How Drug Manufacturers Can Mitigate Trends in Revenue Leakage

The Gross-to-Net (GTN) gap for drug manufacturers in 2022 was $223 billion, a 33.5% increase from 2018, when the total sum of manufacturer GTN reductions for patent-protected, brand name drugs was $167 billion. Misapplied discounts are a major contributor to this growing revenue leakage, which puts financial pressure on drug manufacturers and makes it more difficult to keep down drug prices.

This trend isn’t likely to abate soon: Multiple factors are aligning to intensify the impact of misapplied discounts on drug manufacturers over the next two years. For starters, the 340B program, created by Congress more than three decades ago to make drug rebates mandatory, has grown in popularity since the federal government in 2010 allowed an unlimited number of contract pharmacies to participate.

More recently, a November federal district court ruling in a lawsuit filed by Genesis Healthcare that expands the definition of who is a 340B-eligible patient opens the door for broader use of prescription drugs offered at a discount under 340B.

And while the Inflation Reduction Act (IRA) calls for Part B and Part D inflation rebates designed to protect drug manufacturers from paying discounts already paid to 340B participants, the exclusion for 340B discounts in Part D cases won’t go into effect for several years. Further, the maximum fair price section of the IRA, which covers the price negotiated between manufacturers and the U.S. Department of Health & Human Services, lacks duplicate discount protection.

Given the potential impact of these factors, it makes sense that drug discount program stakeholders – manufacturers, covered entities, and state Medicaid agencies – prepare now to ensure they can meet the growing challenge of misapplied discounts by using tools to operationalize compliance.

The source of revenue leakage

Where payer-based rebates and 340B Drug Pricing Program revenue intersect is the wellspring of duplicate discounts and resulting revenue loss. Duplicate discounts are created when discounts from the federal 340B program overlap with rebates from either the Medicaid Drug Rebate Program (MDRP) or from commercial insurance plans.

These overlapping programs introduce a costly possibility – that a single drug-dispense could incur a commercial rebate, a Medicaid rebate and a 340B discount. This "triplicate discount" should be a concern to all stakeholders because it compromises the integrity of the discount programs, which ends up hurting consumers.

Misapplied discounts stem in part from an onerous and archaic system that still relies on manual data uploads to function. This inefficient system also keeps data sets fragmented, raising concerns over data integrity. Acquiring, ingesting, and analyzing data — especially when many data sets are known to have gaps – is a daunting and costly challenge for drug discount system stakeholders.

It is particularly difficult with the system currently used by most stakeholders to directly match 340B chargeback data to Medicaid claims. Any connection between data sets is supposed to be confirmed by the use of coded “modifiers.” Unfortunately, this method is disappointingly inconsistent.

How modifiers fall short

Modifiers are additions to claims level data and intended to help stakeholders identify discounts recorded at the point of dispense. The fundamental problem is that a modifier, by definition, is designed to modify an existing system and, thus, not originally built into the system. It is no surprise that such an "add on" solution may not fit seamlessly into existing systems.

Such has been the case with modifiers: They do not always reflect the reality of a drug dispense. Some pharmacies do not include modifiers on a patient's 340B eligibility. Others will include modifiers, but these may not be visible to other stakeholders via national data sets.

As a real-life example, one manufacturer submitted claims in a dispute report to a high- population state whose Medicaid drug rebate program was managed by a third party. The state returned the manufacturer’s report, citing a requirement that a specific modifier be used in all disputes over whether a claim was 340B.

An analysis of requests submitted by the covered entities involved showed that 82.5% said they had originally included the modifier. The state’s initial reason for returning the report underscores a significant disconnect between the goal of modifiers and their real-world effectiveness.

An emerging dilemma and a solution

Implementation of the Inflation Reduction Act's drug pricing provisions, such as inflation rebates in Medicare and a maximum fair price from the Medicaid Drug Price Negotiation Program, introduces another layer of complexity for drug discount program stakeholders.

Specifically, these pricing concessions could further exacerbate revenue leakage risks by opening the door for duplicate, triplicate, or even quadruplicate discounts on certain claims – especially given that the only way to prevent misapplied discounts from occurring is effective use of modifiers (which, as we saw above, is highly unlikely).

As drug discount programs expand, misapplied discounts will only increase total revenue leakage. This puts manufacturers under immense pressure to implement technology that doesn't rely solely on modifiers, a solution that fixes the data issues of the current outdated and broken system.

Such a systemic, data-driven solution must include three critical capabilities:

• Scalable data acquisition and ingestion. The right technology must be able to ingest and unify data from multiple sources and stakeholders to provide a single source of truth. This requires the ability to break down data silos across the discount system.
• Timely data analysis and decisioning. Data in and of itself has little value if it can’t be mined for context and meaning. Drug manufacturers need a platform that can normalize, transform, and validate data for actionable insights, regardless of file types and formats.
• Confident effectuation and audit trail. For drug manufacturers to effectively dispute rebate requests submitted by covered entities, they need technology to efficiently document and track disputes through resolution.

Revenue leakage from misapplied drug discounts is costing drug manufacturers hundreds of billions of dollars a year, losses passed on to consumers in the form of higher drug prices. To better manage these drug discount programs and minimize revenue bleed, stakeholders need digital tools that ensure compliance at scale.