Pharmacy Purchasing and Supply in the New 340B Paradigm

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Highlights of this episode include:

• The 340B rebate pilot and what it means to healthcare organizations
• How the rebate model might impact decisions around program structure
• How the rebate model will potentially transform inventory management
• How organizations should approach financial strategy to maximize program value

Kelly Wisness: Hi, this is Kelly Wisness. Welcome back to the award-winning Hospital Finance Podcast. We’re pleased to welcome AJ Rivosecchi and Lauren Forni.

AJ serves as Product Director at Bluesight, where he leads product strategy across 340B compliance, drug spend optimization, and supply chain intelligence solutions. With a background as a pharmacy operations manager at a top academic medical center and over a decade in pharmacy operations and technology, he focuses on translating complex operational challenges into practical software solutions for hospital pharmacies.

Lauren is Senior Director of Clinical Strategy at Bluesight, where she works with health system leaders to modernize medication management, strengthen diversion oversight, and translate complex regulatory and operational challenges into scalable, data-driven solutions. As a former assistant director of pharmacy at Brigham and Women’s Faulkner Hospital, she brings frontline operational insight to industry-wide strategy. She’s also the co-founder of the Diversion Collective, a multidisciplinary collaborative designed to elevate how healthcare organizations measure, manage, and mitigate diversion risk through shared expertise and practical application. In this episode, we’re discussing pharmacy purchasing and supply in the new 340B paradigm.

Welcome, and thank you for joining us, AJ and Lauren.

AJ Rivosecchi: Yeah, thanks for having us, Kelly. It’s always been a dream of mine to be on a healthcare-focused finance podcast, so I’m excited for the opportunity.

Lauren Forni: Yes, thank you for having us. Looking forward to diving in.

Kelly: Yes, me too. Well, thank you both for being here. Well, let’s go ahead and jump in. So, let’s address the elephant in the room. The rebate pilot was set to go into effect on January 1, but didn’t. What does this mean for healthcare organizations right now?

Lauren: I think we’ve seen this theme happen over and over again with a lot of different things rolling out in the healthcare space, and I personally don’t think this is going to be a long-term delay. I think it’s something that we see as a gift, that we have a little bit of extra time, but preparation is still key here, and we expect that it will come forward. But, AJ, what are your thoughts on kind of how this compares historically to what we see in healthcare?

AJ: Yeah. And I totally agree. I mean, we’ve seen kind of similar last-minute delays with USP 797 and 800, with DSCSA. I think that the big takeaway is, those things all ended up happening eventually. Once it gets to the point of there’s rules made and the infrastructure starts to be put in place, it’s a matter of when, not if. So pretty standard for– you get pushed right to the edge of the cliff, and then everyone starts to realize, like, “Oh, there’s a lot of infrastructure and work that needs to go around this.” And sometimes it takes getting right to the edge to really see what all that impact is going to be. Now, I do agree with Lauren. Relative to something like 797/800, where there was a lot of capital investment in construction related to it so the delays ended up being one year and then another year and then another year, or DSCSA, where there maybe were more stakeholders involved between all the distributors and wholesalers and sellers of medications, this doesn’t really have construction involved, it doesn’t have quite the number of stakeholders, so I think that what we’ll see is the delay isn’t maybe quite as long. And to their credit, Beacon has put in a pretty robust system to be prepared for the pilot. So, I think we’ll see it happen. I don’t think it’s going to be a super long delay, but I would expect it to be delayed for up to maybe a quarter, at least. And, Lauren, what do you think about the timing on a delay?

Lauren: Yeah. I mean, again, we talked about this, but updates in the 340B world happen quarterly. So, I think that something will happen at the start of a quarter at some point in the near future, whether that’s Q2 or the start of Q3, but I anticipate that it will happen this year. And thinking through the logistics and getting operationally tuned in order to meet the requirements of this rebate model, I know, in conversations I’ve had with different hospital leaders, they have a general idea of what they’re doing, but they’re still scrambling a bit to get all of their ducks in a row and make sure that they have something that’s easy for them to– whether it’s submit or track on the back end. And so this next quarter or two should really be– everyone was relatively prepared for January 1, so now we have quarter one and quarter two to really get everything kind of locked down in terms of how we’re going to operationalize and what the financial impact could potentially be and strategize around ways to mitigate any impact there.

