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What ESI’s 340B moves mean for program stakeholders

A note from Kalderos leadership

In late February, pharmacy benefit manager Express Scripts (ESI) drew headlines in the 340B community when it communicated a significant change in 340B claims identification procedures to participating pharmacies. 


Under the new rules, when a contract pharmacy determines that a previously submitted prescription drug claim is eligible for 340B, the pharmacy should submit an Information Reporting (N1) transaction with 340B identifiers within 10 days. Pharmacies say this isn’t reasonable, as identifying these claims as 340B could easily take weeks or months. 


Pharmacies are deeply concerned about their ability to comply with the requirements, which they say are so challenging to operationalize that they’re effectively impossible. We expect the following outcomes in reaction to this change in billing requirements:


  • Contract pharmacies could decide to leave the 340B program, ending their partnerships with safety net healthcare providers.
  • Contract pharmacies could refuse to fill prescriptions for patients whose benefits are managed by Express Scripts. In fact, we’ve learned some covered entities have proactively requested their contract pharmacies carve-out ESI plans from 340B processing.   
  • Covered entities and pharmacies could simply refuse to comply with ESI’s requirements. 

Whatever the ultimate outcome, covered entities, who already feel under attack, now see ESI’s move as further escalation against the 340B program that safety net healthcare providers and their patients rely on. 


Covered entities are now aligning with the National Association of Chain Drug Stores (NACDS) in a collaborative effort to advocate against the new requirements.  


Meanwhile, manufacturers are wondering, what does the new ESI development mean for us? We believe that ESI’s actions may be bad news for drugmakers, too.

Express Scripts is replicating a system that’s already failing states


Our perspective on the situation is shaped by our extensive work identifying duplicate discounts at the overlap of Medicaid and 340B. Based on this expertise, we believe that not only will the new ESI requirements be ineffective in supporting transparency, they will also create a more challenging dispute resolution environment for manufacturers.


States have already tried to rely on claims-level identifiers from pharmacies to identify 340B dispenses. Many states requested that covered entity pharmacies use the appropriate values in the 420-DK and 423-DN fields to identify 340B dispenses when they bill state payers, theoretically enabling the states to avoid requesting manufacturer rebates on these already deeply discounted drugs. 


In practice, this system has been shockingly ineffective, for a few reasons. 


  1. States don’t have the resources to audit or police pharmacy compliance; therefore they have no visibility to whether a given pharmacy is following these guidelines. A lack of claims-level identifiers could mean that a 340B drug wasn’t dispensed, or it could mean that the pharmacy in question doesn’t know about the rules or isn’t following them. There is no way to know which, so the state requests a rebate, with a high possibility of resulting in a duplicate discount. 
  2.  Even when covered entity pharmacies do bill the state correctly, using the right claims-level identifiers, the state is frequently unsuccessful in removing these claims from their invoices to manufacturers, often due to incompatible systems and data integrity issues. In these cases, the state also requests a rebate, resulting in a duplicate discount. 


In a 2016 study Kalderos conducted, we worked with two large, well-resourced covered entities who had been diligent in implementing the processes their states required to avoid duplicate discounts between 340B and MDRP. In this study, we flagged high-risk claims that had been invoiced to drug manufacturers for MDRP rebates, and asked the covered entities to confirm whether a 340B drug had been used to fill this script. For one of these covered entities, on 95% of the scripts, the answer was yes. For the other, the number was around 40%. 


And yet, here’s what we saw with states: because states had this system in place and were doing their best to follow it with the resources and infrastructure they had, states were reluctant to accept that duplicate discounts were still occurring. This made dispute resolution between states and manufacturers difficult, and continues to be a challenge today.



Manufacturers should be prepared for more challenges with PBMs


So what does this have to do with PBMs? We predict that manufacturers may soon be facing the same challenges in dispute resolution with PBMs that they have faced with some states. 


While not protected from duplicate discounts by statute, as they are at the intersection of Medicaid and 340B, manufacturers typically have private contracts with commercial payers that exclude 340B dispenses from rebate agreements. This means it’s relevant to both PBMs and manufacturers to identify 340B claims. By placing these onerous billing demands on the pharmacies, PBMs such as Express Scripts may claim to have all the answers on which dispenses are 340B. 


But as we know from our experience with state payers, this isn’t true. If the PBMs don’t audit pharmacies for compliance — and we don’t believe they will — this information will not be reliable. It’s actually even less likely to be reliable, given the burdensome time limit imposed on 340B identification, as well as the untested nature of the retrospective “N1 transaction” process that pharmacies are now being asked to utilize. 


If PBMs use this flawed data-collecting mechanism to refuse valid manufacturer exclusions, manufacturers could soon find themselves paying even more rebates that they neither legally nor contractually owe. In order to defend their valid exclusions, manufacturers will need to be prepared with their own well-researched, well-supported sources of information on which claims are eligible.


Built on a first-of-its-kind digital platform, Kalderos’ Discount Monitoring solutions are trained on the nation’s largest set of noncompliant discounts. Our data science experts draw on hundreds of thousands of responses from covered entities and use machine learning techniques to identify high-risk claims, providing a highly reliable source of information.  

Most importantly, Kalderos solutions eliminate noncompliance by bringing stakeholders together and enabling decision-making based on a shared source of information. Our platform is created to enable greater transparency between all parties, built on mutual trust and collaboration. We believe this is the only effective way to solve challenges in 340B and empower everyone involved to focus on the health of patients.