The evolving legal and legislative landscape surrounding the 340B Drug Pricing Program has significant implications for hospitals’ specialty pharmacies. Here’s a breakdown of the new developments and their likely impacts:
Recent 340B changes and their impact on specialty pharmacies
1. 340B contract pharmacy restrictions
Drug manufacturers have increasingly restricted the use of contract pharmacies, especially specialty pharmacies, arguing that the 340B statute does not require them to deliver drugs to multiple contract pharmacies. Ongoing litigation has created a significant amount of uncertainty for 340B entities.
That said, the manufacturer restriction which has had the most impact in prompting 340B health systems to build and/or own onsite pharmacies — specialty and retail — is the one limiting 340B eligibility to contract pharmacies within 40 miles of a hospital’s campus.
An on-campus specialty pharmacy can also help many 340B health systems overcome the even more punitive Single Pharmacy restriction — which compels hospitals to select just one pharmacy as their sole Contract Pharmacy eligible for manufacturers’ 340B pricing. Naturally, say manufacturers, that means the single pharmacy must be either retail or specialty. They know that the majority of a hospital’s patients receive prescriptions from the retail pharmacy, BUT that many (if not most) hospitals generate significantly more 340B revenue from specialty drug prescriptions.
The good news for 340B health systems is that there is legal workaround to that restriction. In many states, hospitals can operate specialty pharmacies alongside their retail pharmacies — provided: 1) The two pharmacies are physically located in two separate spaces, and 2) The retail and specialty pharmacies have no overlapping procedures, functions or personnel.
Impact of contract pharmacy restrictions on 340B hospitals:
REVENUE PRESSURE: Specialty pharmacies operated by, or affiliated with, hospitals may lose access to 340B discounts if manufacturers prevail in restricting contract pharmacy arrangements.
REDUCED COST SAVINGS: Hospitals often rely on specialty pharmacy revenue to support uncompensated care. In fact, some 340B hospitals’ specialty pharmacies generate as much as six times the 340B revenue generated by their retail pharmacies. It goes without saying that unchecked manufacturer restrictions reduce margin opportunities from discounted drugs.
NOTE: Despite all the ploys manufacturers have undertaken over the years, every one of the 21 health systems whose 340B programs are managed by ProxsysRx have enjoyed increased 340B savings and revenue since the introduction of the first restrictions in 2020.
OPERATIONAL ADJUSTMENTS: As mentioned earlier, many 340B hospitals have chosen to bring specialty pharmacy operations in-house to retain 340B eligibility. Which is why ProxsysRx’s specialty pharmacy team has sought, and earned, accreditation by both URAC (the Utilization Review Accreditation Commission) and ACHC (Accreditation Commission for Health Care).
Are you considering a specialty pharmacy for your health system?
We’re currently contracted to guide five separate health systems through the process of building, accrediting, launching and managing their own 340B specialty pharmacies. Moreover, the very first specialty pharmacy ProxsysRx guided through that process opened its doors in June, 2024 — and within six months was generating a monthly net income of more than $1 million.
Our process enables the health systems we guide through the process to get In Network for a number of 340B specialty drugs even before their specialty pharmacies are accredited — which helps provide much-needed cash-flow in funding them.
2. Court decisions and legal precedents
Litigation over HRSA’s authority to enforce contract pharmacy arrangements is central to the current landscape.
Two key 340B legal cases:
There have been two very closely-watched federal court cases that address the ongoing dispute between drug manufacturers and the U.S. Department of Health and Human Services (HHS) over the 340B Drug Pricing Program. These cases have major implications for hospitals, clinics and other entities that rely on 340B discounts to support services for low-income and vulnerable populations.
1) Sanofi v. HHS (2023)
Court: U.S. Court of Appeals for the Third Circuit
In this case, the court ruled in favor of Sanofi and the drug manufacturers, finding that the 340B statute is silent on the use of contract pharmacies. The court ruled that, because the statute does not expressly require manufacturers to ship to contract pharmacies, HHS exceeded its authority by issuing a 2020 Advisory Opinion, which clarified that drug manufacturers must offer 340B discounts to covered entities when using contract pharmacies to distribute medications to patients. HHS’s opinion addressed a dispute between drug manufacturers and covered entities over the use of contract pharmacies in the 340B program.
