In theory, the 340B Drug Pricing Program is fairly straightforward: Covered entities are eligible to purchase substantially discounted pharmaceuticals for qualified patients, provided they adhere to established guidelines and statutory requirements. However, the lack of clarity in the law coupled with the shear number of drugs in the marketplace present challenges to covered entities trying to comply with the program while also receiving the best price for 340B-eligible drugs. To overcome these challenges, there are resources and strategies pharmacy leaders can employ that will help ensure compliance and efficiency while maximizing cost savings.
340B Pricing Overview
Under the Medicaid Drug Rebate Program, participating pharmaceutical manufacturers are required to provide 340B pricing on qualified drugs to covered entities. The 340B discount is very deep, falling anywhere between 25% to 75% off the average wholesale price (AWP). Manufacturers calculate the 340B price using a confidential formula found in the 340B statute. This calculated price, known as the Public Health Service (PHS) price, is the highest price (the
“ceiling” price) that a manufacturer can charge to a covered entity for the drug. However, this contracted price is not fixed and is subject to change on a quarterly basis, as noted in the statute.
In a perfect world, prices would stay low, rarely change, and covered entities would have total visibility of contract pricing as well as the resources to complete a comprehensive evaluation of the clinical and financial impact of all purchasing and formulary decisions. Unfortunately, the process does not occur in a vacuum, and the reality is that there are many variables that result in complications for covered entities.
To start, although prices are subject to change quarterly, the time periods are not standardized and it may be difficult to gauge whether prices will increase, decrease, or stay the same. Furthermore, while wholesalers typically have resources devoted to pricing maintenance and control, PHS contract management—and pharmaceutical contract management in general—is still an archaic process. Many of the procedures are manual and manufacturer notifications often come through inefficient channels, such as fax and paper mailings. Finally, although change may be on the horizon, covered entities currently have difficultly confirming whether the prices visible on their ordering platforms are even the correct contract prices. While all these factors make it difficult to finalize formulary decisions or even appropriately account for pharmaceutical spend, there are many opportunities for covered entities to ensure they are receiving accurate pricing.
The two primary elements of price verification involve ensuring the “right” price and the consistent application of pricing across all ordering accounts, and the cornerstone of an appropriate pricing evaluation is accurate data. As wholesalers also benefit from 340B purchasing, they are usually eager to assist covered entities in this pursuit.
Since ceiling prices are not yet universally available (although this could change in the future with the new health care reform bill), much of the responsibility to ensure proper pricing falls on the covered entity. While covered entities are not allowed access to PHS pricing before the effective date of the contract due to the risk of spec-buying and other abuses, it is still important to request documentation validating the pricing information received from the manufacturer after the contract goes into effect. One option is to request the documentation in full, however this may not be realistic given the volume of information. Achieving the goal of full pricing transparency may be better accomplished through an audit process developed jointly with the wholesaler. For those that participate, the 340B Prime Vendor Program also offers a database of 340B ceiling prices voluntarily submitted by manufacturers. Additionally, the Prime Vendor Program publishes a list of its own contracts, which covered entities can match up against wholesaler pricing. It is important to note that the pricing information received from the wholesaler or Prime Vendor Program will most likely not include any additional discounts offered by the wholesaler. Entities can ensure an accurate comparison by establishing test accounts with the wholesaler that do not have any additional discounts loaded or ask that the ceiling price be published in another location on the ordering platform.
Once the contract date becomes effective, the wholesaler should load all PHS pricing on the covered entity’s ordering platform. It is important to review this and make sure all contracts have been loaded so any issues can be resolved within the same accounting period. Covered entities also can request that the wholesaler publish the contract effective date and end date for each PHS-contracted item on their ordering platform.
340B Pricing Reports
Good reporting is critical to effective contract review and management. Fortunately, most of the necessary information should already be available from the wholesaler. In addition to previously mentioned price verification data, several other reports may prove helpful for covered entities.
