340B ESP and drug manufacturer restrictions are only part of the reason

As we noted in a previous post, for 340B-eligible hospitals dealing with increasingly squeezed bottom lines, an in-house specialty pharmacy offers enormous savings and revenue potential. Some covered entities generate as much as 600% in specialty pharmacy revenue from 340B drugs as they do in traditional retail / outpatient pharmacy 340B revenue.

We published that post in September, 2022. Barely a month later, as the 340B advocacy group Ryan White Clinics For 340B Access reported in a news post:

By letter dated October 30, 2020, Novartis is notifying covered entities that are federal grantees that they will continue to receive 340B discounts at contract pharmacies and, beginning November 16, 2020, Novartis will honor contract pharmacy arrangements only for pharmacies located within a 40-mile radius of the parent site for all other covered entities. Novartis is sending a variation of the same letter to hospitals. The letter is a follow-up to Novartis’ previous letter, which stated that Novartis would cut-off 340B pricing at contract pharmacies for covered entities that chose not to enroll in the 340B ESPTM program by October 1. Novartis characterizes its change in position as a “a more focused, criteria-based approach that [Novartis] believe[s] will reaffirm the program’s intent to serve the uninsured and vulnerable, while preserving sustainability of this vital program.”

In other words, Novartis informed 340B health systems that, starting last November, they would allow them to use only pharmacies within a 40-mile radius of their primary campuses.

The first obvious problem with Novartis’s 40-mile restriction on contract pharmacies

The vast majority of specialty pharmacies serving 340B Covered Entities are located outside Novartis’s arbitrary 40-mile radius, and they know that. They also know just how much revenue they’ll be able to save — at the expense of 340B hospitals and the patients they serve — by imposing that 40-mile restriction. They know that the restriction means their most expensive, and profitable, medications will (for all practical purposes) no longer be eligible for 340B pricing — and that very few covered entities have the expertise or the resources to build specialty pharmacies of their own. In short, it’s an utterly absurd 340B manufacturer restriction.

No surprise: Other manufacturers have followed Novartis’s lead

As we reported in another previous post, on February 15, 2023 Johnson & Johnson took Novartis’s 40-mile restriction one step further. The key passage in their letter to 340B health systems is as follows:

If a non-grantee Covered Entity does not have an in-house pharmacy, such Covered Entity may designate a single contract pharmacy location registered on the HRSA OPAIS database for delivery of 340B-priced covered outpatient drugs listed on Attachment A if (I) the Covered Entity provides limited claims data with respect to that contract pharmacy location and (ii) that single contract pharmacy location is within 40 miles of the Covered Entity parent site.

In plain English, Johnson & Johnson told 340B Covered Entities, that — starting March 7, 2023 — they would be allowed to designate only one pharmacy in their networks as a contract pharmacy, AND that the pharmacy would have to be located within 40 miles of the health systems’ campuses. Essentially, J&J was forcing 340B Covered Entities to choose between a retail pharmacy and a specialty pharmacy as their sole designated contract pharmacy.

Incidentally, J&J isn’t the only drug manufacturer with a “single pharmacy” restriction. EMD Serono also only allows 340B health systems to have one contract pharmacy by designation. Simply stated, there is no 340B manufacturer restriction more punitive than that.

Consider the implications for the average 340B-eligible patient

According to a 2020 drug trend report, specialty drugs were used by less than 2% of the population. Which means that any 340B-eligible hospital selecting a specialty pharmacy as their sole contract pharmacy would be effectively cutting-off 98% of its patients from 340B drug savings. Which also means (given the vastly greater revenue potential of selecting a specialty pharmacy) that, by putting patients “first,” 340B-eligible hospitals are literally undercutting their very ability to pursue the mission of serving their communities’ most vulnerable, under-insured and uninsured patients.

All of which is why 340B-eligible hospitals should have their own specialty pharmacies.

Here’s good news: There is a workaround for 340B hospitals forced to select a single pharmacy for manufacturers’ 340B pricing — and it’s legal in many states. Hospitals can operate specialty pharmacies alongside their retail pharmacies. As long as the two operations are physically in their own spaces (working under separate Pharmacists-In-Charge), and there is no procedural, functional or personnel overlap between the two.

In some states, you can combine specialty and retail, but the retail operation is subject to the heavy policy and process requirements of specialty accreditation — which is an onerous burden for a retail pharmacy. Regardless of prevailing state laws, ProxsysRx can help health systems navigate the best options for dealing with state guidelines, maximizing available space, and meeting patient needs.

The not-so-good news for 340B hospitals is: Opening a specialty pharmacy is extremely challenging — particularly given the effort required just to get access to purchase specialty meds, and then to get “In Network” with PBMs. Payers and manufacturers control the players in Specialty, so newcomers need significant support and guidance navigating the process. That doesn’t even account for how hard it is accrediting and running a Specialty Pharmacy.