The advisory opinion (which was rejected by the court) solidified HHS’s position that manufacturers must provide discounts even when covered entities use contract pharmacies as part of their distribution channel. The Third Circuit Court’s decision effectively allowed drug makers to limit 340B pricing to only certain pharmacy arrangements.
2) AstraZeneca v. HHS (D. Del. and 3rd Cir.)
Courts: Delaware District & The U.S. Court of Appeals for the Third Circuit
AstraZeneca similarly challenged HHS’s interpretation of the 340B statute in this case. The District of Delaware sided with HHS, but was reversed on appeal. The Third Circuit Court again ruled in favor of the manufacturer, aligning with its ruling in Sanofi v. HHS. In its ruling, the court emphasized that the 340B statute does not clearly obligate manufacturers to provide discounts to all contract pharmacy arrangements.
What’s next for the two cases?
A Supreme Court review is possible, in which case, the high court’s decision could reshape the entire structure of 340B contract pharmacy access.
Potential Impact on 340B Entities
These two rulings have already had significant consequences for many 340B-covered entities:
A. Reduced Access to 340B Savings
340B entities rely on contract pharmacies to extend services, especially in rural or underserved areas. With manufacturers restricting sales through contract pharmacies, many covered entities have experienced a sharp drop in 340B revenue.
B. Increased Administrative Burden
Some manufacturers allow discounts only if the covered entity provides detailed claims data, creating complex compliance requirements. One of the most egregious examples of 340B statute abuse is the 340B ESP website. To learn more about 340B ESP and how your health system can overcome the barriers it imposes, please refer to the following article: Seven Steps For Overcoming Manufacturer Restrictions on 340B Pricing.
C. Service Reductions
Lower 340B savings could force hospitals and clinics to scale back charity care, outreach programs or specialty services.
D. Legal and Policy Uncertainty
As mentioned earlier, this issue may eventually be taken up by the U.S. Supreme Court. HHS may also seek to revise or clarify its regulatory approach, potentially through rulemaking or congressional action.
Legal uncertainty: Until the issue is resolved nationally, the current rulings may lead to fragmented 340B access, higher drug costs for covered entities, and a scaling back of services for vulnerable patients.
Increased Scrutiny: Regardless of court rulings, the spotlight on 340B program integrity means hospitals must tighten eligibility and documentation controls.
Subsequent 340B legal cases:
Novartis Pharmaceuticals Corporation v. Johnson
Eighth Circuit Court (March 2024)
In this case, the Eighth Circuit upheld an Arkansas law that prohibits manufacturers from restricting 340B drug discounts for providers using contract pharmacies. The court found that the federal 340B statute does not preempt such state laws, allowing states to enact their own protections for contract pharmacies.
Novartis Pharmaceuticals Corporation v. Johnson
D.C. Circuit Court (May 2024)
The U.S. Court of Appeals for the D.C. Circuit ruled in this case that the 340B statute does not categorically prohibit drug manufacturers from imposing conditions on the distribution of discounted drugs to covered entities, including through contract pharmacies. The court upheld manufacturer restrictions in the specific cases of Novartis and United Therapeutics, but acknowledged that more onerous restrictions could potentially violate the statute.
Novartis, AbbVie, AstraZeneca and PhRMA (plaintiffs)
Maryland (September 2024)
In this case, Novartis, AbbVie, AstraZeneca and PhRMA attempted to obtain a preliminary injunction against 340B pricing for contract pharmacy arrangements in Maryland. A U.S. District Judge refused to block Maryland’s law ordering drug companies to offer 340B discounts on medications dispensed through third-party pharmacies associated with hospitals and clinics serving low-income communities.
