What You Need to Know About 340B Duplicate Discounts

03.04.2024

The 340B Drug Pricing Program is designed to increase access to affordable drugs for vulnerable patient populations. However, the success of the program and the complexity of the Medicaid Drug Rebate Program could result in the unintended effect of needlessly increasing costs to drug manufacturers and states.

• The 340B Program: The 340B Drug Pricing Program was created in 1992 following the enactment of the Medicaid Drug Rebate Program and allows “covered entities”^[1] to purchase covered outpatient drugs at discounted prices. Participation in the 340B Program is voluntary for both covered entities and drug manufacturers, but there are strong incentives for both to do so.^[2]
• The Medicaid Drug Rebate Program: The Medicaid Drug Rebate Program was established in 1990 to offset the federal and state costs of most outpatient prescription drugs dispensed to Medicaid beneficiaries. Under the rebate program, drug manufacturers pay rebates to states as a condition for the federal contribution to Medicaid spending for the manufacturers’ outpatient drugs.

Duplicate discounts are at the intersection of the two programs. When drugs provided to Medicaid beneficiaries are subject to discounted prices under the 340B program and are also eligible for Medicaid rebates, drug manufacturers are at risk of providing duplicate discounts. As per 42 USC 256b(a)(5)(A)(i), manufacturers are only required to provide a price concession for a particular drug under one program. However, with the rapid expansion of types of covered entities, it has become increasingly difficult for State Medicaid agencies to comply with federal rules without incurring additional operational costs.

To help prevent duplicate discounts, in 1993, the Department of Health and Human Services’ (HHS) Health Resources and Services Administration and Centers for Medicare & Medicaid Services (CMS) established the Medicaid Exclusion File (MEF), which is a list of covered entities that use 340B drugs for beneficiaries under the Fee-For-Service (FFS) model.^[3] Once registered, covered entities on this list must notify the agency if they intend to use—or “carve in”—340B drugs for Medicaid beneficiaries and states then exclude claims from providers on the MEF from their rebate invoices.^[4]

Since 2010, the Patient Protection and Affordable Care Act also required manufacturers to provide rebates for drugs provided by managed care organizations (MCOs). Unlike FFS, which is based on reimbursement of individual services, under managed care, states typically contract with MCOs using a capitated payment model that pays each plan a set amount per beneficiary per month. The expansion of drug dispensing by contracting pharmacies under the MCO model makes it more difficult for States to: a) identify beneficiaries covered by MCOs, and b) track if a 340B drug was dispensed to a Medicaid beneficiary.

Some states such as California and New York have chosen to “carve out” 340B drugs from MCOs and manage Medicaid payments directly to prevent duplicate discounts.^[5] That is, these states carve out 340B drugs provided by a covered entity from rebate requests. In recent years, states have also expressed concerns regarding the reliability of the MEF. Two main concerns include:

1) the lack of flexibility in updating the list during extraordinary market conditions, such as drug shortages, where 340B and non-340B drugs are substitutable, and

2) difficulty in identifying which covered entities have changed carve-in and carve-out decisions.

The effect of duplicate discounts can be complicated to unravel and can lead to pressures on manufacturers and states. For example, the resultant effect on the CMS’s best price calculations could increase the hidden costs of 340B participation for manufacturers. IQVIA estimates that duplicate discounts accounted for about one-quarter of total 340B drugs sales in 2021, representing approximately $20-25 billion in total. This level of potential duplicate discounts borne by manufacturers increases their costs substantially. In addition, when it comes to understanding the actual price of drugs, research indicates that around $34­–37.5 billion of sales at wholesale acquisition cost (WAC) might be at risk of inaccurate claim processing.^[6] The lack of rebate transparency has made it cumbersome for brands with high rebates and 340B exposure to account for this rapidly increasing gross-to-net line item.

With the considerable growth in the 340B Program in recent years, manufacturers, policymakers, payers and other key stakeholders in the pharmaceutical supply chain must identify ways to address duplicate discounts and the financial burden they place on manufacturers, states, and entities that process and pay claims.

[1] “Covered entities” include six categories of hospitals: hospitals that serve a disproportionate number of low-income patients (disproportionate share hospitals), children’s hospitals and cancer hospitals exempt from the Medicare prospective payment system, sole community hospitals, rural referral centers, and critical access hospitals.

[2] https://www.gao.gov/assets/gao-20-212.pdf/

[3] For prescription drugs, the fee-for-service model is one where a beneficiary obtains a drug from a pharmacy and the pharmacy receives a payment from the state.

[4] https://www.hrsa.gov/opa/program-requirements/medicaid-exclusion.

[5] https://avalere.com/insights/340b-stakeholders-consider-impacts-of-duplicate-discounts/

[6] https://www.iqvia.com/-/media/iqvia/pdfs/us/white-paper/2023/iqvia-340b-duplicate-discount-scrubbing-white-paper-2023.pdf.