I’m out and about this week so I’m reposting a piece I wrote last year….
If you missed it, I wrote about 340B basics. Here is a quick summary: There are hospitals, clinics, etc. that serve uninsured individuals. To help care for these patients, the 340B program requires pharmaceutical manufacturers (that wish to participate in the Medicaid program) to sell their products at a massive discount that the entities then use for all patients (including insured) and capture the difference. The idea is that they are supposed to use that delta to provide care for the un- and underinsured, but there is no requirement to do so.
The 340B program motored along until 2010; it was seen by many pharmaceutical manufacturers as the cost of doing business. But by 2012, conversations on 340B picked up and it became a focus of many in pharma policy circles. The big reason? More qualified covered entities utilizing the program and a lot more spending moving through 340B.
In 2010, the Affordable Care Act made two big changes in terms of 340B. First, it revised the definition of “covered entities” to expand beyond disproportionate share hospitals (DSH) to include critical access hospitals (CAH), sole community hospitals, rural referral centers, and stand-alone cancer hospitals. This would have made the program bigger, but probably manageable.
However, the expansion also allowed 340B-participating hospitals with offsite outpatient clinics (“child sites”) to register those sites for 340B. Then, weeks later, the government released guidance that permitted an unlimited number of contract pharmacies; previous guidance from 1996 limited covered entities to one contract pharmacy.
And then we saw a huge increase in the number of 340B access points. A big piece of that is contract pharmacies. From 2010 to 2022, there were over 35,000 new covered entities in 340B. And they can all use contract pharmacies.
A contract pharmacy is a retail entity that can dispense prescriptions on behalf of a covered entity. Sometimes it can be the pharmacy on the first floor of a provider office building but often it is the retail pharmacy chains. We are talking about CVS, Walgreens, Kroger, Walmart, etc. The number of contract pharmacies went from about 1,200 in 2010 to over 30,000 in 2022.
It was one thing when an insured patient went to a covered entity, got a prescription, went downstairs to the facilities pharmacy and filled it and the facility got the difference between the insured payment and the 340B rate. Now we have all the scripts being written by the covered entity fanning out to all the retail locations. In addition to revenue earned by the covered entity for the 340B prescription, contract pharmacies earn 25% to 35% of total 340B discount flowing through their doors equating to billions of dollars a year. There is a lot of money floating around and being made by the entire supply chain and not necessarily going to the patient.
Here is a little diagram to orientate you (in case it helps.)
Much of the process flow resembles a typical pharmacy transaction. Patient goes to counter, gets medicine, pays a copay/coinsurance and leaves. The pharmacy files the claim with the health insurer and gets paid. The drug gets to the pharmacy from a wholesaler who gets it from the manufacturer. And yes, this is all very simplified in terms of the ins and outs and timing of it all. If you want more on a typical process, I would recommend this resource from PhRMA. And yes, I’m biased because I worked on it.
What’s different in the 340B world is that the pharmacy also submits the claim to a third-party administration (TPA) hired by the covered entity to determine if the claim qualifies for 340B. If it does, the pharmacy forwards the reimbursement from the health plan to the TPA but takes out their fees for handling the transaction. The TPA then takes out their fees and sends the reimbursement on to the covered entity. The covered entity then buys more product from the wholesaler at the 340B price to restock the pharmacy.
This process creates a lot of challenges. Claims from Medicaid patients should be exempt, but it can be difficult to tell which claims are Medicaid. Health plans can file for rebates from manufacturers not realizing it was a 340B claim. Uninsured patients or patients who are underinsured can be paying out-of-pocket for medicines at a much higher rate than is being given to the covered entities (and may choose to not fill their medicine because of the cost.) I want to be clear that there absolutely are 340B entities that are providing uninsured patients access to free/discounted drugs but that’s not the focus of the program for most entities.
In summary, over the past decade, 340B sales have soared with the government allowing entities to have multiple contract pharmacies. Which might have been okay if the discounts were reaching needy patients, but it is not always getting to them and there is no mandate to do so. Plus there is a lack of transparency in the system which means that duplicate discounts for other payers is possible.
Next week I’ll be back in the saddle…