The Drug Supply Chain Security Act (DSCSA), enacted in 2013 by the U.S. Food and Drug Administration (FDA), aims to usher in significant changes in the pharmaceutical industry to ensure the integrity and security of the pharmaceutical supply chain and protect consumers from counterfeit, stolen, contaminated, or otherwise harmful drugs.

In order to achieve this, the DSCSA set forth technological requirements for ensuring the tracing of pharmaceutical products amongst all trading partners, including pharmacists (both hospital and community). Scheduled originally to go live on November 27, 2023, the FDA recently made an important decision in postponing the enforcement of the DSCSA by one year to allow for stabilization and maturation of systems in hospitals and pharmacies.

New compliance deadline – November 27, 2024; What does this mean for hospital pharmacists?

Hospital pharmacists play a crucial role in the pharmaceutical supply chain as the face of neighborhood healthcare. The delay allows hospital pharmacies another year to prepare and adapt their individual hospital systems to comply with the requirements. But although this brings a sense of relief, it also brings some challenges, as balancing patient care while establishing a comprehensive system is a complex task.

One of the primary concerns is the cost of implementing the necessary systems to comply with the DSCSA requirements. As hospitals work on budgets, pharmacists will need to make strategic investments in software and systems to not only satisfy the technological requirements, but also uphold the quality of patient care. This means that certain medications may take extra time to acquire due to allocating funds to establish a new hospital pharmacy system. However, the compliance date delay allows time for hospital pharmacists to determine what they can do with their present and future budget and plan strategically.

Not only that, but the hospital pharmacy must ensure that adequate staff is available to resolve any potential technological issues and maintain the new system. As hospital pharmacists are responsible for the program, they must ensure staffing is available to continue to provide patient care while also having enough resources to resolve potential technological issues. The additional time announced allows hospital pharmacy staff to ensure they are able to resolve any potential technical issues in their newly integrated system while also maintaining the current care of their patients.

Another concern is the critical aspect of ensuring uninterrupted patient access to prescription medications during the technological integration. As updates within hospital systems require time to initiate and integrate, the potential risk of delaying lifesaving medications for hospital patients poses serious risk for both patients and the institution. Any delays during the integration of the hospital’s system can also potentially slow down or obstruct patient care processes, such as order verification or reviewing patients’ profiles. The delayed enforcement provides additional time for trading partners to adjust their systems without disrupting important patient care needs.

In conclusion, the delayed implementation of the DSCSA provides hospital pharmacists and other trading partners in the pharmaceutical supply chain with additional time to prepare and comply. The FDA’s decision to postpone the enforcement until November 2024 acknowledges the need for further development and refinement of systems and processes. This needed time will ensure a robust supply chain security while maintaining patient access to medications. By extending the timeline, this also opens doors for collaboration, advocacy, and education efforts to support a smooth transition to your newly implemented system. 

VPL TrajectRx empowers outpatient pharmacies by giving them the cloud-based shipping, tracking and compliance solution they need to build cost-conscious, stronger, and smarter last-mile operations. Created for pharmacists by pharmacists, our clinically minded platform gets prescriptions out the door, tracks and traces them to their destination, communicates shipping updates to patients and staff, and compiles necessary reporting for proof of delivery. By minimizing distribution errors, enhancing operational efficiency, and reducing time spent on the phone, TrajectRx ensures a streamlined and effective pharmacy workflow.

Artificial intelligence (AI) has been around since the 1950s, and pharmacy has always found a way to expand its scope of practice every time a technological advancement improves efficiency. So, let’s examine some ways AI could enhance hospital pharmacies.

Fewer Shortages Through Improved Manufacturing Processes

Over the last few years, drug shortages have been a major concern for just about everyone in healthcare. Not only have supply chains failed, but major recalls may have left your hospital scrambling to take care of your patients. With AI, drug manufacturing and supply chain management should become streamlined.

AI can predict when a machine may fail or require maintenance by learning how it normally operates and performs. AI monitors equipment in real time and detects any deviation from normal activity. Earlier detection decreases equipment downtime and increases overall manufacturing productivity.

Similarly, AI can improve batch quality and consistency through more accurate quality control measures. It uses data from current quality test results to detect defects in real time. Fewer batch failures mean fewer recalls.

Lastly, certain AI algorithms work to predict drug demand. So, it can help optimize inventory, production schedules, and distribution, improving the supply chain.