Contract Purchase Exception Report
If multiple ordering accounts exist, a covered entity may request that a wholesaler provide an exception report listing those drugs purchased at different prices under accounts that should have been loaded with the same contracts. In some cases involving committed PHS contracts, accounts may have different pricing tiers based on market share; however, the majority of the time, a purchase exception may indicate that a particular manufacturer’s contract was not loaded on one of the ordering accounts.
Price Change Report
A monthly price change report helps entities capture significant price increases or decreases and will assist with purchasing decisions. Covered entities can also request a report that captures only price changes above a specified threshold to help limit the amount of items needing review each month.
Contract Purchase Price Comparison
To help avoid lost opportunities, the wholesaler may develop a report that captures previously purchased items with equivalents that, at the time of purchase, were available at a lower contract price. This report is especially helpful for entities with a high generic purchase volume.
Price Evaluation Considerations
Once an accurate data stream is available, and defined reporting methodologies are determined, price evaluation is straightforward. Specific methods vary across covered entities depending on size, scope, and individual preference. However, given the volume of data, it is important that entities maintain an organized process. Here are some issues to consider when developing a review process.
As previously mentioned, the two primary elements of price verification are ensuring the right price and the consistent application of pricing across all ordering accounts. Assuming the appropriate reports are available, the latter is easily managed through a daily exception report review. Facilities should document discrepancies and report them to the wholesaler as soon as possible. Many of the consistency problems with PHS contracts are caused by missing information or documentation and are easily fixed; however, they will likely go unnoticed by the wholesaler unless reported.
Ensuring the right price is more difficult, given the number of drugs and amount of documentation needing review. Still, a monthly review process should be implemented, likely through an audit of individual drugs or manufacturers.
Cost is usually a primary driver for formulary/product selection. Therefore, a pricing analysis usually begins with a cost comparison. The price change report should be reviewed monthly along with a defined number of top purchased drugs either cumulatively or by therapeutic class. A facility may choose to purchase the least expensive product in all instances, but should still consider product allocation and consistency issues.
Significant price reductions are common with 340B contracts as manufacturers sometimes drop prices to as low as a penny. However, as expected, low prices will cause spikes in demand, which usually leads to manufacturers placing items under allocation fairly soon after the price changes. This is one reason why it is important to recognize price changes as early as possible if a covered entity wishes to take full advantage of heavily discounted pricing before the item is allocated. Once an allocation is set, it may still be increased, and this will depend on previous usage of the product. Nevertheless, a covered entity may still request increases from their wholesaler. Nothing is guaranteed though, since the wholesaler’s supply is limited by the manufacturer and they have to distribute product across their customer base.
Knowing the end date of a contract helps alert customers of a potential contract change and also can aid in formulary decisions. For example, if one generic drug is priced $0.10 higher than an equivalent alternative, but the contract expiration of the more expensive item is six-months longer, the best decision may be to stay with the more expensive item to maintain consistency for a longer period of time. The pricing threshold is, again, a business determination made by the covered entity. Consistency is important because, for one reason, variability can potentially affect patient/customer satisfaction. If a facility is purchasing through a different manufacturer of a particular drug each quarter, a patient who has a regular need for that product may be looking at a pill of a different size, shape, and color each time they pick up a prescription. This is obviously important to consider because a patient should be comfortable with the medication they are expected to take.
At times, managing the nuances of the 340B Drug Pricing Program may seem like a daunting task for covered entities. Fortunately, ample resources and strategies exist to help navigate the program. Regardless, participants must ensure they develop and maintain regular, organized evaluation processes using accurate data to avoid missed opportunities and disruptive purchasing practices.
Anthony Lesser, MSHA, serves as the pharmacy inventory manager for the Harris County Hospital District, the nation’s fifth largest public metropolitan health system. He also works as a consultant for the HRSA Pharmacy Services Support Center where he provides technical assistance on 340B-related matters. His primary professional interest is the development of effective supply chain strategies to maximize patient safety, regulatory compliance, and financial performance. Anthony received a BS in microbiology from Texas A&M University and a MS in health care administration from Trinity University.
WHERE TO FIND: 340B Software