Will Evolving Payer Contracting Strategies Wipe Out the 340B Program? What You Need to Know When Acting as a Contracting Pharmacy

The 340B Program has been utilized successfully by Covered Entities to facilitate patient access to necessary drugs and yield cost savings for cash-strapped providers, while affording steady revenue streams (in the form of dispensing fees) to Contract Pharmacies. However, recent trends in payer contracting with pharmacies threatens to undermine the purpose and intent of the 340B Program, and may result in PBMs – not Covered Entities or their patients – receiving and hoarding the savings afforded by the 340B Program.

The 340B Program was created as part of the Public Health Service Act of 1992 and Public Law 102-585, and in its most basic sense, obligates drug manufacturers to offer discounted prices to certain Federal grantees and hospitals known as Covered Entities. Congress established the 340B Program “to enable these entities to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” HRSA, the federal agency charged with administering the 340B Program, described the purpose of the program “to lower the cost of acquiring covered outpatient drugs for selected health care providers so that they can stretch their resources in order to serve more patients or improve services” and has determined that “[a]dditional program resources are generated if drug acquisition costs are lowered but revenue from grants or health insurance reimbursements are maintained or not reduced as much as the 340B discounts.”

As part of the 340B Program, Covered Entities have come to rely on Contract Pharmacies to facilitate the dispensing of the drugs purchased through a 340B arrangement. Contract Pharmacies leverage their existing pharmacy staff and infrastructure, as well as contracts with payers, to provide an efficient solution for Covered Entities. Contract Pharmacies often times maintain a “virtual inventory” of 340B drugs, which are “replenished” by Covered Entities as the Contract Pharmacy fills and dispenses prescriptions for eligible patients of the Covered Entities. Moreover, Contract Pharmacies typically charge a “dispensing fee” for the services they provide, and pass back virtually all of the adjudicated amounts received from the PBM, less their contracted dispensing fee. This advances the purpose of the 340B Program by passing the full benefit of the drug discount back to the Covered Entity.

However, PBMs and other payers have begun to adopt strategies that could threaten the ability of Contract Pharmacies or even Covered Entities to derive any real benefit from the drug purchasing discounts under the 340B Program. First, several payers have begun increasing requirements on Contract Pharmacies and Covered Entities to report (through NCPDP submission clarification codes) whether the patient is a 340B eligible patient or whether the product being billed has been purchased pursuant to rights available under the 340B Program (including sub-ceiling purchases and those made through the Prime Vendor Program). The possibility for pharmacy providers to transmit this information has been in place for some time, with NCPDP providing the protocol to help avoid the application double-discounts by identifying eligible Medicaid patients. 

Certain payers, however, have begun to take this a step further, and are seeking to tie different reimbursement rates to products that fall within this category. For example, the payer might normally reimburse products at AWP minus 16%, but once a drug is identified as having been purchased under the 340B Program, the reimbursement might drop to AWP minus 29%. In essence, the PBM is seeking to capture all of the 340B savings that Congress has determined should flow to Covered Entities, who by definition are cash-strapped and saddled with providing care disproportionately to low-income or indigent patient populations. Moreover, the language of these provisions is unclear as to whether it applies to drugs purchased and dispensed directly by Covered Entities, drugs dispensed by Contract Pharmacies pursuant to their relationships with Covered Entities, or both.

As a result, Contract Pharmacies and Covered Entities alike need to be cognizant of these (and other) changing dynamics when negotiating and executing 340B contracts. Any changes in reimbursement strategies by PBMs – including, say, the imposition of retrospective DIR Fees – can have a material impact on the economics of any potential arrangement. In addition, interested stakeholders – such as hospitals, pharmacies, health plan sponsors, and even drug manufacturers (who may be paying rebates to the PBMs based on the full price of the drugs, despite the savings already gleaned by the PBMs) – must remain abreast and informed of these issues and take necessary action to safeguard the intent and positive effect of the 340B Program.

Frier Levitt routinely assists providers in structuring and negotiating 340B arrangements, and can advise interested parties in navigating these complex and ever-changing payer dynamics and strategies. Contact us today to speak to an attorney.

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