Dos and Don’ts of Managing Changes to 340B Pricing
A substantial savings opportunity for many hospitals is better management of pharmacy spend around 340B pricing. A timely review of 340B pricing and a process that considers pricing dynamics elsewhere can often uncover significant savings opportunities.
Why Is 340B Pricing Worth Your Focus?
Data shows discounted purchases under the 340B program reached $44 billion, about 16% more than the prior year. At the same time, 340B purchases made up about 14% of pharmaceutical manufacturers’ total gross sales of brand-name drugs (this figure excludes COVID-19 vaccines). We also know that organizations enrolled in the 340B program can achieve average savings of 25% to 50% on their pharmaceutical purchases. That’s a lot of money spent and a lot of money saved.
340B Best Practices for Uncovering Pharmacy Cost Savings
Given the discount percentages that can be at stake and the pressures on hospitals to better manage their margins, recognizing how to best manage 340B within the context of a larger medication spend strategy is important for many disproportionate share hospital (DSH) pharmacy teams. Consider the following as you review opportunities in your health system.
Don’t wait 30 days or longer to discover the impact of price changes. While 340B pricing discounts can present significant savings to DSH providers, participants must be vigilant. Price changes can happen as frequently as every quarter and be substantial. To properly understand the impact of these changes, pharmacy teams will need to monitor not only the impact on pricing of the affected drug but also track the proportion of inpatient, outpatient, and WAC spend.
If an organization suddenly loses the ability to buy a drug with a 340B discount because of a change in eligibility resulting from a change in this proportion, then the pharmacy must address the situation quickly. The organization may have only 30 or 60 days to cancel the purchase to get their money back.
Differences between a 340B discount and other market pricing can amount to thousands of dollars per unit of medication in some instances. If a hospital waits to review its data for 90 days, it can find itself significantly overspending — perhaps as much as a million dollars more with high-use and/or high-priced drugs than it would have under the prior discount — with no means for recovery. Automated tools can assist in this monitoring, with some providing immediate alerts on changes affecting the organization’s 340B pricing.
Do keep an eye out for penny pricing. Another area to watch with 340B pricing is “penny pricing.” When a manufacturer increases the price of a 340B drug more quickly than the rate of inflation, it is subject to a “penny pricing” penalty. This penalty requires the manufacturer to sell that drug to covered entities the following quarter for 1 penny. Again, speed in responding to these changes is paramount to achieving pharmacy cost savings.
Don’t analyze 340B spend in a vacuum. The 340B program applies only to outpatient drug costs. If you are only examining discounts related to the program, it can result in your health system missing opportunities within inpatient and WAC.
That’s why it is important to consider the broader context when devising 340B spending strategies. Suppose an organization is trying to use the same products across inpatient and outpatient areas. In that case, it will be best served by examining ways to optimize for total distribution across all account categories, not just 340B pricing. Always keep in mind your larger strategy for managing drug costs and avoiding siloed pricing analysis.
See how much you could be saving with the right med spend strategy.
QuicksortRx provides timely, transparent, and actionable guidance to help health systems make better pharmacy procurement decisions.