Express Scripts, the pharmacy benefit manager (PBM) owned by Evernorth, has introduced a cost-plus pharmacy reimbursement model that could have significant financial implications for pharmacies owned and operated by 340B covered entities, including federally qualified health centers (FQHCs), hospitals, and other safety-net providers.
Under the reimbursement framework described in certain enrollment materials, participating pharmacies are reimbursed based on their actual drug acquisition costs plus a dispensing fee. Pharmacies may be required to provide documentation supporting those acquisition costs. If documentation is not provided, reimbursement may instead be calculated using the lowest of several pricing benchmarks, including National Average Drug Acquisition Cost (NADAC), Predictive Acquisition Cost (PAC), and Wholesale Acquisition Cost (WAC).
Although cost-plus reimbursement models are increasingly promoted as a way to improve transparency and reduce prescription drug costs, applying this methodology to 340B covered entity-owned pharmacies raises important legal and policy concerns. Specifically, requiring covered entities to disclose their discounted 340B acquisition prices and using those prices to calculate commercial reimbursement could shift the financial benefits of the federal 340B Drug Pricing Program from safety-net providers to PBMs and their health plan sponsor clients.
How Cost-Plus Reimbursement Could Undermine the 340B Program
The 340B Drug Pricing Program, established under Section 340B of the Public Health Service Act, 42 U.S.C. § 256b, requires participating pharmaceutical manufacturers to offer discounted outpatient drugs to eligible safety-net healthcare providers. The program is intended to help covered entities to stretch scarce federal resources, expand healthcare services, and serve additional patients. Historically, a principal financial benefit has been the ability of covered entities to purchase eligible medications at substantially discounted 340B prices while receiving commercial reimbursement under generally applicable pharmacy reimbursement methodologies. The difference between the discounted acquisition cost and commercial reimbursement helps support the covered entity’s broader healthcare mission.
However, a cost-plus reimbursement methodology that uses a covered entity’s actual 340B acquisition price could substantially reduce or eliminate that financial benefit.
Consider this hypothetical example:
| Traditional Reimbursement | 340B Cost-Plus Reimbursement | |
| Commercial drug acquisition benchmark | $500 | $500 |
| Covered entity’s 340B acquisition cost | $100 | $100 |
| Pharmacy reimbursement, excluding dispensing fee | $500 | $100 |
| Amount retained above 340B acquisition cost | $400 | $0 |
In this example, the covered entity receives $400 less in reimbursement because its eligibility for the 340B Program allows it to purchase the drug at a discounted price. Instead of retaining that purchasing advantage to support patient care, the covered entity effectively passes the discount to the PBM or health plan.
The U.S. Government Accountability Office (GAO) has previously recognized this issue when evaluating reimbursement based on 340B acquisition costs, noting that such arrangements can result in the payor, rather than the covered entity, realizing savings associated with the 340B discount. Importantly, although federal and state Medicaid programs may expressly require reimbursement of certain 340B claims based on actual acquisition cost, those Medicaid-specific requirements do not automatically establish the appropriate reimbursement methodology for commercial pharmacy claims.
How State 340B Anti-Discrimination Laws May Restrict Cost-Plus Reimbursement
Some of the strongest potential legal protections for covered entity-owned pharmacies arise under state laws prohibiting PBMs and other payors from discriminating against 340B covered entities. In recent years, numerous states have enacted legislation restricting PBM practices that disadvantage pharmacies based on participation in the 340B Program. Although these laws vary considerably, several include provisions relevant to cost-plus reimbursement.
For example:
- North Carolina: N.C. Gen. Stat. § 58-56A-50 prohibits PBMs from adjusting 340B reimbursement rates based on whether a pharmacy dispenses drugs through the 340B Program. Contractual provisions violating these protections are unenforceable.
- Delaware: 18 Del. C. § 3374A prohibits direct or indirect discrimination against 340B covered entities and contract pharmacies, including reimbursement below NADAC or, where NADAC is unavailable, WAC. The law also restricts contractual terms that interfere with covered entities’ ability to maximize the value of their 340B discounts.
- Nevada: NRS § 683A.1785 prohibits discriminatory reimbursement and adjustments that limit a covered entity’s or contract pharmacy’s ability to receive the full benefit of purchasing drugs at or below the 340B ceiling price.
