Health system and specialty pharmacies continue to face mounting legal and operational challenges stemming from Pharmacy Benefit Manager (PBM) contracting practices, below-cost reimbursement, 340B program restrictions, and mandatory white-bagging mandates.
Recently, at the NASP 2025 Annual Meeting and Expo, Frier Levitt Partner Jesse Dresser presented “Legal Considerations for Health System Pharmacies: White Bagging, 340B and More…” where he explored how this complex landscape is reshaping the economics of care delivery and why proactive legal and compliance strategies are essential for maintaining access, reimbursement, and patient safety. The discussion also considered potential barriers to utilizing such models and/or why such models may be permissible, current rebate model policies, and ongoing litigation efforts.
PBM Contracting and Below-Water Reimbursement Rates
PBMs remain among the most significant sources of pressure on hospital and specialty pharmacies. Over the past year, several PBMs have reinstated mailing restrictions, re-asserted audit enforcement, and reduced reimbursement rates—often pushing net payments below acquisition cost.
Under federal guidance, PBMs participating in Medicare Part D must provide “reasonable and relevant reimbursement terms” to pharmacies. Yet many networks continue to use “average” rate structures that disadvantage independent and hospital-based specialty pharmacies.
As reimbursement rates drop, pharmacies are urged to:
- Track below-cost fills to support claims of unreasonably low reimbursement
- Utilize contractual dispute processes and, when appropriate, initiate arbitration or litigation
- Engage CMS and state regulators to ensure enforcement of federal standards
These strategies have become essential for preserving network access and financial viability in the post-DIR-fee environment.
Mandatory White-Bagging and State Legislative Pushback
Another major area of scrutiny involves mandatory white-bagging policies, where payors or PBMs require hospitals and providers to obtain infused medications through third-party specialty pharmacies rather than using their own on-site or in-house supply.
This practice disrupts care coordination and increases administrative burden, leading many states to enact legislation prohibiting or restricting mandatory white-bagging.
Recent state laws have targeted payer-mandated drug sourcing requirements, protecting hospitals’ ability to use in-network or local pharmacies. Key state reforms share common themes:
- Prohibiting PBMs from steering patients to specific pharmacies
- Restricting white-bagging for certain high-risk therapeutic areas (e.g., oncology, hematology)
- Ensuring physicians and hospitals maintain control over medication handling and administration
Health systems are increasingly challenging these policies through negotiation, formal objections, and legislative advocacy, highlighting threats to patient safety, liability exposure, and continuity of care.
340B Program Restrictions and Litigation Trends
The 340B Drug Pricing Program continues to evolve amid manufacturer restrictions, PBM reimbursement discrimination, and a wave of state-level legislation. Manufacturers have increasingly imposed limitations on contract pharmacy arrangements, including geographic caps, data-reporting requirements, and limits on the number of participating contract pharmacies. While courts have issued mixed rulings, many states have passed laws designed to prohibit discrimination against 340B entities by either PBMs or manufacturers. At the same time, PBMs have introduced reimbursement terms that pay 340B-eligible claims at lower rates, eroding the financial benefit of the program, and pharmacies face challenges negotiating with PBMs imposing lower 340B reimbursement rates.
Covered entities and contract pharmacies should ensure they:
- Maintain clear documentation of 340B claim identification and reconciliation processes
- Request transparent reimbursement terms
- Advocate for fair market rates, not discriminatory pricing
- Develop compliant data-sharing protocols with manufacturers and PBMs
- Evaluate participation terms for any discriminatory pricing or network limitations
In addition, rebate-based 340B proposals, which would replace upfront discounts with post-sale rebates, remain under federal review. Such models raise concerns about statutory compliance and administrative feasibility for covered entities.
Shared Pharmacy Services and Efficiency Considerations
To manage cost and ensure continuity of care, many health systems have adopted shared services or central-fill models across commonly owned pharmacies. These models allow for centralized inventory, compounding, and staffing efficiencies, but they remain subject to state-specific pharmacy board requirements and PBM network recognition. Compliance considerations include maintaining a common electronic record, clear delineation of pharmacist responsibilities, and adherence to state registration rules for each participating site.
How Frier Levitt Can Help
Frier Levitt has decades of experience representing hospitals, health systems, and specialty pharmacies nationwide in navigating PBM contracting, 340B program compliance, and reimbursement disputes. Our attorneys combine deep experience in pharmacy law, healthcare regulation, and litigation to help clients:
- Negotiate and enforce fair PBM reimbursement terms
- Challenge discriminatory or unlawful payor policies
- Develop compliant 340B frameworks and contract pharmacy models
- Engage regulators and policymakers to promote transparency and accountability across the drug-distribution ecosystem
Our multidisciplinary approach ensures that clients remain compliant while maximizing operational and financial performance in a highly regulated market. Frier Levitt is ready and able to assist you. If you have questions or need help navigating PBM pressures, white bagging, or 340B, contact us to speak to an attorney.
Frier Levitt provides strategic, industry-focused legal counsel tailored to your needs. Contact our team today to learn how we can help you.
