The Crack Down on 340B Discounts: Manufacturer Challenges & the Shift Towards In-House Pharmacy
The 340B discount program was designed to allow covered entities to provide more comprehensive services to a wider range of patients, allowing already scarce federal resources to be stretched as far as possible. Contract pharmacies have become a vital part of the 340B program over the years, especially after the limit of one contract pharmacy per covered entity was lifted. However, with the numerous manufacture challenges to contract pharmacies in the past couple months covered entities are finding that in-house pharmacies have a lot of additional benefits including being protected from manufacture challenges. Without clear protection for contract pharmacies, drug manufacturers are beginning to crack down on their 340B program discounts, despite the program directing them to sell certain drugs to covered entities at reduced prices.
Manufacturer Challenges to 340B Contract Pharmacies
“Make no mistake, the 340B Program is under attack,”– Tracy Jones, AIDS Healthcare Foundation Senior Manager
Within the last few months, drug manufacturers have started to impose limits on their 340B program discounts for contract pharmacies.
As of October 30, 2020 The drug manufacturer Novartis announced that it will cut off discounts for hospitals under the 340B drug pricing program on drugs dispensed at community-based pharmacies that are more than 40 miles from the hospitals’ parent facilities.
In September 2020, Eli Lilly and Co. introduced stricter conditions for 340B discounts and reimbursements at Contract Pharmacies. While HHS rebuked the drug manufacturer for doing so, to date, they have taken no action to stop this change in pricing.
Meanwhile, Merck, Novartis, and Sanofi are currently threatening to refuse 340B discounts to contract pharmacies unless 340B entities hand over claims data about individual patients.
Kalderos has come out with a different solution they are calling 340B Pay. Their new model is based on a rebate program to try to prevent duplicate discounts between entities and manufacturers. However while this solution is creative, it has not been well received in the industry because it requires groups to purchase drugs at a non-340B cost and then wait for reimbursement.
Response to Manufacturer Actions Against 340B Discounts
The news that drug manufacturers are looking to severely restrict 340B discounts or force a shift to a rebate system has, of course, not gone without criticism. 340B Health, the representative body for 340B eligible hospitals, released a statement in August 2020 criticizing AstraZeneca’s refusal to allow contract pharmacies 340B pricing.
“The action of AstraZeneca is a direct attack on the 340B drug pricing program that will hurt hospitals, health centers, and clinics as well as the low-income and rural Americans who rely on them for care.”Maureen Testoni, CEO and President 340B Health
In the rest of her statement, Testoni calls on the Secretary of HHS to take action against drug manufacturers like AstraZeneca who would attempt to destroy the healthcare safety net. This call for action has also been echoed by Ryan White Clinics, Matthew 25 AIDS Services, and Cempa Community Care, who in October filed to sue Secretary of HHS Alex Azar to compel him to protect 340B contract pharmacy arrangements.
“We are filing this lawsuit because these drug manufacturers’ unilateral policies will decimate the ability of HIV clinics and other safety net providers to care for vulnerable patients.”Shannon Stevenson, CEO of Cempa Community Care and President of RWC-340B
As mentioned earlier, HHS is aware of drug manufacturers attempting to skirt 340B discounting for contract pharmacies, however, they’ve done little to protect the discounted program that many American patients and covered entities rely upon. In a letter dated September 21st, 2020, HHS warned Eli Lilly and Co. that they should not interpret the lack of questions from HRSA as agreement with their policies.
However, bipartisan pressure is mounting for Azar and HHS to take action against these drug manufacturers. Several letters have been sent by groups within the House calling for HHS and HRSA to take action against known violations of 340B and condemning the actions of these drug manufacturers.
Legal and Regulatory Issues Behind 340B Contract Pharmacies
In 2010, HRSA changed their guidelines related to 340B, allowing for covered entities to use an unlimited number of contract pharmacies to serve that entity’s patients.
This change was intended to remove the barriers that many patients faced with only one contract pharmacy option and it also opened the door for covered entities to increase their 340B net savings. With this in mind, many covered entities began to turn to entity owned in-house pharmacies. A report from Avalere Health found that 61% of hospitals that purchased a physician practice were 340B covered entities. This is due to ability for a 340B hospital to gain additional revenue through 340B program discounts by reclassifying the physician practice as a hospital outpatient site. PhRMA also found that these physician practices are beginning to turn to entity-owned in-house pharmacies to mitigate the risk to their 340B net savings.
While pressure is mounting against HRSA and HSS for them to act to protect the 340B program, the legislation that ensures they can take action is unclear.
The Future of 340B Contract Pharmacy Arrangements
The future of 340B contract pharmacy arrangements has been up in the air since Sen. Ron Wyden (D-Ore.) withdrew his sponsorship on the updated bipartisan bill passed the Senate Finance Committee last July. This bill would have capped Medicare Part D beneficiary out-of-pocket costs at $3,100 annually and penalize drug manufacturers that did not abide the inflation rates. Unfortunately, this promising bill died under the previous administration.
As of now, President Elect, Joe Biden has not spoken directly about the 340B program and his plans. This leaves experts to still speculate about the future of 340B discounting. 340B Eligible Entities are hoping to see greater protection for the 340B program including contract pharmacies under the new administration. On the other hand many manufactures hope that congress will address the current lack of oversight on 340B discounts and other compliance concerns.
Implications for Covered Entities and their Pharmacies
If drug manufacturers continue to deny 340B discounts, become stricter about how contracted pharmacies can access discounts, or even change the discount program to a rebate system, then it’s likely that other manufacturers will follow suit. Without any legislative protection, this can lead to covered entities having their purchases denied through the 340B program.
With this equating to a loss of 340B net savings, reduced access for patients, and a greater threat of business closures, it’s clear that covered entities must adapt to remain profitable. In the wake of drug manufacturers continuing to restrict access to 340B savings, it’s clear that covered entities are continuing to put their 340B net savings in jeopardy if they continue to rely solely on a contract pharmacy network.
Entity-owned in-house pharmacies offer a great advantage since drug manufacturers are continuing to challenge the 340B program, and this is something that covered entities need to consider to survive.
Is In-House Pharmacy Right For You?
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