Pharma’s Fight Against 340B Contract Pharmacies

As written into law, the 340B program requires pharmaceutical companies to offer discount pricing on their drug products to many hospitals. This discount is anywhere between 23% and nearly 100% (yes, the pricing formula requires many drugs to be sold for one penny). Hospitals often qualify for the 340B Program by caring for a relatively high percentage of indigent or poorly insured patients. The intent is that hospitals would use these savings as resources to continue their care of those patients.

But the program has changed. Contract pharmacies have become a rapidly growing dispensing point for 340B discounted drugs. Ever since the Affordable Care Act (ACA) modified the 340B Program, qualified hospitals can contract with an expanding number of retail pharmacies (like Walgreens and CVS) to dispense their discounted drugs. And those hospitals have taken that opportunity to heart; over 30,000 retail pharmacy locations are under contract to dispense 340B drugs for their hospital partners. In 2010, that number was closer to 1,000 locations.

The pharmaceutical industry is negatively impacted by the growth of contract pharmacies. Prior to the ACA, retail pharmacies dispensed vials of drugs filled with pills and tablets they purchased on their own at somewhere near list price. In effect, 30,000 retail pharmacies are now filling prescriptions with drugs that were purchased at the 23-100% discount we already described. This means many prescriptions today generate a fraction of the revenue manufacturers used to receive at the retail pharmacy counter. Contract pharmacies are willing partners in this arrangement because they receive a share of the hospital’s profit from the prescription. This profit sharing generates much more revenue for them than the standard dispensing fee they get for non-340B prescriptions.

The legal battle between pharma and the Department of Health and Human Services (HHS) is ongoing. Six pharma companies have taken the bold step to fight against the requirement to sell drugs to contract pharmacies at such steep discounts. HHS has written letters to those manufacturers stating civil monetary penalties will be levied if they don’t make their products available to contract pharmacies at the 340B price.

The legal battle is raging on through the summer. Many hospitals claim they can’t keep their doors open without profits from 340B. Pharma believes the 340B Program intent has been usurped by that profit motive. There is a lot of money at stake for both sides, and the final result of all the legal action is unknown. We can be sure, however, that the impact on all stakeholders is significant and worth a fight from both perspectives.

Originally post to LinkedIn June 29, 2021