The 340B Drug Pricing Program and Contract Pharmacy Usage

Over the past few years, there have been a lot of debates and discussions over the use of Contract Pharmacies in the 340B Program. The 340B Program is intended to help underserved patients save on medications and services. However, many believe that large corporations and PBMs may be abusing this program for profit instead of benefiting the vulnerable population it is intended to serve. Below is a helpful summary of the 340B program, the ongoing litigation surrounding it, and the potential future of the program through the “SUSTAIN 340B Act.”

?Let’s start with the basics - What is the 340B Program?

The 340B Drug Pricing Program is a government sponsored program that allows covered entities to purchase outpatient drugs from pharmaceutical manufacturers at significantly reduced prices. Covered entities are typically hospitals or specialty clinics and their associated outpatient facilities that service underserved and low-income patients. The intent of the program is for the covered entities to pass on the savings to their patients by offering lower cost medication and services. The program helps these qualifying entities to serve vulnerable populations and stretch their limited resources.

?Where do Contract Pharmacies come in?

Contract pharmacies are retail pharmacies that have contracted with a 340B covered entity to provide pharmacy services and dispense 340B drugs to eligible patients. There are several reasons why a covered entity may offer services through a contract pharmacy. For example:

• The onsite pharmacy at a 340B eligible facility may be operated independently from the facility.
• A 340B eligible hospital may contract with several local pharmacies in their community to offer better access for their patients.

When purchasing 340B eligible drugs, contract pharmacies use the associated covered entity’s eligibility to avail of the discounts.

This all sounds great, but what’s the catch?

Because contract pharmacies are retail pharmacies, many of which are owned by large corporations and PBMs, it is difficult to prove that the 340B discounts are truly being used for eligible patients. There has been growing concern in the industry over the past few years that these contract pharmacies are profiting from the 340B program by charging patients the full cost of a drug despite getting it at the discounted 340B prices or that revenue from the 340B discounts is being diverted for purposes other than providing services for low-income patients.

?Since then, the situation has escalated.

Due to these concerns, starting in 2020, several major drug manufacturers began to place limits on covered entities’ use of contract pharmacies unless the entities complied with certain conditions to mitigate potential abuse of the program. The Department of Health and Human Services (HHS) Health Resources & Services Administration (HRSA), which manages the 340B Program, opposed these policies and issued letters indicating the manufacturers’ violation of the 340B statute and threatening to issue them penalties. In response, several manufacturers began litigation in 2021 to challenge HRSA’s interpretation of the 340B statute and its enforcement of the policies. These cases have had varied outcomes, with some courts siding with the manufacturers and some siding with HRSA, and several appeals are now ongoing in various federal courts around the country. In January 2023, the first appellate decision was issued by the U.S. Court of Appeals for the Third Circuit, siding with the manufacturers and affirming that HRSA could not enforce its interpretation of the 340B statute and that manufacturers do not have to provide discounted 340B prices to an unlimited number of contract pharmacies.

?Potential Future Reform and How It Impacts You

In February 2024, six U.S. Senators issued a discussion draft for a bill to reform the 340B program, known as the “SUSTAIN 340B Act.” Intended to preserve the 340B program and maintain its purpose of serving low income and underserved patients, the draft acknowledges that the ongoing litigations around the 340B program are due to the “lack of statutory clarity” and “ambiguity over the use of contract pharmacy arrangements.” It seeks to provide clarity on many aspects of the 340B Program that have raised concerns, including, but not limited to:

eligibility of Contract Pharmacies

transparency on reporting from covered entities

audit guidelines from HRSA

?An explanatory statement directed at 340B stakeholders (such as drug manufacturers, covered entities, and contract pharmacies) and a request for information (RFI) were issued with the draft. The RFI includes specific questions that address the uncertainty around the use of contract pharmacies, as well as other topics.

?The 340B Program is intended to benefit low income and underserved patients, and it is clear from the many ongoing litigations that reforms are needed to prevent large corporations and PBMs from profiting by abusing the program. Although there is no guarantee that a reform bill will be passed, it was imperative for manufacturers to submit their responses to the RFI (which was due on April 1, 2024) in order to provide input on the potential reform of the program and provide insight on how the use of contract pharmacies should be limited based on their own experience and policies.

?Contact Us

Marbls is monitoring the developments in the 340B program, including potential changes to the legislation. If you have any questions or would like to discuss, please feel free to contact us at [email protected].