April 12, 2022
By Nicole Longo
There are many things that set the 340B program apart from other federal prescription drug programs, namely that patients are not the primary beneficiary. While in other programs, patients qualify for Medicaid or Medicare based on clear eligibility criteria, hospitals and clinics qualify for 340B based on very loose criteria and then receive discounts on many medicines without appropriate safeguards. Those entities decide if they want to share any of those discounts with patients since it isn’t required under the 340B program.
Another thing that sets 340B apart? It has been flooded by for-profit retail pharmacies even though it was intended for non-profit entities providing care to vulnerable patients. These pharmacies contract with 340B participating hospitals and clinics to dispense 340B discounted medicines. They share in the discounts and, again, have zero requirements that they use those discounts to help patients.
Recent research looking at the location of contract pharmacies adds to our concerns. An analysis by Xcenda found that only a quarter of contract pharmacies affiliated with 340B disproportionate share hospitals are in areas deemed as medically underserved areas. Similarly, a study published in the American Journal of Managed Care found “growth of contracts with 340B hospitals was uncorrelated with uninsured rates, poverty rates, or areas of medical underservice.”
Here’s a closer look at contract pharmacies.
- 15: The 340B statute lists 15 types of entities that receive 340B discounts and are known as “covered entities” for the purposes of the 340B program. Nowhere in the statute does “pharmacies” or “contract pharmacies” appear in that list of 15. Courts too have noted that the word “pharmacy” doesn’t appear even in statute.
- 4,000%: In 2010, the Health Resources and Services Administration issued guidance that allowed covered entities to enter into contracts with an unlimited number of pharmacies for distributing 340B discounted medicines. Since then, the number of contract pharmacy arrangements has grown by 4,000%.
- $13 Billion: In 2018, 340B covered entities and their contract pharmacies generated an estimated $13 billion in gross profits on 340B-purchased retail medicines. They are able to generate this significant revenue because they buy the medicines at a steep discount, mark them up and then keep the difference. Case in point: The average profit margin for 340B covered entities and their contract pharmacies on 340B medicines commonly dispensed through contract pharmacies is an estimated 72% compared to 22% for non-340B medicines.
- 60%: The pharmacies participating as contract pharmacies are not, primarily, small mom-and-pop independent pharmacies. Instead, 60% of contract pharmacies are represented by CVS, Walgreens, Walmart, Rite-Aid and Kroger. Making matters worse, each of these physical pharmacy locations can have contracts with multiple covered entities, so one pharmacy may have arrangements with five different hospitals, for example. The majority (75%) of arrangements between 340B covered entities and contract pharmacies is with for-profit chain pharmacies.
- 11 of 20: Because of consolidation in the health care space with pharmacies, specialty pharmacies, insurers and pharmacy benefit managers increasingly falling under one umbrella company, more than half of the top 20 companies on the Fortune 500 list generate profit from 340B. This raises concerns about whether some coverage decisions are being made in the best interests of patients or are instead designed to maximize 340B profits.
The 340B contract pharmacy policy needs to be revisited as part of broader patient-centered changes to the program.
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