerating numbers of retail pharmacies entering the 340B contract value chain – are both causing process nightmares and losing you money. Indeed, the revenue leakage is significant as you attempt to deliver heavily discounted 340B drugs to intended patients only. And you know that penalties for non-compliance with the federal government’s complex pricing calculations can add up fast.
You need a better way to calculate 340B reimbursement to both protect your bottom line and eliminate process hassles for your teams.
The 340B distribution dilemma
The 340B program was developed to deliver health services to underinsured populations and other eligible patients. But although 340B drugs were initially delivered only through a select number of “covered entities” (CEs)—hospitals, clinics, and doctors serving target populations – the Patient Protection and Affordable Care Act of 2010 (ACA) expanded the definition of CEs eligible for passing these deep 340B discounts to patients.
As a result, the growth of the 340B program has skyrocketed. According to the Health Resources and Services Administration (HRSA), 340B drug purchases equated to $43.9 billion in 2021 – a 15.6% increase from 2020. That amounts to approximately 14% of the U.S. drug market.
Complicating matters, the ACA also included new integrity provisions that require manufacturers to ensure that they don’t overcharge CEs – that they provide the right volume of drugs at the right price– with much more stringent financial and legal ramifications in cases of error.
This has been complicated by the enormous increase in the number of contract pharmacies (CPs).
Under the ACA, CPs can be used by CEs to directly deliver discounted 340B drugs to patients. This has proved to be very popular, as dispensing 340B drugs this way – through third-party pharmacies – enables CEs to eliminate the costs of having their own in-house pharmacies and provides patients with the flexibility to fill a prescription at a local pharmacy closer to home.
Indeed, in the 10 years between April 2010 and April 2020, the market saw a 4,228% increase in CP participation in the 340B supply chain. Between 2020 and today, there has been an additional 24% increase in the number of CP contractual relationships with CEs.
But tracking which drugs are being dispensed under 340B – as opposed to Medicare, or at full retail price – from all these different locations is a process nightmare. Manufacturers are challenged to manage these many-to-many relationships and are struggling to track who is buying what for whom and when.
It doesn’t help that many CPs have relationships with more than one CE, and that every year, thousands of new CEs and CPs enter or leave the 340B program. Reconciling who is using what product for what facility under what price is impossible to track manually. So unless CPs are diligently keeping their 340B and retail inventories separate, scripts could be filled with pharmaceuticals that were incorrectly discounted. As a result, there is a lot of potential for revenue leakage and even fraud.
Putting the right processes, technology, and expertise in place
Thankfully, there are several steps pharma manufacturers can take to ensure they provide the right pricing and adhere to 340B regulations.
First and foremost, manufacturers need a single system of record. This system must make CEs’ eligibility utterly transparent at a glance, as well as manage the identifiers for CEs and associated CPs for chargeback processing.
This is critical because manufacturers are responsible for communicating their 340B quarterly pricing to wholesalers and distributors. If there is a delay or breakdown in the pricing update, the seller may not invoice the CE at the correct price – leading to errors and potentially heavy fines.
- Always re-verify eligibility before honoring a chargeback. You need to make double and triple checks that you are reimbursing a CP or CE for a valid 340B prescription – not a Medicaid or private insurance-covered one.
- Use the “bill-to” and “ship-to” fields in electronic data interchange (EDI) mapping. This ensures the right entity gets the reimbursement for fulfilling a 340B script.
Make chargeback information available for validations in other processes. This is essential for reducing the risk of double reimbursements.
Model N for the win in 340B transactions
Model N can help pharma manufacturers efficiently manage their 340B and revenue management processes, so they can rapidly adjust to changes and mitigate risk.
With Model N’s intelligent platform that combines technology, data and analytics, and expert services, they can better manage relationships between CEs and CPs and gain insight and control over their 340B discounts.
To help manufacturers cope with the complexity of the 340B program, Model N pharmaceutical experts have written a white paper detailing how pharma companies can use automation and other advanced technologies to simultaneously avoid overcharging for 340B drugs and paying out duplicate discounts.
The “Best Practices for Complying with 340B” whitepaper, (now available here) clearly lays out the challenges that pharma manufacturers face today in their 340B programs, and how they can mitigate risks and avoid excess reimbursements with the right processes – and the right tech solutions to support those processes.
Access our whitepaper here to learn more.
