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Health care executive Gavin Magaha discusses his article “Advancing drug discount programs starts with collaboration and clarity.” He outlines how the 340B drug discount program, established over 30 years ago, has not evolved with modern health care delivery, leading to complexity, poorly defined standards, compliance issues, and misaligned incentives that hinder its original intent to serve vulnerable patients. Gavin highlights challenges like the outdated package-based discount model, the use of unapproved replenishment methods, and a lack of data transparency contributing to disproportionate program growth—a 23 percent increase in 340B sales versus an 11.4 percent rise in total U.S. drug spending in 2023. The solution, he argues, lies in stakeholder collaboration unified by advanced technology: centralizing data, leveraging analytics and machine learning for transparency and compliance, and creating a single source of truth to foster trust, reduce costs, and ensure the program effectively supports patients.

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Transcript

Kevin Pho: Welcome to the show. Subscribe at KevinMD.com/podcast. Today, we welcome Gavin Magaha. He is a health care executive, and today’s KevinMD article is “Advancing drug discount programs starts with collaboration and clarity.” Gavin, welcome to the show.

Gavin Magaha: Thank you very much, Kevin. Glad to be here. Happy to be on board.

Kevin Pho: Briefly share your story and then jump right into your KevinMD article.

Gavin Magaha: I graduated from Wingate University School of Pharmacy. I completed a two-year health-system pharmacy administration residency through the University of North Carolina and Wake Forest Baptist Health. During that residency is where I discovered my passion for health care policy. I stayed on as the director of their medication control and compliance; while I was there, I had various responsibilities including managing controlled substances, the procurement process for pharmaceuticals, and this little unknown program at that time, which was the 340B drug program. After several years in that role, I leaned into my other passion, which is education. I went to work for Apexus, which is the HRSA-selected 340B Prime Vendor. As Director of 340B Policy and Compliance Support there, I provided HRSA-aligned education nationwide to all stakeholders about the 340B drug program. All of that positioned me to now be a senior director in external affairs and policy at Kalderos, where I get to bring all that operational knowledge and experience to help support our initiatives to solve some of the largest problems facing the U.S. health care system. That’s a little bit about me.

Talking about my article and how it came together, it might be appropriate to put in a 30- to 60-second primer on drug discounts at 340B. To level set: As a condition for having their products covered by CMS, manufacturers have to agree to sell their products at a substantial discount to both Medicaid safety-net providers.

OK. For Medicaid as a payer, this is achieved through the Medicaid Drug Rebate Program (MDRP). Providers provide care to Medicaid patients, the state will pay for those services, and every quarter Medicaid sends the manufacturers an invoice for the number of units that its beneficiaries have received. The manufacturers will then provide that discount as a claims-based rebate.

On the other side, you have the safety-net providers. This is achieved through the 340B Drug Pricing Program. Currently, the most popular way this discount is provided is by selling a full package with an on-invoice discount to a provider. The expectation is that these providers, who are also known as covered entities (CEs), will give 340B-purchased inventory only to eligible patients.

Where this all gets confusing is when a Medicaid patient is treated by a safety-net provider. In that case, what do you do? HHS says the manufacturer is only to provide one of the discounts, but which one? As your listeners know, if a provider uses a 340B-purchased med, they need to notify Medicaid so that Medicaid doesn’t seek the rebate. That’s the primer and how that comes together.

My article’s roots stem from a fairly basic question: If we implement solutions to address a problem in a system, measure the impacts and the effects of our efforts, and the results either don’t change or get worse, should we continue the status quo? Or do we need to acknowledge that the current system isn’t working and try something different?

As clinicians, it’s very similar: If we’re trying to help our patients control and manage their type 2 diabetes medications and we prescribe them metformin to try to lower their A1C, and instead it either stays the same or it gets worse (it gets higher), at some point we’re going to want to change therapies. The question is how long does it take for us to do that?

It’s very similar here. Despite education efforts and third parties trying to help optimize various processes, non-compliance in this 340B and Medicaid drug rebate space continues to be an issue. It’s a large issue. In 2023, the 340B program reached $66 billion, and it represents the second-largest federal drug discount program after Medicare Part D.

Each year HRSA (the Health Resources and Services Administration), which is a division of HHS, is responsible for 340B oversight. They conduct 200 audits of covered entities. Surprisingly, since 2013, only a third of those providers each year receive a clean bill of health (no audit findings). Putting that in perspective for fiscal year 2022, which was the last set of complete data we have, 140 out of 199 CEs had some sort of compliance finding noted by HRSA. This is a problem that has been going on for a long time. At some point, we need to decide what we can do to potentially change this.

The importance is when these funds, when there’s non-compliance in the space, that means that there are misallocated funds moving around, or in some cases, the funds aren’t moving at all. As an example, manufacturers are presented with that Medicaid rebate invoice. If they deduce or determine that the products used were 340B-purchased under the 340B program, they’ll dispute those charges. You end up with dollars that are tied up, that are not actually going to the respective parties, and they’re not accessible to state and federal programs. This begs the question of what’s going on. What is the driver for non-compliance?

The one that listeners certainly know is they have limited time. That’s why you have short podcasts. They have limited time and FTE resources, so they have to deploy them where they’re most effective. They struggle with this. Also, systems are disjointed. They’re not aligned. Systems are built piecemeal over the years, and the 340B ecosystem is no different. It came about back in the early nineties (around 1992-1994), and systems have been building and building. You end up with a collection of cobbled-together systems that do not integrate and work well together.

