PDPRA's Operational Challenges

Both houses of congress are considering price reform bills that would continue the government’s pattern of solving drug pricing challenges by creating additional drug discount programs. If enacted, these bills would place additional pressure on a technology infrastructure, that the government’s own watchdogs admit is broken. The growing rate of non-compliance in drug discount programs, a clear symptom of the fractured infrastructure, was clearly captured in the GAO report publicly released on January 27, 2020 titled “340B Drug Discount Program: Oversight of the Intersection with the Medicaid Drug Rebate Program Needs Improvement.”

In fact, the title and timing of this GAO report may foreshadow a future where these bills are enacted. “Why?” you may be asking. Because we’ve been here before. After the Omnibus Budget Reconciliation Act of 1990 created the first major government drug discount program - the Medicaid Drug Rebate Program (MDRP) - congress created additional drug discount programs whenever the political environment became hostile regarding drug pricing. The Veterans Health Care Act of 1992 created the 340B Drug Pricing Program (340B), the Federal Ceiling Price and other Federal Supply Schedule pricing and reporting burdens. In 2010, the Affordable Care Act expanded both MDRP rebates and the scope of 340B. And in 2020, the next big piece of healthcare legislation that may pass, in whole or in part, is the Prescription Drug Pricing Reduction Act (PDPRA).

By looking at the past and studying the present, this article will address the key proposals and operational challenges of PDPRA that will have an impact on the entire pharmaceutical supply chain, and how, ultimately, we must build a data-rich health care information infrastructure for these proposed changes to be able to operate compliantly. 

Key Proposals of PDPRA

The following are highlights of PDPRA’s proposed changes to Medicare Part B, Part D and Medicaid and how they would impact pharmaceutical executives, and, ultimately, the entire pharmaceutical supply chain:

● Medicare Part B: PDPRA aims to create a new drug discount program with rebates by drug manufacturers of physician-administered drugs with prices increasing faster than inflation, reduce current Medicare Part B reimbursements to certain providers and create a new requirement for manufacturers to refund the government for wastage (loosely defined as the unused drug remaining in a single-use vial after administering to a patient).  

● Medicare Part D: The proposal would essentially redesign the current Medicare Part D benefit, changing the coverage gap rebate. PDPRA also calls for the creation of another new drug discount program with a rebate by drug manufacturers for certain drugs whose prices increase faster than inflation. 

● Medicaid: The bill would overhaul managed care organization and pharmacy benefit manager contracts. It would also change how Average Manufacturer Prices and Unit Rebate Amounts are calculated. 

PDPRA’s operational challenges: A lack of a holistic infrastructure and transparency

PDPRA would be one of the largest drug price reform bills ever enacted, and attempting to implement the sweeping changes it proposes within the current fractured healthcare structures and systems would create operational challenges for the pharmaceutical supply chain. 

First and foremost, due to the lack of an infrastructure rooted in transparency, some elements of the proposed changes are likely to increase conflicts among stakeholders. This is simply because we currently cannot pinpoint where our system is experiencing breakdowns. Transparency is fundamental to measuring drug discount program outcomes and informing effective policy design in the future. The goal is to drive toward a virtuous cycle that powers continuous improvement where we can address the root cause of issues rather than attempting to treat symptoms. 

Similarly, past policy has often resulted in unintended consequences, due to operational challenges, that ultimately impact one stakeholder more than another. As it has currently been conceived, PDPRA overlooks one key element: the need for holistic action that accounts for all stakeholders and anticipates any possible consequences of proposed changes.

PDPRA’s operational challenges: triplicate discounts

PDPRA’s creation of two additional drug discount programs would be the most consequential operational challenge: the potential for a triplicate discount on the same unit sold (a Part B inflation rebate, a MDRP rebate and a 340B Drug Pricing Program discount).

The potential for triplicate discounts is called out by the legislation in Section 106. In that section, the language specifically excludes units from being subject to the new Medicare Part B rebate that have been subject to a Medicaid rebate or 340B discount. This language is a clear acknowledgment of the sophisticated interaction of these drug discount programs. The reality is that the lack of infrastructure to ensure compliant operationalization of the proposed bill and drug discount programs is not currently available.

It has been 30 years since MDRP and 340B have been established and yet there still have not been effective steps taken to solve the pervasive issue of non-compliant drug discounts, which has resulted in an estimated $33.9 billion of non-compliance over the last five years. Despite this incredible amount of waste, we’re willing to create additional drug discount programs without giving thought to how current discount programs are performing.

A new drug-discount infrastructure

Regardless of one’s opinion on whether PDPRA is or is not good policy, if it is enacted, we have to ensure the bill’s key proposals work as intended and ensure compliant operationalization. Only by creating a data and financial exchange infrastructure rooted in transparency can we gain insight into the true problem at hand and create policy that addresses the problem rather than creating policies aimed at resolving symptoms. Without putting a robust infrastructure in place, we are destined to continue repeating problems of the past and continue accumulating the expense associated with unintended consequences that, to date, have resulted in billions of dollars of non-compliance.  

We need to integrate our healthcare policy with our digital and technological capabilities and build an intelligent financial and information exchange infrastructure - rooted in transparency - that will ensure compliance for Medicare, Medicaid, 340B and any other potential drug discount program changes. 

Through a holistic infrastructure, we can rid our fractured system of information breakdowns, such as duplicate and triplicate discounts. These are not always well understood by most stakeholders in the pharmaceutical supply chain, but their impacts are certainly felt in one way or another.

Furthermore, with adequate transparency provided by an infrastructure, we can gauge if drug discount programs and the systems supporting them are working as intended. And if they aren’t working as intended, we will be able to understand the problems at their root and work from there.

As Russell L. Ackoff, a pioneer of systems thinking, said, “We fail more often because we solve the wrong problem than because we get the wrong solution to the right problem.” We must start our journey toward solving the complex interplay of drug discount programs by having the transparency to understand the problem. Until then, we will continue to fail. 

Jeremy Docken is the founder and CEO of Kalderos.