In this new 340B insight series, Avalere explains how the 340B program was established, provides an overview of stakeholders, and discusses key trends.

In this installment, Avalere experts provide an overview of prohibited duplicate discounts in the 340B program.

What is a Duplicate Discount?

Duplicate discounts occur when a covered entity and a state Medicaid agency receive a discount on the same drug unit. Covered entities receive discounts through the 340B Drug Pricing Program, while state Medicaid agencies receive discounts under the Medicaid Drug Rebate Program. Federal law prohibits duplicate discounts. Additionally, the Inflation Reduction Act includes a provision where manufacturers do not need to provide the maximum fair price (MFP) to patients receiving 340B-discounted drugs when the 340B ceiling price is lower than the MFP.

Medicaid Drug Rebate Program

The Medicaid Drug Rebate Program requires that state Medicaid programs cover any drug (with some statutory exceptions) made by a manufacturer that has a rebate agreement with the Centers for Medicare & Medicaid Services. Manufacturers pay quarterly rebates to states based on the rebate agreement with CMS. Some states negotiate supplemental rebates with manufacturers in exchange for improved preferred drug list placement or decreased utilization management.

Mandatory rebates in Medicaid and the 340B ceiling price are determined similarly, based on the unit rebate amount (URA). The URA for brand drugs is the greater of 23.1% of Average Manufacturer Price (AMP) or AMP minus best price, with an inflationary component added to either amount. The URA for drugs with exclusively pediatric or certain clotting factor indications is 17.1% of AMP, and generic drug rebates are 13% of AMP. While the URA ensures a similar base discounted price for Medicaid and 340B, supplemental rebates or discounts can differ based on provider, plan, manufacturer, and state and influence 340B discounts.

Strategies to Monitor and Prevent Duplicate Discounts

Medicaid Managed Care Organizations send states utilization reports for prescription drugs that the state can use to request rebates from manufacturers. To prevent duplicate discounts, some states “carve out” 340B drugs from managed care contracts and manage payments directly. Recently, California and, controversially, New York have instituted carve-outs for all prescription drugs in Medicaid.

States with carve-outs for 340B-discounted drugs often use provider-level identification, excluding any drug provided by a covered entity from rebate requests. In these states, 340B covered entities must forgo the 340B discount for Medicaid patients. The controversy from New York’s recent carve-out of all drugs from managed care stems from the loss of 340B savings due to provider-level 340B duplicate discount prevention policies. Still other states use claim-level methods, identifying 340B drugs at the unit level, an approach the Government Accountability Office has recommended to CMS to identify 340B drugs.

In states without a mandatory carve-out, covered entities are responsible for monitoring and preventing duplicate discounts. HRSA permits covered entities to choose whether they will use 340B pricing for drugs used by Medicaid patients or purchase drugs for Medicaid patients separately. This choice is especially pertinent to covered entities that dispense drugs through contract pharmacies. In contract pharmacy arrangements, covered entities contract with outside pharmacies to dispense drugs purchased through the 340B program on behalf of the covered entity.

Once a covered entity chooses whether to dispense 340B-acquired drugs to Medicaid beneficiaries, HRSA enters the choice into a public database, the Medicaid Exclusion File. State Medicaid agencies can then use this information to exclude 340B drugs from Medicaid fee-for-service FFS drug rebate requests that the agency sends to manufacturers.

HRSA and manufacturers can audit covered entities to ensure compliance with 340B program guidelines. These audits can identify compliance issues that may result in duplicate discounts. Some manufacturers have also restricted 340B discounts for contract pharmacies to reduce the risk of duplicate discounts on prescriptions filled by contract pharmacies.

Learn More

As policymakers consider changes to the 340B program, stakeholders can prepare by understanding how shifts in policy will impact their 340B business. Avalere’s 340B subject matter experts continue to track ongoing 340B activity at the state and federal level that could impact the broader 340B landscape. To learn how Avalere can help you qualitatively and quantitatively evaluate the impact of various developments and policy proposals related to 340B, connect with us.