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340B Contracting in An Age of DIR Fees and Predatory Pricing

The 340B program is a federal discount drug program which requires pharmaceutical manufacturers to enter into an agreement, called a Pharmaceutical Pricing Agreement (PPA), with the Secretary of the Department of Health & Human Services in exchange for having their drugs covered by Medicaid and Medicare Part B. Under the PPA, the drug manufacturer agrees to provide front-end discounts on drugs purchased by “covered entities,” which typically serve the nation’s most vulnerable patient populations. The federal government has permitted covered entities to enter into agreements with “contract pharmacies” to provide some or all of the pharmacy services. 

The advent of the 340B drug program has, historically, been a good source of profit for pharmacies serving as Contract Pharmacies for Covered Entities. However, over the past few years, growing complexities in the relationship between pharmacies and PBMs have significantly impacted pharmacy profitability in the 340B drug program. The assessment of DIR fees, and other post point-of-sale price concessions, has stripped profits away from contract pharmacies and have made participating in the 340B drug program far less appealing.

With the rise of DIR fees and other post point-of-sale fees being assessed unilaterally by PBMs upon pharmacies, as well as increasing regulatory scrutiny of such relationships, a well-drafted contract between covered entities and contract pharmacies has never been more important. Unfortunately, many contracts between covered entities and contract pharmacies do not address or contemplate DIR fees or other PBM-assessed fees, which has resulted in contract pharmacies bearing full financial responsibility for the fees. The results have been profoundly negative for contract pharmacies, as they have seen their profitability stripped away from participation in the 340B drug program. However, pharmacies can still participate as a contract pharmacy in the 340B drug program while making a profit, so long as the contractual relationships between covered entities and contract pharmacies sufficiently address this dynamic. 

Frier Levitt has assisted pharmacies in the negotiation of the contract with covered entities to ensure that pharmacies are not left bearing full financial responsibility for PBM-assessed fees. If you have a contract pharmacy that has seen its profitability reduced in the 340B drug program because of DIR fees, or are considering participating in the 340B drug program as a contract pharmacy, contact Frier Levitt today.