AJ: Yeah, I agree. And healthcare organizations, I think, get to take it as a bit of a strategic reprieve of, “We were just about ready. We did a lot of the legwork. Now let’s make sure it all makes sense.” From the vendor space, I think we actually feel the same way. We were also kind of seeing vendors run against the deadline and want to make sure they had solutions ready to go. I won’t say that means they were rushed, but they were rushing to get things ready to go. I think everyone gets now just a bit of time to breathe and be like, “Okay, now let’s reassess our assumptions. Let’s make sure everything we’re ready to put in place makes sense.” And for people that didn’t have a plan, like Lauren was saying, they know what they need to do. They get a little bit of time to go look for the right solutions that are going to fit their needs without having to do it at the same time as navigating the outset of the program. So, I think we should all take it as kind of like, “Great. It’s still going to happen, probably at the beginning of the quarter. Let’s regroup and make sure we have everything ready to go.”

So, I think, yeah, what we see is, the delay’s happening. It’s still going to happen. Let’s use this time to all be ready to go.

Lauren: Yes, a gift, but don’t take your foot off the gas.

Kelly: That makes a lot of sense, and I like the way you guys are describing it. So, it’s kind of a good thing, where people have a little bit more time to plan for it when it does eventually get here. So how might the rebate model impact decisions around program structure, particularly regarding carve-in versus carve-out status and administrative costs of oversight?

AJ: Yeah. So, I can take the lead on that one. Carve-in/carve-out status is such a state-specific thing based on state Medicare– or, sorry, Medicaid. It doesn’t matter how long you’ve been in the space. You’re going to make that slip 100 times. You obviously get federal funding, but it’s a state-level program. So, I think, kind of back to what we started with, it’s really a time to work with your state Medicaid agent, who your contact is, and really think about, “Okay, what does this mean for us? What do our state plans look like? What does the Medicaid rebate look like based on our carve status? How easy is it to get those rebates? What are our duplicate discounts provisions that we have in place now? How does that change?” So what I really think makes sense is– and we don’t have enough time in this podcast, or probably knowledge in either of our brains, to go through all 50 states or call out specific ones, but I think one of the things is, from a carve-in/carve-out status basis, you’re set for whatever you’ve filed, but you should think about talking to your state agency now about what that might mean. Sure, look at the 10 drugs for pilot. But what would it mean if kind of everything went that direction? And use that as a kind of state-by-state level assessment of, “Should we adjust on our next one?”

And I think we’re going to be kind of in that holding pattern a bit, where we have 10 drugs for the pilot. Probably doesn’t really matter what you do for the pilot. There’s not enough of an overall total impact with just those 10 medications. And again, it’s going to come down to a very specific look at your organization. What’s your percentage of prescribing those specific medications? What’s your patient mix for the patients that are prescribed those medications? So, I mean, sure, there might be someone out there that has a really high percentage of prescribing of the 10 pilot medications, and the patient mix for those 10 is really high in Medicaid, and it might make sense to really work with your state agency now. I think most people are going to get a year or so to figure it out, and if the whole program goes rebate-based, then it’s going to be a really important decision to make. But I think it’s something that doesn’t require overreaction to now, other than: do a quick analysis on patient mix and drug-prescribing mix, and just start to think about it. I think that’s probably the best thing that we can see people are doing right now to be prepared for that distinction.

Lauren: And I agree with AJ. I don’t think that anyone should make any knee-jerk decisions, but the fact that this rebate model is impacting these decisions around program structure is a key point of consideration moving forward and what makes the most sense as we potentially see the rebate model progress forward and expand in other ways. But really trying to think through the impact that the rebate model will have on your specific institution, whether decisions up front or on your program structure, will make a key difference. But if you do decide to make those changes, that does have an impact on your TPA setup. It also has an impact on how you operationalize and approach your auditing and ensuring compliance. And there’s a lot of intricacies when you make changes with that, and compliance is obviously still the key. And if anything, we anticipate that some of these claims are probably going to be more heavily scrutinized and maybe impact financially more so on the back end. And how do you work through any disputes that might potentially come up? And can you avoid that altogether by certain decisions around program structure? So, I think these are all things that people are thinking about. Some people are making decisions to carve out in certain areas and carve in in others, and that creates a lot of intricacy as well. And experts in this space…340B is very complex. Having individuals on your team that have that expertise to navigate these changes and operational approaches is challenging as well. And we all need to stay focused and grounded in the decisions and understand how that impacts everything else before we kind of immediately make any choices, I think.

