Making Sense of the Inflation Reduction Act's Impact on Pharmaceutical Distribution

When the Inflation Reduction Act (IRA) passed in August 2022, it sent shockwaves through the pharmaceutical industry. For Cencora, a Fortune 10 company distributing around $300 billion in pharmaceuticals annually, the stakes are enormous. The problem? With legislation so dense, it wasn’t clear how the new regulations would actually work in practice.

Role

I led a cross-functional discovery effort to assess IRA impacts on our business operations. While I conducted most of the executive interviews and mapping work, I also brought in two designers from my team to help with visual refinement and cover interviews I couldn't attend. Given the compressed timeline and complexity, this was all hands on deck.

Challenges

The Inflation Reduction Act introduced sweeping changes to how Medicare negotiates drug prices, how rebates work, and how the 340B drug discount program operates. Our leadership needed to understand:

How would Maximum Fair Price (MFP) negotiations affect our distribution model? What happens to existing rebate structures when Medicare Part D gets redesigned? How do new 340B rules change pharmacy cash flows and our role as distributor? Where are the risks and opportunities buried in these changes?

The catch? The government was still figuring out implementation details. Rules were being written in real time. We were trying to map a system that was actively transforming. And we had roughly one month to make sense of it all.

Mapping complexity through service blueprints

Given the number of stakeholders involved simple process documentation wasn't going to cut it. Each scenario had to account for 10+ stakeholder types (think patients, pharmacies, health systems, PBMs, manufacturers, payers, government agencies, and ourselves) and show how IRA changes would ripple through the system. We needed a way to show how money, products, and information flowed through the entire ecosystem. I decided a service blueprint was the right tool but it might be stretched to its limit of usefulness given the complexity.

We focused on four critical pathways:

  • Medicare Part D Retail Pharmacy

  • 340B Contract Pharmacy with replenishment model

  • 340B Wholly-owned Pharmacy

  • GPO (Group Purchasing Organization)

Research process

Since none of us on the design team were experts in pharmaceutical distribution policy, we needed to extract knowledge from some of the smartest and most senior folks in the company.

I conducted in-depth, one-on-one interviews with subject matter experts across our community retail business, corporate strategy, distribution, contracting, regulatory affairs, and finance. They became regular fixtures in my calendar over those weeks.

The interview format was purposefully collaborative when possible…instead of just asking questions and taking notes, I would "live whiteboard" the service blueprints during our conversations. I'd take notes and sketch out workflows directly in Mural as they talked, then pause and ask things like "Does this look right? What am I missing? Does this level of detail capture what we need?"

This real-time validation was critical. The subject matter was so technically dense and interdependent that waiting until after the conversation to map it out would have resulted in errors that took days to untangle. Other times, I'd review interview recordings, update the maps, then send them back to stakeholders for feedback. Rinse and repeat until the picture became clear.

The artifacts

We delivered 4 detailed service blueprints showing current-state workflows for each scenario (examples below) and 2 flow of funds diagrams visualizing how dollars move through the system with actual pricing examples The result provided a visual framework showing decision points, blockers, and alternative paths based on regulatory uncertainty

The blueprints were initially crude and focused on accuracy over aesthetics. Once we validated the content with stakeholders, we invested time in visual polish to make them presentation-ready for senior leadership.

Mapping payments

We also had to illustrate the flow of funds—showing exactly how $100 of drug cost flows from manufacturer → distributor → pharmacy → patient → PBM → payer, with rebates and discounts happening at multiple points.

This got complicated fast. A single 340B contract pharmacy transaction could involve:

  • Pharmacy buying at retail price initially

  • TPA (third-party administrator) analyzing claims data against health system EMR records

  • Determining 340B eligibility retroactively (often 25-30 days later)

  • Triggering product replenishment at 340B contract price ($60 vs. $100 WAC)

  • Reprocessing pharmacy claims with 340B modifier codes

  • Manufacturer issuing chargebacks

  • PBM removing 340B claims from rebate invoices

  • Multiple reconciliation steps to ensure no "duplicate discounts"

And that's just one scenario. Multiply that by four different models, each with their own variations.

Key insights

As the blueprints took shape, several critical insights surfaced:

Pharmacy cash flow pressure: IRA changes to DIR (Direct and Indirect Remuneration) meant pharmacies—especially independent ones—faced increased liquidity stress. This created credit risk for us as a distributor extending trade terms.

340B program uncertainty: The government was still deciding whether 340B would shift from upfront discounts to retrospective rebates. Our blueprints showed how this would fundamentally change inventory management, working capital, and our value proposition.

Manufacturer response strategies: We mapped how manufacturers might use Actual Acquisition Cost (AAC) instead of WAC to reduce their MFP refund calculations—a strategy that would permeate through our entire fee structure.

Data and systems gaps: The blueprints revealed places where data wasn't flowing between stakeholders (like manufacturer rebate systems not talking to 340B eligibility platforms), creating opportunities for duplicate discounts or missed savings.

Timeline compression: CMS initially gave pharmacies 30 days to submit data, then shortened it to 7 days. Our blueprints helped executives see where this created operational bottlenecks.

Ongoing impact

The service blueprints became the foundation for Cencora's IRA response strategy. They've been used to inform product development decisions around new services for manufacturers and pharmacies navigating MFP, train internal teams on how IRA changes affect different parts of the business, and track market developments as CMS continues rolling out guidance

The work is far from over. The government is still refining implementation details, and possible executive actions could further reshape rollout of the new law. The blueprints remain living documents—ready to updated as new guidance emerges.

Reflection

I'm proud of this work not because it's in a portfolio or won an award, but because it helped a Fortune 10 company navigate genuine uncertainty. When regulations are being written in real time and hundreds of billions of dollars hang in the balance, clarity has enormous value.

Learning about all these complex programs, 340B, PBM rebate structures, and Medicare Part D, etc. was one of the most intellectually challenging things I've done in my career. Sometimes the best design work is the stuff nobody outside your company will ever see.