As part of its 2025 Physician Fee Schedule final rule, the Centers for Medicare and Medicaid Services recently formalized several policies related to the Inflation Reduction Act’s requirement that manufacturers issue rebates in Medicare Part D if the prices of their drugs rise faster than the rate of inflation. Left unsaid was exactly how it would exclude 340B claims from calculating those rebates.
Between this and a separate provision of the law concerning negotiated drug pricing for Medicare, the law leaves a host of complicated questions unresolved for 340B covered entities and pharmacies.
Signed in 2022 as part of a sprawling package of legislation touching on healthcare, taxes, infrastructure and energy, the IRA presents two primary challenges to 340B program participants:
- How to exclude 340B drugs from determining rebates under the Medicare Prescription Drug Inflation Rebate Program, which applies to Part D claims beginning Jan. 1, 2026.
- How a separate provision involving Part D drug-price negotiation — and in particular, the requirement to offer maximum fair prices on newly negotiated drug prices — will work with 340B.
Excluding 340B from Part D inflation rebates
In its Nov. 1 final rule, CMS said it would abandon its earlier proposal to estimate the number of 340B claims to exclude from calculating inflation rebates for Medicare Part D. Instead, it said it will explore creating a Part D claims repository through future rulemaking to comply with the requirement.
The repository would collect the date a prescription is filled, the prescription number, the fill number and the dispensing pharmacy’s national provider identifier. But CMS made no firm commitment to doing so, and it remains to be seen if the agency could get such a repository up and running in a year’s time, especially given the demands of the federal rulemaking and public-comment processes.
CMS already requires the use of JG or TB modifiers to exclude 340B claims from calculating Part B inflation rebates. In the meantime, we’ll just have to stay tuned to see how the government proposes to avoid having 340B claims skewing inflation rebates for Medicare Part D.
MFP and 340B
Arguably more consequential for covered entities is the issue of how maximum fair pricing, or MFP, will work operationally with the 340B program.
Starting in 2026, the IRA will lower the cost of some of the highest-cost specialty drugs for Medicare Part D beneficiaries, thanks to the government’s newfound ability to negotiate drug prices with manufacturers. The Biden administration says the new prices on the first 10 drugs selected will save beneficiaries $1.5 billion in out-of-pocket costs in 2026 and slash Medicare spending by billions of dollars.
But the program’s intersection with the 340B program raises some complex questions.
Avoiding duplicate discounts
Under the law, manufacturers must offer covered entities the lower price when a drug is subject to both MFP and a 340B ceiling price. But similarly to the inflation rebates, CMS has not devised a way to keep the two separate and avoid having drugmakers pay duplicate discounts.
Many program stakeholders have argued that using a modifier — similar to those used to exclude 340B claims from Part B inflation rebates — could help minimize Part D duplicate discounts. That’s in line with the industry trade group Pharmaceutical Research and Manufacturers of America (PhRMA), which has urged the government to require the use of a 340B modifier and create a neutral claims clearinghouse to prevent duplicate discounts.
But requiring a modifier wouldn’t help contract pharmacies, where 340B eligibility is typically determined retrospectively.
Last summer, a coalition of 340B provider organizations including America’s Essential Hospitals, National Rural Health Association and Ryan White Clinics for 340B Access co-signed a letter opposing CMS’s draft guidance on implementing MFP. In it, they argued that using a point-of-sale 340B modifier “is completely incompatible with the virtual inventory system used by the overwhelming majority of 340B pharmacies, in which 340B claims cannot be tagged until after the claim is submitted. The virtual inventory model has been in use since 340B was enacted more than 30 years ago. It would be unworkable to expect these pharmacies to use a separate physical inventory of 340B drugs.”
Operational complexities
The provider groups outlined other objections in the letter:
- CMS lacks the statutory authority to allow manufacturers to mandate claims submissions as part of their efforts to avoid duplicate discounts.
- The claims submissions, they write, “could be tremendously burdensome for covered entities to manage. We are especially concerned because the lack of guidelines suggests that there is no limit to the conditions a manufacturer could conceivably impose.”
- The guidance could pave the way for manufacturers to issue 340B ceiling prices as rebates, which HRSA has only allowed for the AIDS Drug Assistance Program as a narrow exception, and which the IRA does not specifically permit.
- The guidance “effectively prohibits use of 340B” in cases where MFP is lower and would force covered entities to purchase drugs at much higher prices.
Contract pharmacies to lose out?
Contracted retail pharmacies, in particular, may face major challenges if no workaround is found. In addition to the issue of using 340B modifiers outlined above, currently there is no process for facilitating financial transactions between manufacturers and pharmacies to make up the difference between MFP and their acquisition cost. What’s more, many pharmacies could struggle to distinguish between Part D beneficiaries and other patients when purchasing or managing their inventories.
CMS guidance indicates it will allow pharmacies to either buy drugs initially at MFP or be paid the difference between their acquisition cost and MFP after dispensation. Both scenarios have their drawbacks — either the potential for diversion of drugs purchased at MFP to non-eligible patients and reimbursed at higher levels, or increased administrative complexity and costs for pharmacies for retrospective cost reporting.
Pharmacies face other potential problems:
- Lower margins: When MFP is set below the price at which pharmacies currently purchase drugs, their revenues from Part D plans will decrease along with their margins on those medications, potentially hurting their overall financial health.
- Impact on smaller pharmacies: Smaller, independent pharmacies may be disproportionately affected by MFP due to lower cash reserves to purchase the drugs up front at full price and potential difficulty in managing inventory with different pricing tiers for different patients.
- Potential access issues: If the MFP is set too low, some pharmacies may choose not to stock certain medications, which could limit patient access to those drugs.
- Complex implementation: Managing different pricing tiers for MFP for Medicare patients and other payers is complex for pharmacies, requiring careful inventory management.
- Potential for price negotiation with manufacturers: Pharmacies may have to negotiate more aggressively with drug manufacturers to secure better pricing under MFP regulations.
The bottom line
While the IRA deserves credit for aiming to lower the cost of popular and expensive drugs for patients, there are complex issues at play that could mean greater administrative burden and lower margins for covered entities and 340B contract pharmacies. CMS appears to have its work cut out for it in terms of figuring out a way in the next 12 months to make it work for all stakeholders.