AJ: Yeah. And just to kind of round it out, that– we both were talking about how you make decisions about how you set up your program from a regulatory perspective with carve-in/carve-out decisions and what that means, but I think for the other two pieces of it, which are– you already have vendors in this space, right? You have a TPA, and for now, you should make your TPA your best friend, because one of the considerations of program structure and setup is just how are they going to be ready to help with that initially, right? Because we’re going to be in this dual model for at least some amount of time, where 90-plus percent of 340B drugs are still going to be having an up-front discount, and only this small subset is going to be having a rebate. TPA, in theory, then, has 10 drugs that you shouldn’t be accumulating on because there’s not accumulations happening on them. So, A, are they ready to do that? B, what does that relationship look like between your contract pharmacies and your TPA, and who’s going to take ultimate responsibility when it’s a rebate-eligible drug? Is your TPA and/or the contract pharmacy and/or you prepared to do the rebate submissions?

And then that really leads us to: what’s your decision now from initial administrative cost increases versus long-term benefits? Are you looking for a vendor to just manage all of the submissions and tracking for you? That’s something you probably haven’t planned or budgeted for, and to be honest, there’s not a lot of vendors out there that can even give you quotes for what that price would be. But having a discussion around that at your organization now probably makes sense, because the long-term benefit could be that you have a program in place that’s ready for a potential fully rebate forward program, and you’re not scrambling when that happens. And being really involved with your vendors now, whether that’s your TPA or your contract pharmacy or another third party that’s going to be doing that, I would be looking at getting quotes and prices and seeing who supports what aspects of the program so that you can be prepared for what the initial investment’s probably going to be and weigh that against the investments you’re making today, because one way or another it’s going to shift where the administrative burden lies, which means– is it, investing more in people? Is it, investing in different software? Or does the workload shift a bit? Historically, since everything was up-front discounts, a lot of the work was purely on pharmacy: making the right purchases, making sure things were accumulating correctly, making sure that the TPA was configured correctly. In a rebate-centric model, you might see some of that work shifting a bit to the finance or supply chain teams, because now they’re going to be responsible for making sure the ledger balances at the end of the day, and that’s not necessarily an area where pharmacy is most well-positioned in their expertise to handle it.

Lauren: Yeah, agreed. And, AJ, I know you and I can both attest, in our tenure in healthcare, there has been an increased adoption of automation in general in the healthcare space and in the pharmacy space. And I anticipate that 340B is going to be the next boom, 340B, finance, and really trying to drive more financial outcomes and operational efficiencies, decrease that administrative burden that you talked about. So, agree. Definitely partner with vendors that are out in the space that can help you solve for some of these key issues and create more simplicity in an increasingly complex area of healthcare.

Kelly: Yeah, I was just going to say, I knew 340B was complex, but I’m really blown away right now by the conversation. And it is truly complex. So how will the rebate model potentially transform inventory management, particularly in light of ongoing drug shortages?

Lauren: Yeah. So, I think drug shortages is never going away, and where this plays in, to me, is a lot around the inventory management and the inventory approach in general. And I think when we are thinking more about the financial aspects of the impact of the rebate model and all of the things potentially to come with this rebate model, how you manage your inventory is going to become increasingly important because you have the potential of an increase in holding costs– a significant increase in holding costs over an extended period of time, potentially up to six months. When you purchase something, how long is it in your inventory before you have a claim that you can even submit? And then you have time to submit and get your ducks in a row. A lot of that comes down to, “What do I order? When do I order? And when I do order, is there a way that I can do it just in time and make those considerations so that I have less holding costs, less dollars on my shelf in the pharmacy?” or, “Does it change what decisions I make up front if there’s potential supply disruptions?” Because when there’s supply disruptions, I might just have to buy as much as I can, but that does increase the holding costs. So, it makes it more important to have really fine-tuned inventory management and visibility into that inventory.