Lower Drug Prices by Reducing Drug Development Costs

You know that the customer ultimately pays for the billions of dollars and more than 10 years it takes drug companies to successfully get a new drug to market. Now, AI may help reduce those costs.

Using large datasets of chemical structures and their related activities, AI may help predict how new drug candidates might behave in the human body. Along the same lines, AI can find patterns in biological data and disease progression to identify potential drug targets. So, drug companies may save on resources in two ways: finding what to target and selecting the optimal drug candidate for that target.

This same concept is also being used for drug repurposing. AI can analyze the structure of an already approved drug and find a potential new indication, which is significantly cheaper than getting a new drug candidate to market.

Beyond drug discovery and repurposing, AI can help optimize clinical trials from recruiting to analyzing data. Finding patients and evaluating protocols and trial designs can happen faster. Getting real-time trends on data means trials can more easily adapt and pivot if needed.

All of this means drug companies have less overhead and expenditure, which could lead to cost savings for hospitals.

Improved Patient Outcomes Through Better PKPD Data

Few things are more frustrating than to research a drug-related question only to find it hasn’t been researched in your patient population. Can this drug be given to someone with kidney disease? Or during pregnancy? Or an infant? AI may be the solution.

Historically, animal studies have been used to evaluate the pharmacokinetic and pharmacodynamic (PKPD) activity of a drug. These studies are time-consuming and with small sample sizes, and they may not accurately predict what will happen in humans.

But now, PKPD activity may be predicted using AI. Some models can analyze how humans would react to the drug. This means an accurate safety, efficacy, and toxicity profile can exist before the drug is even given to an animal or human.

Other models focus on individualized care by analyzing patient-specific data. This can be used to predict how an individual may respond to a particular treatment, including disease management, side effects, and potential toxicity.

The Downside of AI

Like everything, AI has some downsides that you should keep in mind:

• Unintended biases can happen, especially with limited inputted data. Examples of this include rare diseases and under-represented populations (race or gender) in clinical trials.
• Validating and regulating an AI model can be difficult. The industry and FDA provide limited guidance on this.
• Ethical considerations, like patient privacy and rights, need to remain a top concern as AI expands.

Like every technology, AI has its pros and cons. But one thing is certain—it’s here to stay. While most of the benefits hospitals may see are byproducts of other companies utilizing AI, there is no doubt that AI will eventually integrate into hospitals, optimizing your workflows and allowing your pharmacy to grow even more.

With climbing costs and stagnant or decreasing reimbursements, hospital budgets seem to keep getting tighter. Couple that with staffing shortages and increased demand on services, and there’s no wonder your team is feeling the stress. But could there be hope on the horizon?

Earlier this year, the Centers for Medicare and Medicaid Services (CMS) announced it’s going to reimburse 340B hospitals about $9 billion. Still, the remedy affects all hospitals that participate with CMS. So, let’s see how your budget may be affected.

Why is CMS reimbursing 340B hospitals?

In 2018, CMS decided to cut the payment rate for 340B drugs without first surveying hospitals on their actual acquisition costs. Normally, the payment rate for all medications is the average sales price (ASP) plus 6%. CMS decided to change the rate for only 340B drugs to ASP minus 22.5%, an almost 30% decrease in reimbursement.

At the same time, CMS increased payments for non-drug items and services for all hospitals, both 340B and non-340B. This is to maintain budget neutrality as required by the Hospital Outpatient Prospective Payment System (OPPS). This was in effect from 2018 through September 28, 2022, when the Supreme Court unanimously ruled the change was unlawful.

CMS cannot have different payment rates for hospitals without first surveying hospitals on their actual cost of drugs. In this case, CMS failed to perform the survey. In the 4^th quarter of 2022, it adjusted the 340B payment rates back to ASP plus 6%.

However, because it must maintain budget neutrality, it also reduced the payment rates for non-drug items and services by 3.09% in 2023. While this is an adequate solution for current and future claims, it does not address the affected claims from 2018 to 2022.

The Remedy: How CMS is correcting the unlawful payment adjustments for 2018-2022

The first part of the remedy focuses on repaying 340B hospitals the difference between the two payment rates. From 2018 to 2022, CMS paid providers $10.6 billion less. Since some claims in 2022 were processed or reprocessed at the higher payment rate, CMS will be providing a one-time lump sum of $9 billion to about 1,700 affected 340B hospitals.

In the lump sum, CMS is also accounting for beneficiary cost sharing and any missed payments from lower co-pays under the unlawful payment plan. Therefore, hospitals will not be allowed to bill beneficiaries for coinsurance on remedied payments.

