The Public Health Service Act 340B Drug Pricing Program enables providers that serve vulnerable patient populations to access outpatient drugs at significantly lower costs, which helps improve overall patient care. Since the Medicaid Drug Rebate Program (MDRP) and the 340B Drug Pricing Program were established in the early 1990s, stakeholders have struggled to resolve questions surrounding duplicate discounts. Expanding these programs under the Affordable Care Act in 2010 exacerbated the issue and further complexity will be added through the Inflation Reduction Act (IRA). As the Centers for Medicare & Medicaid Services (CMS) move forward in implementing these provisions, initial guidance, public feedback, and subsequent revisions are sure to increase confusion.
Added complexities at the intersection of IRA and 340B
The Maximum Fair Price (MFP) established under the IRA will set the best price available under Medicaid. Manufacturers must offer covered entities the ability to purchase whichever is lower: the 340B ceiling price or the Medicare negotiated MFP. One concern is the potential for duplicate discounts—when a covered entity or contract pharmacy receives both a MFP rebate and a 340B chargeback on the same dispense. While the statute clearly states that duplicate discounts should not occur, it is not clear on who is responsible and how it should be prevented. Current inventory management systems and accumulator software tally the number of drugs dispensed to 340B-eligible patients. However, they do not account for patients who also have received the MFP rebate. This software limitation impacts thousands of covered entities using hundreds of vendors. Without clear and accurate processes for modifying inventory management systems, the risk of noncompliance is high.
Lessons from ongoing challenges with 340B
Starting in January 2024, CMS will require all covered entities that submit claims for Part B drugs to use modifiers that indicate when those drugs were acquired through the 340B Drug Pricing Program.1 However, the ability of these modifiers to solve duplicate discounts is in question. Although modifiers have been in use since before the IRA, compliance has been spotty. An IQVIA report indicates that reporting wasn’t at 100%,2 even when required by law. If reporting was mandatory, modifier usage reached 90%, but if it was optional, modifier usage fell below 20%. In the study, less than 1% of claims at contract pharmacies used 340B modifiers, but CMS’ February 2023 guidance3 mandates that pharmacy claims should use 340B modifiers to identify 340B drugs. However, even if a 340B covered entity correctly identifies a claim as a 340B claim, that modifier may be removed at some point, given the many touchpoints: pharmacy, third-party administrator, or pharmacy benefit manager, among others. Currently, 38 states require 340B claims modifiers from covered entities when submitting claims to Medicaid for reimbursement. Approximately $150 million over 6 years in 340B duplicate discounts were identified in these states. Expanded infrastructure and education will be needed to support widespread implementation of the 340B modifier system is not made available.
Identifying Part B rebate drugs that were purchased at 340B discount prices
Hospitals participating in the 340B program also have been required to include modifiers on Part B claims since 2018, and CMS recently released guidance requiring the continued use of modifiers for hospitals beyond 2023. However, as Office of Inspector General’s (OIG) brief states, “certain Part B claims for 340B-purchased drugs may not be readily identifiable in 2023.” CMS recently announced a requirement for all 340B covered entities, including non-hospital type covered entities, to use modifiers on Part B claims. It will take time for non-hospital entities to update their billing systems. Further, as discussed above, the use of modifiers is not consistent and can be complicated, as claims pass through multiple stakeholders.
As each reform is implemented, HHS and CMS will need to adapt rapidly to issue guidance and build the support systems necessary for well-intentioned stakeholders to comply with the law. Many drug manufacturers are expressing concern, not only because of compliance but also because of the sheer cost of these sweeping changes. Litigation4 is already underway in some states, and the arguably short timeline for rolling out the rest of the IRA’s healthcare and drug pricing provisions is expected to inspire even more legal pushback in the coming months and years.5 The landscape is constantly shifting considering these changes and challenges, so we recommend that all stakeholders invest in staying informed and up to date with the official implementation news coming out of HHS and CMS.