It is hard to operate in the pharma space today without hearing about contract pharmacies, covered entities, and the 340B Drug Pricing Program. With much disruption in the program taking place in the last few years, it is important to understand the origins of the program, where the program stands today, and where the program is likely headed in the future. As we near the holiday season, let’s review the ghosts of 340B past, present, and yet to come.
Past
In 1992, Congress enacted Section 340B of the Public Health Service Act, which requires drug manufacturers to enter into an Omnibus Budget Reconciliation Act of 1990 (OBRA ’90) Medicaid Rebate Agreement with The U.S. Department of Health and Human Services (HHS) in order to have their drugs covered by Medicaid. In simple terms, this means that drug manufacturers wishing to have their drug products covered under Medicaid are required to participate in the 340B program. At its start, 340B was envisioned as a safety-net program. The original purpose of 340B program savings was to enable covered entities to provide comprehensive, expanded services to the nation’s most vulnerable patients, specifically low income and uninsured patients. Specifically how the funds were used to benefit these patients was at the discretion of the covered entity. Under the 340B program, manufacturers agree to provide discounts on covered outpatient drugs purchased by covered entities; the rebates for brand drugs are based partially on the manufacturers’ “best price”.
During the 1990s, a covered entity could only purchase and dispense 340B drugs through an internal or single external pharmacy. However, additional HRSA guidance in 2010 stated that eligible covered entities could access 340B pricing through an unlimited number of contract pharmacies. Thus, a boom in the number of contract pharmacy-covered entity relationships was born, and the program exploded. At the height of the program’s growth, there was a 4000% increase in the number of contract pharmacies.
Present
The number of covered entity-contract pharmacy relationships has been the subject of much controversy and debate in the past few years. Starting around 2020, several pharma manufacturers started restricting the sale of 340B-priced products when dispensed through contract pharmacies.
Today, more than 25 manufacturers have altered their policies related to contract pharmacies in the 340B Drug Pricing Programs. While the “flavor” of manufacturer policy changes may vary, common themes are seen. Many manufacturers require covered entities to use an on-site pharmacy or designate a single contract pharmacy location. Manufacturers are also placing limitations on the geographical distance of contract pharmacies from the covered entity’s physical location. Finally, many manufacturers are requiring that covered entities share prescription claims data information in order to be eligible to receive the 340B discounts, as this data enables manufacturers to more thoroughly audit the program.
Yet to Come
Based on manufacturer policy changes, expect decreased growth in the proliferation of covered entity-contract pharmacy arrangements. For retail and specialty pharmacies with a large number of covered entity agreements, revenue from 340B prescriptions may decrease, if it has not already done so. Instead of expanding their contract pharmacy networks, covered entities are more likely to invest in their own entity-owned pharmacies, which pharma manufacturers are less likely to target in their policy changes.
Finally, manufacturer, hospital, and pharmacy noise surrounding the program is likely to lead to more legal guardrails. Most government documents concerning the 340B program are simply guidance documents, with the legal enforceability of the program being questioned more frequently. As an example, early in 2023, courts sided with manufacturers, noting that participants do not need to provide 340B discounts to an unlimited number of pharmacies. Increased manufacturer pressure is likely to force the government to publish more precise regulations surrounding the 340B drug program.
With the increased attention around 340B, it’s important to understand the program’s origins and future direction. As a covered entity, this may mean paying particular attention to contract pharmacy arrangements or hiring an independent consulting company to audit your contract pharmacies. As a pharmacy, understanding the profitability of 340B covered entity contracts is also paramount in this time of decreasing third-party reimbursements. As it stands, the current 340B program impacts all stakeholders in the pharmacy chain.
