Hospitals and health systems that participate in the 340B Drug Pricing Program should be aware of an emerging threat to their pharmacy operations. Pharmacy benefit managers (PBMs) are creating new pharmacy networks that appear specifically designed to channel 340B covered entities into low-reimbursement arrangements, stripping the program’s intended savings from the very safety-net providers Congress sought to protect.
Understanding the Threat
Certain PBMs have begun constructing pharmacy networks that exclusively target hospitals operating pharmacies in Alabama, and likely elsewhere. By design, these networks single out 340B covered entities for reimbursement terms that are dramatically lower than those offered through the PBM’s general networks. This arrangement allows PBMs to capture savings that the 340B program intended to flow back to hospitals and their communities.
The mechanics are straightforward: a PBM creates a “hospital network” available only to hospitals that operate pharmacies. By channeling these providers into a separate network with depressed reimbursement rates while continuing to pay PBM affiliates and other pharmacies at higher rates through different networks, the PBM effectively transfers 340B savings away from hospitals and into its own revenues.
State Law Often Prohibits This Discrimination
State laws, including Alabama’s Pharmacy Benefits Manager Licensure and Regulation Act, may provide protections against precisely this type of conduct. For example, under Alabama Code § 27-45A-10, PBMs are prohibited from varying the amount they reimburse an entity for a drug on the basis of whether the entity participates in the 340B program. The statute also bars PBMs from restricting network access, imposing additional requirements, or creating extra charges or restrictions based on a pharmacy’s 340B status.
Alabama is among approximately 30 states that have enacted legislation to protect 340B covered entities from discriminatory PBM reimbursement practices. States including Maine, Rhode Island, Arkansas, Louisiana, and many others have passed similar laws prohibiting PBMs from imposing lower reimbursement rates or different terms and conditions based solely on participation in the 340B program. Federal courts have upheld these protections in several key decisions, underscoring their validity and enforceability. These state laws reflect a growing recognition that 340B savings belong to safety-net providers and the communities they serve, not to PBMs seeking to enhance their own margins.
For a detailed discussion of state-level protections, see our recent article, Navigating 340B Price Discrimination: How State Laws Protect Covered Entities and Contract Pharmacies.
Take Action to Protect Your Organization
If your hospital or health system has received notice of enrollment into new networks with substantially reduced reimbursement rates, or if you have observed unexplained declines in pharmacy margins, you may be experiencing unlawful 340B discrimination. These arrangements threaten not only your financial viability but also your ability to reinvest in patient care and community programs, contradicting the very purpose of the 340B program.
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 are actively engaged in challenging discriminatory PBM practices under state law and can help your organization evaluate its legal options, pursue contractual dispute resolution, and, when necessary, litigate to protect your 340B program interests.
If you have questions or believe your organization is being targeted by discriminatory PBM network practices, contact us today to speak with an attorney.
Senior Associate