We may see shifts in models, but ultimately, I think, for hospitals and teams that they don’t have a carousel in their central pharmacy or they don’t have an inventory management system in place and they are doing reorders manually, counts manually, it’s going to become increasingly difficult to decrease the amount of inventory turns, to have tight management over your inventory so that you can decrease potentially the financial implications of extended holding costs, or just increase in cost in general. Whether we see shifts from a physical versus virtual inventory model, neutral inventory, we could see some of those things come into play. Not everyone has even the footprint to support any of those approaches, but there’s a lot of things to consider. But I think tighter controls on inventory are going to be increasingly important. But, AJ, curious your thoughts on the approaches or on kind of inventory models.

AJ: Yeah. I think, as I said, one of the things that maybe pharmacy won’t be best positioned to do is do a lot of the financial reconciliations, but one of the things that they are experts at is controlling their inventory, especially pharmacy supply chain. But yeah, I think that’s one of the unsaid things. Like Lauren said, it’s great we get this pilot phase, but when you’re looking at the switch from an up-front discount, where everything you bought already costs a cheap price, to having to sit on it, I think what we’ll see is– and I don’t know that this is totally my opinion, because I’m thinking kind of forward, “What’s the ripple effect when stuff like this goes into effect?” and right now everyone’s so indexed and focused on just, “How am I going to deal with the first thing I have to do?” Let’s just assume and thought-exercise for a second this extends beyond 10 drugs and the practice now of even people having large distribution or consolidated service centers where they’re able to do bulk buys to get better pricing from certain manufacturers, to leverage their buying power, if there’s a consideration of 340B there, right? Maybe previously, because you’re such a huge organization, you have all these accumulations. You can bulk-buy it at a cheap price. It’s okay. It’s got a three-year expiration date. If it takes you a year to go through that product, no big deal. If we fast-forward two, three years, that inventory just doubled in price. I mean, the average discount from wholesale acquisition cost to 340B cost is usually around about 51%, so assume your holding cost of your inventory goes up by a commiserate amount. There’s going to be a lot more pressure placed on just-in-time inventory ordering and not sitting on this gigantic pile of really expensive stuff that you’re hoping no prescribing patterns change just to be able to get the rebates on it.

And then, like Lauren said, the shortages introduces an additional layer to it because, whether we like to admit it or not as two people who were in hospital pharmacy operations for so long, the first reaction when you hear of a shortage is, “Well, go buy everything you can,” right? And there’s always been a degree of, you are okay spending a bit more in relation to a shortage, because not disrupting patient care is the primary driver of doing these buys and being willing to move outside of your typical supply lines. But if that becomes a whole lot more expensive and you’re also not guaranteed that, once the shortage resolves, you’re necessarily going to clinically want to keep using all the stuff you bought as a mitigation strategy, it’s going to have a ripple effect. And one thing I think is not my opinion but is definitely true is, should this become not a pilot and, in effect, all of your inventory, it’s going to place a large burden on having really tight inventory controls. And people who don’t have perpetual inventory management systems in place today probably going to be looking at a way to implement something of that nature because it’s just too much for a human to keep track of. People who do have perpetual inventory management systems in place today, I think, are going to be looking at ways to decrease PAR levels or look for vendors who have smarter inventory controls that can be a bit more dynamic of how they adjust what you’re ordering at a given time to respond to actual patient need, because it’s going to be incredibly important that you don’t just have tons and tons of excess inventory sitting on your shelves at any given time.

Lauren: And I think that note about it being dynamic is so important because things ebb and flow, things change, and you need to be able to have the visibility to do it. But yeah, from an inventory standpoint, you don’t want to have the financial burden of having too much on hand, but you also don’t want stockouts where you don’t have what you need for patients. And we see that over and over again with how people are managing drug shortages and when inventory is impacted from a purchasing standpoint, and I think that this rebate model potentially could push that forward even more, across things beyond just on medication shortage as well.

Kelly: There’s definitely some challenges in pharmacy supply chain, that’s for sure. What specific implications do you foresee for outpatient clinics and contract pharmacies under this new model?

