Editor’s Note: This month, we offer commentary on two topics around Independent Pharmacies in the Post-IRA World and the 340B Program. As always, if you have questions on any of the content found in this or previous market updates, please reach out to your IntegriChain Consulting Lead or consulting@integrichain.com and we would be happy to talk you through it.

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Independent Pharmacies in the Post-IRA World

Independent Pharmacies have struggled over the last several years. Consumers increasingly forgo brick-and-mortar stores for more convenient online options, which has been made possible by the rise in mail order and digital pharmacies, and an increasing number of chains offering online or direct to patient services. The 2022 Inflation Reduction Act (IRA) looks to be exacerbating this trend by introducing a new set of challenges for independent pharmacies.

Specifically, independent pharmacies are concerned with: 

1. The MFP for selected drugs increasing the risk of underwater reimbursements and budget impact
2. Challenges resulting from payer reactions to liability changes
3. The Medicare Prescriptions Payment Plan (M3P).

1. Selected Drugs and MFP Concerns

According to a national survey, over half of independent pharmacies are considering not stocking the first 10 selected drugs for MFP, while 90% may not sell any of the Part D drugs CMS is selecting for price negotiations (NCPA). The upfront cost and opacity with reimbursement are concerns cited by independent pharmacies. NCPA estimates pharmacies that stock and dispense products in the Medicare Drug Price Negotiation Program will have to float $27,000 each month for reimbursement of these products. Already struggling independent pharmacies may have difficulties absorbing the cash flow burdens.

2. Increased Utilization Management from Payers in Response to Medicare Part D Redesign

Utilization management can significantly affect independent pharmacies as it increases restrictions on drugs, administrative burdens and potential revenue leakage due to protocols around step therapy and prior authorizations.  As part of the Part D redesign, if a manufacturer is “phase-in” eligible, their liability for drugs under the Manufacturer Discount Program (MDP) will start at 1%in 2025 and gradually rise until it reaches the 10% and 20% in the initial coverage period and catastrophic coverage respectively; the plan sponsors will be responsible for the additional rebate owed by the manufacturer during the “phase-in” period. Payers will attempt to recoup some of that delta through negotiating supplemental rebates and increasing utilization and formulary management. Market research showed 96% of payer respondents plan to increase utilization management of high-cost drugs in response to the Part D Redesign (Magnolia Payer and PBM IRA Survey). Payers expect more prior authorizations, step edits, and generic first utilization. In addition, payers anticipate tighter formularies and more exclusions.

3. Medicare Prescription Payment Plan (M3P)

The Medicare Prescription Payment Plan is an optional program beneficiaries can opt-in to help with their out-of-pocket drug costs. M3P allows the enrollee to spread their OOP costs in monthly payments throughout the year. Adding onto the cashflow issues independent pharmacies already face, a beneficiary enrolled in M3P will not pay the full OOP cost for their drug at the time of purchase. The pharmacy must file a claim and provide the necessary information to the Part D plan to facilitate the M3P calculation. Additionally, pharmacies are required to distribute “Likely to Benefit” notices to patients who may benefit from enrolling in the M3P program. Compounding the additional operational and administrative burden on top of independent pharmacies cash flow issues.

Conclusion

Between reimbursement uncertainties with selected drugs, increased utilization management for drugs manufactured by specified or specified-small manufacturers, and operational burdens around M3P, independent pharmacies will face new challenges in the years to come.

References

1. Independent Pharmacies Reluctant to Stock Drugs in Medicare Negotiation Program, New Survey Shows

340B Program: Unchecked Growth, Challenges, and Future Prospects

The 340B drug program continues to be a prominent focus within the pharmaceutical industry. Originally designed to improve access to prescription drugs for low-income and uninsured patients, the program has seen unchecked growth and increased scrutiny resulting from a surge in reports and analyses. These reports are raising concerns over program oversight and misaligned outcomes compared to the original program goals. The following reports highlight multiple concerns across:

1. The Programs Rapid Expansion

2. State Level Regulations

3. Increased Program Transparency

4. Concerns over Program Outcomes

Analyses Highlight Prominent Industry Concerns with the 340B Program

1. 5-year 340B Drug Spend (WAC) vs. Total Healthcare Spend (WAC)
2. Over the past five years, the 340B program has experienced remarkable growth, expanding by 129.4%, which is triple the growth rate of non-340B sales. In 2023 alone, the program accounted for $121.4 billion in Wholesale Acquisition Cost (WAC) dollars¹. In comparison, the U.S. pharmaceutical market was valued at approximately $574.37 billion in 2023, with a compound annual growth rate (CAGR) of 5.48% projected from 2024 to 2030 ². The 340B program’s share of the total U.S. pharmaceutical market has increased from approximately 10% in 2018 to over 21% in 2023, highlighting its expanding impact on the industry. ¹. 

2. State-Level Contract Pharmacy Regulation 

1. In recent years, states have increasingly intervened to address 340B contract pharmacy restrictions enacted by manufacturers to try and mitigate the rapid program growth. Many states have viewed the restrictions as a type of discriminatory practice resulting in a wave of legislation that gained momentum after the U.S. 8th Circuit Court of Appeals upheld the Arkansas 340B Drug Pricing Nondiscrimination Act ³. As of now, 32 states have passed similar legislation ⁴. 

3.Minnesota’s First 340B Transparency Report

1. Minnesota recently released the first-ever mandated financial report on its 340B program following 2023 legislation. The report revealed that over 16% of 340B funds were directed to for-profit contract pharmacies and third-party administrators, with a portion of these profits coming from commercial payers and Medicare Part D plans ^5,6 . This finding highlights a significant issue: both commercial and government payers are bearing the financial burden of the program’s expansion, often without clear evidence that these funds are reaching the intended beneficiaries.

4. Patient Impact and Affluent Neighborhoods 

1. A key criticism of the 340B program is whether its benefits truly reach the low-income and uninsured patients it was designed to help. Studies reveal that many contract pharmacies participating in the program are located in affluent neighborhoods where residents typically have insurance coverage. An analysis by IQVIA found that less than 5% of contract pharmacy claims involve uninsured patients, raising significant concerns about whether the program’s discounts are being appropriately allocated to its intended beneficiaries ⁷. These findings spark debate on how the program supports patients and passes on savings to patients.

Discussion 

The 340B program’s rapid growth, lacking transparency, and questions about patient benefit are highlighting a growing debate over the program goals compared to real-world outcomes. Legislation has aimed to protect covered entities, contract pharmacies and the patients they serve from perceived discriminatory practices. However, the program’s growing financial burden – noticeably shouldered by commercial and government payers-is causing a stir in the industry that is ripe for intervention. These concerns only add to ongoing development of the new IRA program changes, and manufacturers pursuing alternative program compliance strategies. 

Conclusion 

As the 340B program continues to evolve, stakeholders should assess its impact on the broader pharmaceutical landscape. Addressing concerns over unchecked growth, regulatory variability, and transparency will go a long way in aligning with 340B’s core mission.

References

1. IQVIA Update on Size of 340B Program (2024)
2. Grand View Research
3. 340B DRUG PRICING NONDISCRIMINATION ACT
4. 32 State-Level Laws to Protect CHCs’ 340B Savings
5. Minnesota Pricing Report 
6. Drug Channel Article on Minnesota Pricing Report
7. IQVIA Affluent Neighborhoods Article

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