If you’re an eligible hospital with an existing 340B program, you know that your wholly-owned outpatient pharmacy is required to buy non-340B medications at Wholesale Acquisition Cost (WAC) — unless you’ve put it in an LLC, and registered it as a child site, or you’re a Critical Access Hospital, and exempt from the requirement. You’ve also, most certainly, noticed that your savings from 340B, relative to your WAC-purchase costs, has decreased in recent years.

If you’re an eligible hospital considering taking advantage of your legal right to 340B drug savings, we still strongly endorse the program. At the same time, there are market forces negatively impacting the program’s original intent that you should know about; more importantly, by implementing simple strategies, you can protect your 340B savings — and your overall prescription-purchase margins.

What is the 340B Drug Pricing Program?

340B is a program Congress created in 1992 to provide significant discounts on prescription drugs for certain health care providers. The program allows eligible hospitals, clinics, pharmacies, nursing homes, home healthcare agencies, hospices, dialysis centers and long-term acute care facilities (among others) to replenish prescription inventories at prices far below common acquisition costs — and its purpose is to help reduce costs for those providers.

In other words, the 340B program allows eligible providers to replenish prescription medications at reduced pricing, and bill normal market rates — creating higher margins on those drugs, as a means of filling revenue gaps that are inherent to their business models.

It’s no secret that drug manufacturers hate 340B

By law, manufacturers must provide eligible entities with 340B savings on all eligible prescriptions. They don’t like doing that. So in defiance of HRSA, they’ve been progressively decreasing 340B contract pharmacy participation, and implementing replenishment limitations for years. What’s worse, they’ve largely been getting away with it. Until now. More on that shortly.

Before the restrictions, most hospitals generated much higher savings from their 340B programs, offsetting the costs of their WAC purchases. Now, many hospitals aren’t generating enough 340B savings to cover their costs for non-340B medications at Wholesale Acquisition Costs, OR they’re generating significantly lower savings — and they’re feeling it. In short, we have a situation we’ll call The WAC Crunch. The situation has devolved to the point that in many facilities, it’s no longer financially attractive to have a retail pharmacy owned by the system. Worse still, with contract pharmacy limitations, covered entities suffer as well.

The not-so-secret role PBMs play in undermining hospitals’ 340B savings

Unbeknownst to many of the entities involved, many PBMs “serving” 340B hospitals are negatively reimbursing them for their own employees’ prescriptions — which are often WAC purchases. ProxsysRx serves more than 2 dozen hospital systems, including one whose pharmacy was losing $1 million annually. A big reason why: Its own PBM was reimbursing its pharmacy for employee prescription drug purchases at a drastically negative margin — more than could be recouped with 340B. And yet, the PBM somehow managed to make money for itself on the spread.

Worse still, the PBM has actually been claiming to the facility HR department that they’re delivering “market-comparable” margins to the system — in the form of rebates that don’t actually match the shortfall.

In short, the PBM has been playing a massive shell game, and lying to the hospital it claims to be serving. This situation is just one example of why ProxsysRx undertakes a careful analysis of PBM contracts whenever we undertake ownership or management of a hospital’s outpatient pharmacy. It also illustrates why we have strongly recommended to the hospital (not to mention many others we serve) that they bring-in a new PBM — one that’s in alignment with its desired results.

The FTC is finally taking action against these 340B-law violations

On June 7, 2022, the FTC issued a media release which includes the following:

The Federal Trade Commission announced today that it will launch an inquiry into the prescription drug middleman industry, requiring the six largest pharmacy benefit managers to provide information and records regarding their business practices. The agency’s inquiry will scrutinize the impact of vertically integrated pharmacy benefit managers on the access and affordability of prescription drugs. As part of this inquiry, the FTC will send compulsory orders to CVS Caremark; Express Scripts, Inc.; OptumRx, Inc.; Humana Inc.; Prime Therapeutics LLC; and MedImpact Healthcare Systems, Inc.

“Although many people have never heard of pharmacy benefit managers, these powerful middlemen have enormous influence over the U.S. prescription drug system,” said Federal Trade Commission Chair Lina M. Khan. “This study will shine a light on these companies’ practices and their impact on pharmacies, payers, doctors, and patients.”

The Commission’s inquiry will examine pharmacy benefit managers’ role at the center of the U.S. pharmaceutical system. Pharmacy benefit managers are the middlemen who are hired to negotiate rebates and fees with drug manufacturers, create drug formularies and surrounding policies, and reimburse pharmacies for patients’ prescriptions. The largest pharmacy benefits managers are now vertically integrated with the largest health insurance companies and wholly owned mail order and specialty pharmacies.

In these roles, pharmacy benefit managers often have enormous influence on which drugs are prescribed to patients, which pharmacies patients can use, and how much patients ultimately pay at the pharmacy counter. Many of these functions depend on highly complicated, opaque contractual relationships that are difficult or impossible to understand for patients and independent businesses across the prescription drug system.

The inquiry is aimed at shedding light on several practices that have drawn scrutiny in recent years including:

  • fees and clawbacks charged to unaffiliated pharmacies;
  • methods to steer patients towards pharmacy benefit manager-owned pharmacies;
  • potentially unfair audits of independent pharmacies;
  • complicated and opaque methods to determine pharmacy reimbursement;
  • the prevalence of prior authorizations and other administrative restrictions;
  • the use of specialty drug lists and surrounding specialty drug policies;
  • the impact of rebates and fees from drug manufacturers on formulary design and the costs of prescription drugs to payers and patients.

The FTC’s inquiry will build on the significant public record developed in response to the request for information about pharmacy benefits managers that the agency launched on Feb. 24, 2022. The agency has received more than 24,000 public comments to date.

In short, a lot of hospitals will soon be discovering what we’ve been telling our clients for years. Here’s hoping that, for all the shady PBMs engaging in indefensibly dishonest practices, it means Shell Game Over.

Is your PBM taking advantage of your health system?

For a thorough review of your PBM contract, at no charge and no obligation, contact Howard Hall. howard.hall@proxsysrx.com | 214.808.2700