Times have changed. When we look at the 340B program, it was enacted around 1992-1994. OK. There have been major advantages in health care. I still remember manually entering paper orders as a pharmacist back then. But there have been few changes in the 340B architecture and operations. That’s the impetus behind the article: To highlight that changes are needed. We need to drive towards improving the systems and making things more transparent so that we can get to the issues of taking care of our patients.

Kevin Pho: You mentioned that a minority of clinician offices are compliant, you said one-third. Tell us about some of the downstream effects, how that affects patients.

Gavin Magaha: The providers, the clinicians, I don’t know many that got out there wanting to be all about the 340B drug program and Medicaid. It wasn’t their calling; it happens to be that with no margin, no mission. They’re trying to do what they can to be compliant. When you have to conform to HHS, it has both HRSA and CMS underneath it, and they’ve got different agencies and authorities. Trying to comply with both, even though they don’t speak the same language, is challenging and hard. Despite their best efforts, most of the non-compliance is not intentional. Providers are trying hard, but with their limited staffing resources, it’s such a challenge. Add to this the time expense of working with manufacturers to resolve discrepancies and going back and forth; it’s very time-consuming. It often requires these providers to take a Medicaid claim that is often de-identified and try to trace back and find where it was given to a patient during a specific encounter. Then you have to try and determine the difference between the 340B program being package-based, where you buy the product at 340B and you’ve got a bottle. Now you have to try to track where those pills from that bottle came from. You have to trace back to this. It’s a lot of effort, and it shouldn’t be and doesn’t have to be this hard given the current environment.

Kevin Pho: Tell us about some of the paths forward in terms of increasing that compliance rate.

Gavin Magaha: The path forward, in our opinion, is first to align the systems. As pointed out, the 340B drug program is a package-based system, whereas most of the major Medicaid, the new IRA, and Max Fair Price discounts and rebates, when they come out, are given on a unit-based level: The amount of drugs or product given to a patient, based off encounter data. Moving into a scenario where the 340B discount is also given on a unit level based off encounter data is the first step. Standardizing the process, making sure you’re comparing apples to apples, is an important first step.

Kevin Pho: Give us a sense of some of the resources it takes to be compliant. You alluded to this earlier, giving us some scenarios, but for a small physician practice, tell us the amount of resources and time it’ll take to meet compliance. Give me a sense as a practicing physician.

Gavin Magaha: It starts with your FTEs and how many FTEs you have that you can allocate to the program. That depends on how large the practices are. If it’s a small physician practice, a provider, maybe a clinic that’s an FQHC, for example, with a small scope and doesn’t have any retail pharmacy presence, it’s very simple for one person to handle that. OK. When you start to scope out, which many safety-net providers have done, you end up with multiple clinics. If you’re a hospital, you have multiple locations, child sites that exist. You start to see this increased demand on FTE resources. You’re going out, and they’re also engaged in purchasing and working with third-party administrators and software systems to track the dispenses as well as the purchases of these products. Now you’re adding the cost of these platforms. It can get costly right off the bat when they start to partner with contract pharmacies. That’s when you end up with a provider who may not have their own retail pharmacy but wants to help the patients they’re treating get access. We know that having medications in hand is very important. When providers establish these partnerships with retail pharmacies, that’s an added expense because they’re paying the large big-box stores to help them dispense products to their patients in these contract pharmacy arrangements. You end up—it can get quite large or it can be very simple. Either way, there’s a huge impact from a compliance or risk perspective; as you get larger, the increased risk of being noncompliant comes with it.

Kevin Pho: In terms of the penalties of being noncompliant, tell us about those.

Gavin Magaha: Folks worry about being noncompliant. A couple of my pharmacy directors would worry about being put in an orange jumpsuit; orange is not their color. Luckily, there are no criminal penalties associated with this. Most of the time, the penalties that a covered entity might have to pay back to a manufacturer are just the dollars that have been redirected. If you have a product that you don’t identify as 340B and Medicaid goes and seeks a rebate for it—you think of your Harmonies or your thousand-dollar drugs, tens of thousands of dollars worth of drugs—if you have a systemic problem where those aren’t getting captured correctly in your systems, you could be looking at millions of dollars of re-allotments and reallocation that you have to go back and figure out where those monies are coming from. It can disrupt budget cycles for corporate executives in large hospital systems.

Kevin Pho: We have Gavin Magaha, a health care executive. Today’s KevinMD article is “Advancing drug discount programs starts with collaboration and clarity.” Gavin, let’s end with some take-home messages that you want to leave with the KevinMD audience.

Gavin Magaha: The take-home message, first, is it’s way past time to align the 340B drug purchasing program with the other drug discount programs. Moving towards a unit-based, encounter-supported program will standardize data points across the board, allow for more efficient communications, and allow a more accurate apples-to-apples comparison. Second, to create the best health care outcomes, we have to look at the data and use it to guide decisions. It’s important to acknowledge the feelings associated with change: fear, anxiety, uncertainty. We should not over-index on those feelings. We saw this years ago when we started leaning into reporting health care safety events and how beneficial it was to acknowledge there’s some fear, but in totality, you’re getting a better effect. Finally, let’s continue to have these discussions. Folks would like to talk about these concerns; I’d love to hear about them. We’re all working towards improving health care outcomes for ourselves and our patients.

Kevin Pho: Gavin, thank you for sharing your perspective and insight. Thanks again for coming on the show.

Gavin Magaha: Thank you for having me.