Why 340B vendors charging Percentage Of Revenue is wrong.

The United States Congress established the 340B statute in 1992 to help non-profit hospitals fill-in the often-backbreaking revenue gaps inherent to their business models — enabling covered entities to replenish eligible prescriptions at significant savings. Savings which they can then pass-along to their patients, many of whom cannot afford their medications otherwise.

That said, it’s inevitable that 340B hospitals providing complete care to patients in need will be occasionally required to purchase non-eligible prescriptions at the Wholesale Acquisition Cost (WAC). When that happens, as Pharmacy Times noted in a Health Systems Analysis, “The costs of medications paid by these entities, along with the potential costs associated with drug preparation, administration, and/or dispensing of the medications, often exceed reimbursement.”

Consider that scenario for a moment: A hospital already operating on an annual deficit going even deeper into the red simply by providing patients the prescription drugs they need. And that is why, we believe, it’s so wrong for 340B vendors charging Percentage Of Revenue (let’s call it POOR for short) on every retail and specialty drug purchased — 340B or otherwise.

Here’s what that model looks like for 340B hospital clients

These vendors typically charge a fee of around 10%-15% on every prescription filled in the hospital-owned pharmacy they manage. Their general sales pitch to 340B health systems goes something like this: “We’ll take care of prescriptions for all your specialty pharmacy patients — 340B and otherwise — and you’ll make money in the process.”

So let’s apply their business model (splitting the difference between 10% and 15% with a 12.5% fee) to WAC purchases for which a 340B hospital is lucky enough to receive reimbursement that covers 100% of its costs — and efficient enough to earn a small percentage (in our model 2.86%) in the bargain. According to a 2022 article by Wellmark (an independent licensee of the Blue Cross and Blue Shield Association), “the average annual cost for a specialty drug is $84,000” (Source: AARP). That means a 340B hospital paying a 12.5% POOR is losing $8100 on that one prescription alone.

Now, imagine the potential losses for a 340B hospital paying an average 12.5% POOR on dozens, if not hundreds, of specialty pharmacy prescriptions every year.

Should a profitable 340B vendor share none of its clients’ risk?

We have to ask: Why should a vendor profit from WAC purchases at the expense of its non-profit clients, especially when the 340B program’s sole intent is to benefit the hospitals and their patients — not to pad vendors’ bottom lines? This is the very essence of a parasitic relationship. After all, tapeworms consume your valuable nutrients first, and leave you with what remains.

340B hospitals can, and should, pay only a percentage of net cost

Since late 2019, ProxsysRx’s 340B Support program has — between retail prescriptions and specialty pharmacy prescriptions — helped generate more than $500 million in 340B savings for the health systems we serve. We’ve built our business model on two pillars that stand today: 1) We never earn more on any prescription drug than the 340B health systems we serve, and 2) We only get paid when a prescription drug’s cost generates a positive margin for a hospital.

Another reason why charging POOR is wrong

When a 340B vendor makes money off the revenue of every prescription they purchase for 340B hospitals, their incentives aren’t aligned with the health systems they “serve” — and yes, our quote-marks around the word “serve” are intentional. For starters, where is a vendor’s incentive to provide 340B hospitals with proactive consultative support — like, for instance, expert advice on provider prescription behaviors, or prior authorization navigation and support?

ProxsysRx’s 340B team is led by experienced pharmacists with unmatched expertise in (and resources for) identifying affordable, and effective, 340B-eligible prescriptions that cash-strapped hospitals and clinics can offer patients — often at a fraction of WAC pricing. More importantly, we believe that a 340B vendor should never make more money than a client for services rendered, and that patients should ALWAYS benefit from the collaboration between the two. After all, the all-too-common alternative to 340B hospitals providing eligible prescriptions to patients in need is no prescription at all.

ProxsysRx integrates its pharmacy operations with 340B hospital clinics.

When ProxsysRx manages a health system’s 340B program, we build a network of retail and specialty pharmacies that work closely with the hospital’s clinics. After we’ve established strong working relationships between those pharmacies and a hospital’s most-active 340B-prescribing clinics, we continue rolling-on additional clinics within the health system — and often add pharmacy infrastructure to address workflow gaps. We work closely with each clinic, tailoring plans that offer providers, and their patients, the best possible pricing for every 340B prescription — whether it’s from the hospital’s on-site pharmacy or one of the contract pharmacies in its network.

Integrating all of the services connected to your 340B program

No 340B health system can ever reach its full potential without full integration of all the related services it touches. A fully-integrated 340B program includes the following components:

  • An experienced, full-time 340B team
  • Specialized 340B software
  • A comprehensive network of compatible contract pharmacies
  • TPAs aligned with your health system’s mission
  • An onsite 340B outpatient pharmacy
  • A robust Meds To Beds program
  • An onsite 340B specialty pharmacy

To learn more about ProxsysRx’s process for fully-integrating its client health systems’ 340B programs into the continuum of care, please refer to our previous post on the topic.

Have you really evaluated your 340B vendor’s business practices?

If they take a percentage of revenue from every purchase they make on your behalf, not only aren’t they aligned with your best interests, there is a distinct possibility that they are making more from your 340B program than you are — particularly if a significant percentage of your overall spend is for costly specialty pharmacy drugs that aren’t eligible for 340B savings.

Choose A Partner Who’s Committed To Your Mission

If you choose ProxsysRx to support your health system’s mission through 340B, we walk alongside you in sharing the risk — and we never benefit, or profit, when you don’t. Period.

To learn more, schedule a preliminary conversation today. Contact Howard Hall C: 214.808.2700 | howard.hall@proxsysrx.com



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