The second part of the remedy focuses on maintaining the required budget neutrality. CMS paid $7.8 billion more to hospitals for non-drug items and services from 2018 to 2022. CMS plans to recoup this money by decreasing payment rates by 0.5% yearly, starting in 2026. CMS predicts this will continue for about 16 years. This is in addition to the 3.09% reduction already seen in 2023.

The only ones who are exempt from this payment reduction are providers who didn’t enroll in Medicare until after January 1, 2018. CMS’ reasoning for this is that these providers didn’t fully benefit from the increased payments for non-drug items seen from 2018 to 2022.

There are strong critics of the price reduction, including the American Hospital Association, the organization that brought the original lawsuit against CMS. So, this will likely be challenged in coming years.

What does this mean for your hospital?

This ruling will be financially beneficial for some hospitals but hurt others in the coming years.

If you’re working for a hospital that does not participate in the 340B drug pricing program, you will face payment reductions for non-drug items or services. So, your budget may ultimately become more limited.

As for 340B hospitals, you should expect a lump sum payment by January 1, 2024 if you haven't already received it. While this is money in your hospital’s pocket this year, you may end up losing money once the payment reductions for non-drug items or services are made in the coming years. This will depend on your mix of drug and non-drug items or services.

For now, these lump sum payments will help hospitals keep vital services open to the most vulnerable patients and give them time to budget for the future payment reductions.

To see how much of a lump sum payment your hospital should receive, you may download the NPRM OPPS Remedy for 340B-Acquired Drug Payment Addendum AAA

Jodie Pepin, clinical pharmacy program director at Harbor Health, has dedicated her career to patient safety. She’s worked at several hospitals across the U.S. and each time she’s wanted to start a new program or initiative, she was met with skepticism or push-back from the C-suite.

That’s because she believes that pharmacists aren’t seen with the same level of respect as a physician. As a pharmacist for almost 40 years, she says the industry is under-visualized and underutilized.

“No one gives us the same credit as a physician,” Pepin says. “We're still fighting with Medicare to fully recognize pharmacists as providers of care. When I first started at a hospital, we were all down in the basement, with no windows. That’s when I realized just how underappreciated pharmacists are. We’re seen as an afterthought.”

The pharmacy industry has been working together since 2017 on the Mediledger blockchain network, which started with the Drug Supply Chain Security Act (DSCSA).  The future potential use cases should have the entire Pharmacy industry excited about the possibilities.  First, let’s start with “what is blockchain?”

“Blockchain is a distributed database that maintains a continuously growing list of ordered records, called blocks. These blocks are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. A blockchain is a decentralized, distributed, and public digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network.”¹

DSCSA is an ideal use case, as the custody of drugs pass amongst multiple partners where there is incremental value in documenting each exchange amongst trading partners. With blockchain, you will have a historical record, that cannot be altered, of when the possession was transferred from one trading partner to another for the entirety of that product’s life cycle.

The next use case the workgroup looked to address was rostering.  The price paid for drugs depends on the location and the class of trade of that location.  This data is typically housed on the health system’s roster with their group purchasing organization (GPO) and includes, but is not limited to, legal name, address, DEA, HIN, NPI, NCPDP, GPO ID, and 340B ID. The manufacturers maintain a separate roster when communicating pricing to the wholesalers, and the wholesalers have yet another roster of accounts, which needs to match what the manufacturers and GPOs have in their database.  So, if you are keeping track, we have three rosters: a GPO/Health System roster, a wholesaler roster, and a manufacturer roster that need to match to ensure the correct price of one given product.  Then the pricing being sent by manufacturers to wholesalers are either EDI feeds or emails with Excel files to instruct the price to be given by the wholesaler to each health system location.

The current process is antiquated, repetitive, and is the cause of contract misalignment, which leads to errors in the price paid for pharmaceuticals.  There is a white paper that states 4% of all pharmaceutical purchases through a wholesaler result in a pricing dispute.²  My health system is disputing successfully ~0.25%, which is ~9,000 invoices per year resulting in ~$1 million in credits from overpayments.  The length of time in resolving pricing disputes creates a cash flow issue, and the discrepancies being identified are all manual so there are overpayments being missed. It would be challenging to determine the financial impact of when a product should have been ordered because it is cheaper, but the contract was not loaded correctly at the time of purchase.