AJ: Yeah. And again, some of this is conjecture and just making some logical jumps, if things continue to unfold and dominoes keep falling. I think what we might actually see is a simplified distribution model. One of the first things that has always come up when you’re making a decision of entering the 340B program and should be evaluated periodically thereafter is, “Do we use a physical inventory model or a virtual replenishment model?” aka, “Do I need two separate inventories that I keep physically distinct?” which means it’s way easier from an administrative perspective, but I have to have duplicate inventories. I have to have the operational space to do that. I potentially have higher up-front costs to go purchase all of that inventory. Same thing with contract pharmacies. If I’m going to enter into agreement with contract pharmacies, are they able to fulfill a virtual inventory model for me, or do I have to help them buy physical separate inventories? Let’s play this out to its natural conclusion. We’re two years from now, and everything is rebate-focused. In theory, that could just obviate the need for any physical inventory distinction because– and I’m speaking more to 340B people who might be listening to this podcast right now. The distinction of, “Do I use physical or virtual inventory?” will just go away because everything will come in as neutral inventory. There will be no need to make that distinction. Everything will be neutral by default, because you’re buying it at acquisition cost all the time, and you’re only getting your discounts on the back end after administrations.

So, what I think that can create is potentially decreased administrative burden on the fact of everything’s just neutral inventory from the outset. And just depending on your state and what manufacturers get and the pending lawsuits about how many contract pharmacies you can use, it will potentially be easier to bring a contract pharmacy on board. It will be easier to provision medications in outpatient locations that might have limited needs and historically been someplace you wanted to consider a physical inventory separation for ease of administration. Now you can take a fully virtual inventory model anywhere because it’s neutral by default. So I think that’s going to be an interesting thing to see, is how it plays out and does it make it much easier to balance those concerns of keeping your inventory neutral.

Lauren: It is crazy how complex all of these decisions are becoming in the 340B space and, I think, just outpatient clinics and contract pharmacies in general. When I’m talking to hospital teams about 340B over the last couple of years, we’ve seen a shift, I think, already in how people are thinking about outpatient clinics, contract pharmacies, and those partnerships. Some people have decreased the amount of contract pharmacies because they say that the juice just hasn’t been worth the squeeze. It takes so much work to stay compliant. And are they seeing the financial benefits of having contract pharmacies in place? And then layer on top of it all the complexities that AJ just talked about. And we’ve seen a shift in a lot of healthcare systems creating some in-house outpatient clinics and pharmacies to bring those dollars more under their umbrella. And so, it’ll be interesting to see not only the shifts in structure of how they implement contract pharmacies, outpatient clinics, how much of that we see, how expansive it becomes, or if we see a shift in people bringing things more in-house. Obviously, complexities to kind of both avenues, but there’ll be a lot to play out in the next couple of years.

Kelly: Well, the neutral inventory by default, I really like that. I kind of pulled that out specifically because I just liked what you were saying, and it just kind of seemed to make sense to me as someone who’s not very well-versed in the 340B. So, with administrative costs likely increasing during the transition period, how should organizations approach financial strategy to maximize program value?

AJ: Yeah. Just to wrap up the inventory thing for a second. I mean, we needed to find one way out of this thing, right? It’s going to be a major change in one way or another. Change is always hard, and there’s going to be some hurdles and probably pains and gotchas we’re not even anticipating, so it’s nice to know that we at least have the thought of like, “Hey, one of these things might become easier.” Now, on the financial strategy for the transition period – I’m not sure that’s one of those things – it’s probably going to be a bit rocky because this is all kind of creating a perfect-storm moment. We’ve seen the outpatient prospective payment system only get a 2.4-ish percent increase for 2026, which a lot of people argue is below inflation and drug price increases and is going to be insufficient to kind of cover the difference. There’s some projections out through 2034 about the way Medicare reimbursement’s going to decrease. Certainly, under the auspices of the current administration, that’s one of the agenda items, is to decrease the cost of healthcare. And then you throw in on top of that the potential increased out-of-pocket, up-front expenditure for these medications and an unknown program about actually how difficult it’s going to be to get those dollars back, and you’ve got a lot to think about.