- South Dakota: SDCL § 58-29E-15 expressly identifies reimbursing a 340B entity less than a similarly situated non-340B pharmacy for the same drug as a prohibited discriminatory practice.
These statutes may provide covered entities with grounds to challenge reimbursement arrangements that effectively reduce payment because of the pharmacy’s 340B acquisition costs.
The fact that a PBM applies the same general cost-plus formula to all participating pharmacies does not necessarily resolve the discrimination issue. Where a covered entity receives substantially lower reimbursement than a comparable non-340B pharmacy because of its federally mandated purchasing discount, the methodology may still implicate state prohibitions against direct or indirect 340B discrimination. Whether a particular arrangement violates state law will depend on the statutory language, applicable health plan, contractual terms, and specific reimbursement practices.
Does 340B Acquisition Cost Have to Be Disclosed?
Covered entity-owned pharmacies should also carefully examine whether they are actually required to provide documentation identifying their discounted 340B acquisition prices. Express Scripts has publicly described its ClearNetwork cost-plus model as using established third-party benchmarks, including PAC, NADAC, and WAC, to estimate drug acquisition costs. Those benchmarks are distinct from the actual discounted acquisition price available to a particular covered entity through the 340B Program. If the applicable enrollment agreement permits reimbursement based on these benchmarks when a pharmacy does not provide acquisition-cost documentation, covered entities should evaluate whether electing that alternative is both contractually permissible and financially preferable.
Additionally, documentation revealing 340B acquisition prices may implicate confidentiality obligations under wholesaler, manufacturer, purchasing, or other agreements. Although 340B acquisition prices are not categorically prohibited from disclosure, covered entities should assess applicable confidentiality restrictions before providing sensitive purchasing information to a PBM.
Covered entities should not assume that declining to provide acquisition-cost information is without consequence. Depending on the agreement, nondisclosure could affect reimbursement, enrollment eligibility, audit obligations, or other contractual rights. These issues should be evaluated before executing enrollment documents.
Potential Legal and Contractual Strategies for 340B Covered Entities
Covered entities receiving Express Scripts or Evernorth cost-plus enrollment forms should consider the following steps before accepting the proposed reimbursement framework:
1. Review acquisition-cost reporting requirements.
Determine whether disclosure of actual acquisition costs is mandatory, whether 340B purchases are expressly included, and whether alternative benchmark-based reimbursement is available.
2. Evaluate applicable state 340B protections.
Identify whether state law prohibits reimbursement reductions based on 340B participation, establishes minimum reimbursement benchmarks, or restricts contractual terms that diminish the benefits of the 340B Program.
3. Seek an express exception for 340B drugs.
Covered entities may seek contractual language requiring reimbursement of 340B claims using the same commercially applicable benchmarks used for comparable non-340B claims, without reference to the covered entity’s discounted 340B acquisition cost.
4. Preserve contractual and statutory rights.
Where covered entities elect benchmark reimbursement or object to acquisition-cost disclosure requirements, they should consider documenting their position and expressly reserving applicable contractual and statutory rights.
5. Consider regulatory challenges where appropriate.
Depending on the jurisdiction, reimbursement practices that violate state 340B anti-discrimination laws may be subject to complaints before state insurance departments, PBM regulators, or other enforcement authorities.
Covered entities should also recognize that federal 340B law does not expressly guarantee a particular commercial reimbursement rate or margin. Consequently, arguments based solely on the general purposes of the 340B Program may be less effective than challenges grounded in specific state statutes or contractual protections.
How Frier Levitt Can Help
Cost-plus pharmacy reimbursement models are likely to become an increasingly important feature of PBM contracting. While these arrangements may offer greater pricing transparency for employers and health plans, their application to 340B covered entity-owned pharmacies presents unique concerns.
Frier Levitt continues to monitor developments involving PBM cost-plus reimbursement models and their implications for 340B covered entities. We have reviewed and advised pharmacies on the impact of these agreements and have also actively negotiated with Express Scripts and other PBMs. Covered entities seeking guidance on proposed reimbursement terms, applicable state protections, or potential contractual challenges should contact Frier Levitt.
