Making 340B work for pharma and drug manufacturers

November 11, 2024

Making 340B work for pharma and drug manufacturers

The expansion and evolution of the 340B Drug Pricing Program raises unique challenges for life sciences organizations. What steps can they take to ensure compliance, protect revenue, and continue to fulfill the program mission?

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The 340B Drug Pricing Program plays a crucial role in helping healthcare providers better serve our most vulnerable communities through discounted medications and savings reinvestments in patient care.

But while this program has improved care access and quality, its rapid growth and evolution has also introduced significant challenges for pharmaceutical companies and drug manufacturers.

What is 340B/Public Health Service (PHS)?

According to data from Health Resources and Services Administration (HRSA), discounted purchases under the 340B Program reached a record $53.7 billion in 2022 (the latest year for which data is available). This represents an increase of $9.8 billion, or 22.3%, since just 2021-a growth rate expected to continue in the coming years. Meanwhile the pharmaceutical industry is expected to experience a compound annual growth rate (CAGR) of only 4.71% between 2024 and 2029.

This mismatch between outlays and growth poses distinct challenges for life sciences organizations-in terms of compliance as well as revenue. Below, we explore how companies can establish functional and technical processes to keep pace with the evolving regulatory landscape, ensure the correct prices are offered to eligible hospitals and systems, and effectively support program expansion.

Figure 1

Five recommendations for drug manufacturers to improve 340B Program compliance and minimize revenue leakage

To overcome core challenges associated with the 340B Program, life sciences organizations must embrace the transformation of people, processes and systems. Here we share several core recommendations that can help pharmaceutical companies and drug manufacturers refine and strengthen their 340B Program operations:

1. Perform a current-state assessment and gap analysis of all business processes and tech systems

Pharmaceutical companies should begin by conducting a current-to-future state assessment and gap analysis to determine whether their existing systems and processes are aligned with their goals.

If gaps are found, the company should create a long-term roadmap to resolve core issues. They should also take steps to identify impacted customers (if applicable) and notify HRSA through a manufacturer letter. The focus of all efforts should be on enhancing compliance, improving data management and reducing revenue leakage.

This approach is essential for maintaining compliance and building future-ready capabilities that will not only support the ongoing evolution of the program but adapt to any changes within the business.

2. Create a data foundation that will ensure access to high-quality, accurate and complete data

Enhancing data capabilities is essential, both for ensuring compliance and optimizing revenue. Complete and accurate data is also a critical component of retroactive reviews, real-time verifications and eligibility determinations.

To enhance data capabilities, companies should focus on two critical elements:

• Providing access to accurate and reliable external data
  
  
• Ensuring consistent management and proper maintenance of internal data

One effective solution is implementing Commercial Data Lakes (CDLs). These systems can help manage both internal and external data, allowing for triangulation of data across the organization. For instance, combining the HRSA covered entity database with indirect sales or chargebacks can help verify contract eligibility for the 340B program.

Companies might also consider launching an exploratory initiative to assess how existing data from public health databases, combined with internal data, can help detect revenue loss and forecast potential compliance issues.

3. Leverage AI/ML-enabled solutions to automate reviews and identify pricing discrepancies

Artificial intelligence (AI) and machine learning (ML) systems have an important role to play in identifying invalid 340B Program chargebacks, rebate claims or additional analogous transactions. These systems can also help identify duplicate discounts caused by 340B contract pharmacy up-front pricing. Generative AI, specifically, can be used to set up rules and analysis parameters to identify duplicate discounts, repeat offenders and large spreads between list-to-PHS pricing.

This technology is well-suited to identify trends and patterns within chargebacks and records that would otherwise escape human notice. And because AI/ML solutions can "learn" from larger data sets and language models, these systems will only become more precise and effective over time.

While existing AI-enabled tools can automate some aspects of the review and monitoring process today, few if any companies have deployed the technology in this way. Even before future advances in this technology, today's AI represents a huge opportunity for drug manufacturers to boost processing accuracy and speed without increasing cost or adding resources.

As a starting point, companies might consider a pilot or proof-of-concept program that leverages intelligent technology to perform a sample evaluation on duplicate discounts. This can help estimate the scope and cost of the issue to the business, and thereby justify future expenditures.

4. Implement rigorous refund protocols, and establish maximum-price fluctuation monitoring systems

Detecting discrepancies in pricing, such as overcharging or undercharging, is critical to both stopping revenue leakage and maintaining compliance. However, companies also need to be able to rectify issues identified within the system or business operations when routine restatements or recalculations lead to 340B overcharges and undercharges.

Drug manufacturers need to develop a protocol for issuing credits in the case of an overcharge, or rebilling in instances when multiple discounts were applied. This process would include having strong data to identify the issue; knowing where to pay a refund; building robust internal revenue management processes to support this operational activity; and developing rules and parameters for activating workflows above or below a certain threshold.

Another core component of this capability is setting up a multi-governance model to ensure effective coordination between the program, pharmaceutical companies and covered entities. This would help maintain compliance and hold all parties accountable.

5. Monitor regulation evolution and perform regular compliance audits

Like any government program, the statute for the 340B Program is subject to change. Indeed, as recently as June 2024, the Biden administration issued a new rule that changed how dispute resolutions are managed within the 340B Program.

Between regulatory changes and transformations within the business, it is important for companies to conduct regular assessments of how changes across people, processes and data are affecting operations.

At a minimum, we recommend clients conduct an internal audit every three years to review and validate all 340B processes, and to identify any instances of non-compliance. As part of this process, the company should also identify a team or individual to be responsible for monitoring forthcoming legislation or updates that would impact the 340B Program, as well as considerations for Medicaid rules and regulations.

Preparing for the future of 340B compliance

The 340B Drug Pricing Program is a vital lifeline for improving access to care for vulnerable populations through discounted medications and reinvested savings. However, its rapid expansion has created considerable challenges for pharmaceutical companies and drug manufacturers.

With critical legal and legislative decisions on the horizon, the 340B Program is poised for change-and pharmaceutical companies need to be ready. By enhancing data capabilities, leveraging AI/ML tools to automate workflows, developing robust monitoring systems and embracing a culture of continuous evolution, pharmaceutical companies can simultaneously improve compliance and minimize revenue leakage.

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