A newly released study by highly regarded research consultancy 3 Axis Advisors examines how the Kalderos 340B rebate model impacts covered entity cash flow when implemented at contract pharmacies. The 3 Axis study finds a positive impact on covered entity cash flow in every scenario analyzed — and the greater the contract pharmacy volume, the more significant the improvement to cash flow.
Based upon the assumptions in the report, our model demonstrated positive cash flow for covered entities with the Kalderos 340B rebate model relative to the existing replenishment models.”
<span class="quote-author">Ben Link</span>
<span class="quote-title">Vice President of Pharmacy, 3 Axis Advisors</span>
How this study came about
As a leading health tech innovator, Kalderos builds unifying technologies to address systemic challenges in healthcare. Our platform solutions make it easier for all stakeholders to participate transparently and compliantly in drug discount programs, including 340B.
The 340B rebate model was first proposed in 2020 by Kalderos’ internal experts, who bring decades of experience in Drug Discount Management, pharmacy management and 340B compliance. As our internal experts developed and refined the model, one key stakeholder benefit they identified was a positive impact to covered entity cash flow when operationalized at contract pharmacies. To further test this understanding, Kalderos commissioned an independent study by research consultancy 3 Axis Advisors, which brings considerable expertise in the U.S. healthcare system and drug supply chain, as well as project design and data aggregation and analysis.
We were excited to partner with 3 Axis due to the co-founders’ many accolades in the industry, including being particularly well-known for an instrumental contribution to exposing drug pricing distortions in Ohio’s Medicaid managed care program, as well as nonprofit work through 46brooklyn Research. This study was commissioned with the understanding that as independent researchers, 3 Axis would publish their findings, regardless of the results.
Since Kalderos’ rebate management solution for 340B is primarily designed for contract pharmacy implementation, the 3 Axis study was designed accordingly. (Covered entities enrolled in Kalderos’ rebate management solution can choose to switch to the rebate model for their owned pharmacies as well, but this is optional and up to the discretion of the covered entity.)
To design the study, 3 Axis created two overall scenarios using a combination of real-world inputs. The first scenario modeled cash flow under the current replenishment model. The second scenario modified these inputs in light of a switch to a rebate model. Then, 3 Axis applied a sensitivity analysis to see the result of modifications to two key variables: 340B contract pharmacy volume as a percentage of the covered entity’s overall 340B volume, and current AWP brand discount applied to PBM reimbursements on contract pharmacy dispenses. The impact to cash flow was positive in all 25 configurations analyzed.
Exploring the study’s findings
For a hypothetical covered entity that dispenses 10% of its 340B volume through a contract pharmacy and is currently reimbursed based on a 17.42% AWP brand discount, the report projected a .7% improvement in cash flow within the parameters of the study.
Given this highly conservative estimate, Kalderos finds it likely that the rebate model operationalized at contract pharmacies will improve cash flow in the vast majority of covered entity situations. The higher the contract pharmacy volume, the greater the potential impact. For instance, in the case of 50% contract pharmacy volume, currently reimbursed based on a 25% AWP brand discount, the 3 Axis study suggests a covered entity could see a 7.8% improvement in cash flow.
3 Axis identifies a few key factors contributing to the improved cash flow under the rebate model:
- Faster payments. Covered entities receive faster payments from contract pharmacy dispenses, because under the Kalderos rebate model, manufacturers are contractually obligated to pay invoices every 15 days.
- Lower inventory costs. Covered entities carry lower inventory costs, because under the rebate model, contract pharmacies dispense 340B eligible prescriptions from their own inventory, eliminating bill-to ship-to arrangements.
- Higher revenues. Covered entities likely see slightly higher 340B revenues under the rebate model because the rebate is tied to WAC, as compared to contract pharmacy reimbursement predicated on PBM compensation with a brand discount applied.
The 340B rebate model in action
The Kalderos 340B rebate model represents a unifying solution to the current challenges and controversies surrounding contract pharmacy participation in 340B. The rebate model, operationalized at contract pharmacies, offers significant benefits to all stakeholders in the program, ultimately resulting in more streamlined, more transparent, more compliant collaboration for everyone. That means 340B can continue to function as intended, benefiting safety net providers and the vulnerable patient populations they serve.
<span class="blog-button">Learn more about the Kalderos rebate model</span>