When the purchase price of a product is disputed, the manufacturer is the source of truth for the price that should be paid. So, the wholesaler reaches out to the manufacturer eligibility point of contact, which is typically a different contact at the manufacturer than the contact the GPO or health system worked with to define the contracted price.  Then the manufacturer and GPO have no visibility into the wholesaler ordering platform to determine when the price has been corrected. So, it is a triangle of communication where all parties should have visibility to specific information around the contracts, but do not in today’s ecosystem.  This “credit and rebill” process is cumbersome, lengthy, and provides no value to any party involved.

In the future blockchain state, the rostering and contracts would be loaded onto the network and each participating member would be permissioned by the owner of that data (the manufacturer in this example) to see the data elements they should have access to.  For example, the health system should have access to the price being communicated to the wholesaler for their locations, but not other health systems or the distributor fees being charged to the manufacturers.  The manufacturer should have visibility to their prices that are loaded at the wholesaler, but not other competitive manufacturer products.

Once you have real-time data visibility across trading partners, you can implement “smart contracts.” Smart contracts are where you can set parameters that can automatically be implemented. For example, you can set tiers where prices change based on purchase volume, or rebates could be triggered for payment once thresholds are met. Today, rebates are a cumbersome and delayed process, which is ripe for automating.  Tiered pricing and rebates are just some of the use cases available. Health systems, group purchasing organizations, manufacturers, and distributors should look internally at their processes to see if there is value implementing this technology.  As a pharmacy industry, we need to be partnering together with our data to stop duplicating processes and improve efficiencies for all parties involved in the Pharmacy Supply Chain. Blockchain is a solution for contract alignment that can be implemented today, and it will provide more opportunities for streamlined workflows in the years to come.

Last month, Pharmacy Angle published a great article on four cost containment strategies your pharmacy can implement. Excellent strategies that can be achieved with clinical programming and committee approval. These initiatives are key to every successful pharmacy, although can take a long time to implement and even longer to yield results. So, what can you do in tandem to get as fiscally lean as possible in the meantime while you await approval?

While you are looking for change in the sofa cushions, start by examining all the ways you’re currently spending, perhaps and most likely on non-reimbursable money, so explore where you can make redundant change. It’s possible you are leaving money on the table by not leaning into your contracting with revenue streams/drains with your GPO, distributor, direct ships, technology, and consignment for example as fully as possible.

If you haven’t seen them already, ask for a copy of your supplier/partner contracts and take note of key milestones in the terms. You can take some simple steps to mix and match results that can make all the difference in truly maximizing your unrealized opportunities, or simply to point out areas where the contracts could be better suited to your practice.

Look at the cost minus structure of your distribution contract. Observe the milestones you need to reach to realize the maximum savings, and where you can bundle to take advantage of direct shipments or alternative delivery options such as consignment cabinetry that does not interfere with the purchase requirements of your primary distribution contract. There is always a little wiggle room in the contract. Use it to your advantage. You know how we Starbucks fans chase after those coveted stars for buying stuff? Sometime it’s best to forego the stars by not spending the money at all.

That said, use one primary distributor and stay loyal to the contract. Distribution partners will pay for that loyalty and contract compliance, and that brings more money back to your hospital in the long run.

Reduce delivery fees by voluntarily reducing your delivery days. Use a daily budget to give your purchaser guidelines to meet, and base that on the days that you get free delivery, eliminating weekends if there is an extra charge for example. You will reduce fees which can really add up, and the budget will give your pharmacy a way to anticipate costs while spreading out necessary purchases if you plan it well.

Make full use of the failure to supply clauses. It can be a pain to keep up with it, but it is lucrative and often an untapped portion of the overall agreement. Make it part of your daily activities, and you will secure contract pricing when you can’t get a contracted product.

Be as close to contract compliant as you can get. You will most likely reach milestones by simply making sure you are buying on contract, and this in turn brings more money back to your hospital. The distributor makes money when they move contracted items first, and they will share that wealth if you ask nicely.

Lean into any technology that your distributor offers. Let them help you make the most of your inventory turns, automatic conversions from non-contract to contract items, and have a plan in place for any overrides that may need to occur. Have them reviewed before the daily order is approved.

Analyze your spend and avail yourself of quarterly reviews. Your account manager can help you identify where you are not maximizing opportunities, which opportunities have changed with contract rolls for example, and what changes need to happen. Look towards this as it can be very helpful. This spend will also help you understand which clinical programming is working, what needs to be revisited and what is driving your budget. This gives you a good place to further analyze spend to pinpoint problem areas.