So, I think one of the things that we just talked about on the inventory side is, “How can I invest now, whether it’s through just planning or software, to decrease our inventory holding costs?” Right? Step one, let’s try to not sit on as much– let’s not try to spend as much up front, to the amount we can reduce that, because that’s totally in our control, right? There’s no external dependencies. It doesn’t matter what happens. In fact, that’s something we always want to be doing. Maybe now’s the time we really buckle down and say, “Hey, we need to control what we’re spending.” And there’s two ways you can do that. It’s, one, through better inventory holding-cost control. The second is through looking at software that optimize what you’re procuring in the first place – how do you make sure you’re making the best decision for the most cost-effective option? – because margins that are already thin are going to be getting stretched thinner. So one side of that– you don’t have to be a high-priced financial consultant to say there’s two things you can do. You can decrease costs and increase the margin. And that’s good. That’s how you make it all work. So decreasing costs can be focused also on just making sure you’re buying the best-priced item up front. Let’s call it a group of drugs. Let’s call it Tylenol. Has 7 to 10 different options in it. Those things can have up to three different price points based on your post-rebate or 340B price, your group purchasing organization price, your wholesale acquisition cost price. You’re likely buying a mix of those things. When’s the last time you’ve actually looked at, “Are we making the best decision within each one of these categories, or are we just buying the things we’ve always bought because that’s what’s on our order templates?”

So, I think the easiest strategy is just, “Okay, let’s try to limit our cost right now,” and then going from there is, “How do we find missing dollars to offset some of that burden? What are our missed opportunities? Where are we maybe not submitting claims appropriately? Where have we decided that we are going to seek Medicaid rebates but maybe we didn’t classify the claim correctly and it got not sent to Medicaid, or we did say we were going to carve out Medicaid but didn’t do it appropriately?” So, I think those are kind of the– that’s much harder than the first thing. The easiest thing is just, make sure you’re buying the best-priced items, make sure you have a solution in place for evaluating that in an ongoing manner, and make sure you’re controlling your inventory as much as possible, because that’s all within the control of the health system. That’s all things you can do right now to start taking these steps. Then I’ll say, Lauren, what am I missing? Because I took the easy one.

Lauren: No, I think I obviously agree with everything that you said, and both being pharmacists and coming from hospital space and operations, pharmacy is viewed as a cost center. It is where we spend all the money on all of the medications. And I think that what’s happening now in the 340B space, where the 340B program is really relied upon from a financial standpoint, it’s sparking these conversations around, “What can we do to have better up-front decision making, and how do we get better transparency to our own data?” And I think that’s what a lot of teams have struggled with, is, to AJ’s point, with how many different options there are for a specific NDC. And then you multiply that by the number of accounts that you have. It is a really manual process to do a cost analysis between your historical spend; what you’re going to purchase, where you’re going to purchase it, at what cost; if you have up-front WAC purchases because it’s an NDC that you haven’t purchased, what’s my up-front cost, when my breakeven is, and then when do I start generating some savings that I can report on to decrease my overall drug spend. Becomes very complex, and people have to go to seven different sources to aggregate the data that they need to make those decisions. That’s an extremely high operational and administrative burden on teams in order to meet what seems like very simplistic goals, right? We want to decrease our drug spend. We want to decrease the amount of inventory turns that we have. We want to have tighter controls. Well, all of that starts with having more streamlined data sources so that you have better transparency to the information that you need so that your team of experts can make the right decisions at the right time. So, I think, if anything, this is sparking kind of conversation around driving people towards seeking solutions, whether that’s internal or external solutions, to improve the overall financial health of their organization through their controllables.

Kelly: Well, thank you, AJ and Lauren, for sharing your insights with us on pharmacy purchasing and supply in the new 340B paradigm. If a listener wants to learn more or contact you to discuss this topic further, how best can they do that?

AJ: Actually, I would welcome them to just email me directly. Perhaps we can put our emails in the show notes. Please feel free to give me a request on LinkedIn. I will be the first to admit that, the way LinkedIn’s been going – I get so many kind of spammy messages – I don’t tend to check them very often, but I would love to talk to anybody that wants to talk more about this. So, I’ll put my LinkedIn, and we can put my email in the show notes, and would love to connect with anybody who’s wanting to talk more about this. (AJ’s email)

Lauren: Absolutely. Same goes for me: email preferred, LinkedIn as well, but looking forward to connecting. (Lauren’s email)

Kelly: Great. Thank you both for providing that. And thank you all for joining us for this episode of The Hospital Finance Podcast. Until next time…

If you have a topic that you’d like us to discuss on The Hospital Finance Podcast or if you’d like to be a guest, drop us a line at update@besler.com.

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