How hard? Let’s put it this way: ProxsysRx owns and/or manages retail / outpatient pharmacies on hospital campuses across the country. We’d like to think, between our collective experience and the first-rate professionals running our pharmacies, we know as much about operating on-campus retail pharmacies as anyone in our industry. And yet, when we began researching the possibility of expanding our services into the specialty pharmacy arena, it was clear that we needed help. Which is why we’ve partnered with one of the nation’s most highly respected health systems — one with significant specialty pharmacy experience — to lead us in serving health systems looking to add specialty pharmacy operations. (NOTE: That partner has asked us not to identify them by name in public forums).

The corporate challenge for 340B hospitals opening specialty pharmacies

ProxsysRx is currently in the process of opening a specialty pharmacy for a major Southeastern regional health system. It’s scheduled to open in early July, and yes, we’re hopeful that will happen. The underlying problem we’re facing with that deadline is that the unique demands and requirements of planning, building, stocking, hiring and managing a specialty pharmacy often run counter to the health system’s well-established, and perfectly reasonable, corporate procedures and policies.

The experience has been a great education for us. Because, again, the health system’s existing procedures and policies were all implemented to solve and overcome specific existing operational problems and challenges over the years. And so, in the process of launching the hospital’s specialty pharmacy, we’ve learned how to work within their system — and streamline our process, without cutting corners.

The logistical challenge for 340B hospitals opening specialty pharmacies

As we noted in our aforementioned previous post, specialty pharmacies require accreditation that’s costly — both monetarily and in terms of the time involved to get it. At the same time, you have to contract with payers — and securing each of those contracts takes considerable time and effort. You have to provide an extraordinary amount of data and analytics to PBMs and manufacturers, in order to prove to them you’ll be providing the high level of quality patient care that’s expected of Specialty Pharmacies. Essentially everything you do, and plan to do, must be measured and reported to the PBMs and the drug manufacturers.

Then there’s the matter of stocking your specialty pharmacy, once you’ve gained access to buy specialty meds. That typically costs at least $1 million in inventory. Specialty Pharmacies also require the hiring of at least one Certified Specialty Pharmacist. What’s more, once you open your specialty pharmacy, you still have to work (under real-life operating conditions) to align all of your practices, policies and procedures for accreditation. And it probably won’t surprise you that legal standards governing specialty pharmacies are different from state to state — and they are all very complicated.

Taking complications even further, every individual specialty pharmacy site has a unique physical makeup; all with different people, and all serving different communities’ needs and their unique disease states.

How ProxsysRx makes it easier for 340B hospitals

We guide the health systems we serve through the process steps that they’re required to participate in. Fortunately, those steps tend to be the least burdensome in the process. We handle the rest of the process — painstakingly documenting everything we do, and reporting back to the health systems at every critical step.

Ensuring your specialty pharmacy’s success

Internal operations are only part of the formula for a specialty pharmacy’s success. Which is why we seek inclusion from all PBMs in a health system’s area. We go in-network, securing cooperation and approval from all the major local insurers, for the PBMs that their patients are covered by. What’s more, we seek access from the drug manufacturers for what they’re prescribing — even the most egregiously restrictive manufacturers.

Altogether, ProxsysRx has generated more than $500 million in 340B revenue for the health systems we serve — and yes, we’ve even managed to work successfully with 340B ESP and other manufacturer restrictions. We’ve dealt with restrictions on a manufacturer-by-manufacturer basis, developing the best possible solutions.

Eliminating 340B hospitals’ out-of-pocket costs to build specialty pharmacies

The title of a previous post we’ve published on the topic says it all: “Use Your Hospital’s Retail Pharmacy 340B Drug Savings To Build A Specialty Pharmacy.” ProxsysRx works with the hospitals we serve to improve their 340B programs’ revenue — then implement strategies to fund specialty pharmacies from that improved revenue. The goal is that the hospitals ultimately pay nothing out of pocket to build and manage their own specialty pharmacies.

Finally, unlike other entities in the specialty-pharma managed services space, ProxsysRx supports health systems’ Specialty Pharmacies as a white label service (operated under their corporate brands). As a pharmacy partner, we’ve never lost a health system — for the simple reason that we do what’s necessary to ensure they’re happy with our partnership.

Serving 340B hospitals as their retail pharmacy partner

If you choose ProxsysRx to build-and-own or manage your retail pharmacy, we take the responsibility for generating revenue for you at our own risk. Which means our clients are never exposed to even the potential for loss. Moreover, when we build, own and manage the pharmacy ourselves, we become a tenant in your facility — generating additional revenue through the rent payments we make to you for our space.

ProxsysRx is here to help, if you have questions.

For more information on how to build a successful specialty pharmacy, or for more information on any of the pharmacy-support services we offer, contact Howard Hall. C: 214.808.2700 | howard.hall@proxsysrx.com