Just a few ideas on distribution. Next time we meet let’s talk GPO and technology. Applying some of the same principles to other contracting helps to create the full picture of how to make the most of the agreements you have in place, and where you can make changes that will be specific to your strengths. 

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Craig Wright, Vice President of Pharmacy Services at Advantus Health Partners, says the one of the biggest obstacles our industry faces today is the national drug shortage crisis.

“There’s a lot of disruption that’s happening and it's indiscriminate of the continuum of healthcare,” Wright says. “We've seen shortages in the physician office space, retail pharmacy, specialty pharmacy and home health. There are drug shortages in every therapy class — medications used for anesthesia, oncology and pediatrics, for example.”

What concerns Wright the most is the randomness of it.

“One day, it might be a shortage in one therapy class and another day, it could be another class,” Wright says. “It’s difficult to forecast exactly what shortage is next.”

But even though it seems random, drug shortages are historic, Wright says.

“Shortages were here before the pandemic,” Wright says. “But that has continued, post-pandemic. Add the labor shortage issue to the supply chain disruption — it’s no wonder why drug shortages are at the worst levels we’ve ever seen.”

In August 2022, the Inflation Reduction Act of 2022 (IRA) was passed by Congress and signed into law by President Joe Biden. Biden touted the $739 billion bill as “one of the most significant laws in our history.” It is arguably the most impactful health legislation since the Patient Protection and Affordable Care Act of 2010.

As the centerpiece of the IRA’s various drug pricing reforms, Medicare is allowed to “negotiate” what it will pay for many single-source branded drugs that account for the highest total expenditures for Medicare. In practice, Medicare will be able to dictate those prices. This year and next Medicare will negotiate directly with pharmaceutical companies to set the maximum fair price (MFP) for the following 10 prescription drugs from Part D:

• Eliquis
• Jardiance
• Xarelto
• Januvia
• Farxiga
• Entresto
• Enbrel
• Imbruvica
• Stelara
• Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill

Medicare enrollees taking these 10 drugs paid a total of $3.4 billion in out-of-pocket costs in 2022 for these drugs, and those out-of-pocket costs will decrease starting in 2026.

The number of drugs with MFPs set will increase by 15 in 2027 (all from Part D) to 25 in total. In 2028, 15 drugs from Part D or Part B (combined) will be added, resulting in a total of 40 drugs with MFPs set. In 2029 and each year after, 20 drugs from Part D or Part B will be added. By 2031, the total will reach 100 drugs, which means that, ultimately, all successful drugs (excluding certain categories specified in the law) will have their prices set by Medicare.

The minimum discounts that Medicare could demand vary based on the age of the drug: 25% for drugs on the market for more than nine years; 35% for drugs on the market for more than 12 years; and 60% for drugs on the market for more than 16 years. Those are all starting points, and it’s important to bear in mind that there is no price floor, so Medicare could impose steep discounts.

New Information Intermediary

Although the IRA requires manufacturers of selected drugs to ensure access to the MFP by all eligible individuals and providers, the Centers for Medicare and Medicaid Services (CMS) intends to contract with a so-called “Medicare Transaction Facilitator” to help with the exchange of information between different entities in the prescription drug supply chain to enable manufacturers to pass through the MFP to dispensers of selected drugs for eligible individuals. Under the IRA, manufacturers that do not ensure access to the MFP for selected drugs to eligible individuals and dispensers may be subject to civil monetary penalties.

340B Issues

Medicare negotiation of prescription drug prices also has the unintended consequence of adversely impacting the economics of the 340B program. The program requires pharmaceutical companies participating in Medicaid to sell outpatient drugs at discounted prices to healthcare organizations known as covered entities (CEs) that care for many uninsured and low-income patients. While 340B CEs will be able to purchase drugs at the lower of the 340B price or MFP, since the prices of some of the most costly drugs will decrease significantly, the absolute value of the 340B spread (savings margin) will in turn decrease, and this negative impact will grow as more drugs will be subject to price negotiation.

Although the 10 drugs that will be negotiated for implementation in 2026 are known, the prices that will be dictated by Medicare have not been set, so modeling the impact on the 340B Program is not feasible. In addition, the impact on 340B CEs will vary significantly, depending on numerous factors, including their mixes of patients, drugs, and payers.

In addition, currently there is a scenario in which a manufacturer retrospectively offers an MFP rebate to the dispenser (pharmacy) for a given drug, and the 340B third-party administrator (TPA) also claims that drug as 340B eligible, resulting in a duplicate discount. To date, CMS has not yet proposed a method to prevent this from occurring.