Novartis, AbbVie and PhRMA (plaintiffs)
West Virginia (December 2024)
A federal judge issued a preliminary injunction blocking enforcement of West Virginia’s law that mandated drug makers to provide 340B discounts through contract pharmacies. The court found that the law likely conflicted with federal provisions, particularly concerning manufacturers’ audit rights.
AstraZeneca v. Mississippi
Mississippi (December 2024)
In contrast, a federal judge denied AstraZeneca’s request to block Mississippi’s law requiring manufacturers to honor 340B discounts through contract pharmacies. The court concluded that the state law complemented federal law and was not preempted. Moreover, the judge determined that AstraZeneca did not demonstrate a substantial likelihood of prevailing on the merits of their complaint.
HRSA 340B enforcement shifts
The Health Resources and Services Administration (HRSA) has taken varying stances on 340B enforcement due to the legal challenges and changes in administration policy.
Impact on 340B hospitals:
- Compliance Burden: 340B entities must navigate a shifting regulatory environment, including stricter audits and data tracking.
- Uncertainty in Planning: Legal ambiguity forces hospital systems to be cautious in optimizing their 340B programs. Which is particularly unfortunate, given 340B’s potential in supporting an eligible hospital’s mission as a community health engine.
State-level 340B legal actions
Numerous states have passed laws to protect 340B-covered entities and their contract pharmacies, leading to further legal conflicts with drug manufacturers. At the forefront, Arkansas and Louisiana successfully pressured more than a dozen manufacturers to lift their 340B price restrictions. Following their lead, six more states — Kansas, Maryland, Minnesota, Mississippi, Missouri and West Virginia — enacted similar protection laws in 2024. Three other states (Delaware, Kentucky, and Rhode Island) have passed legislation protecting 340B health systems in at least one chamber of their state legislatures, while 15 more states have introduced similar bills.
Impact on 340B hospitals:
- Patchwork Compliance: Hospitals operating across multiple states must navigate differing rules regarding specialty pharmacy operations and 340B usage.
- Potential Relief: In supportive states, hospitals should be able to maintain access to 340B pricing through specialty pharmacies.
Direct manufacturer distribution models
In the direct manufacturer distribution model, drug manufacturers ship medications directly to the covered entities (or their contract pharmacies) rather than through traditional wholesalers — which sounds like an effective way to streamline the distribution process. Moreover, claim manufacturers, the model enables them to 1) Ensure drugs are only used for eligible 340B purposes, and 2) Validate 340B-eligible sales and reduce duplicate discounts, thereby 3) Helping prevent ineligible patients from receiving discounted drugs.
The problem, of course, is that this places distribution in the hands of the very entities seeking to undermine the 340B program wherever possible — or, to cite the old cliché, it’s a “fox in the henhouse” situation. Offhand, the model poses two obvious threats to 340B hospitals and the patients they serve:
- Access Challenges: Hospital specialty pharmacies may be excluded from accessing certain 340B-priced specialty drugs. After all, as implied earlier, drug manufacturers have placed a special focus on restricting 340B access to their most expensive, and profitable drugs —almost all of which are dispensed by specialty pharmacies.
- Reduced Patient Coordination: This fragmentation can disrupt care continuity, especially for high-touch specialty drugs requiring close coordination between provider, patient and pharmacist.
Technology and 340B data transparency demands
Legal and regulatory scrutiny is prompting demands for better tracking of 340B drug use and patient eligibility — placing ever-higher demands on health systems and specialty pharmacies to maintain compliance. More than ever, hospitals need to be ready at all times to document how their specialty pharmacy programs align with patient care goals and 340B intent.
Moreover, given the ever-increasing complexity involved in dealing with manufacturer restrictions, not to mention the 340B program itself, never has customized, analytics-driven technology been more critical to optimizing prescription savings opportunities.
At the same time, the need for seasoned experts managing your software, your 340B program and your specialty pharmacy have never been greater.
For Further Reading:
Empower Your Health System’s 340B Program With Analytics
Specialized Software Can Only Do So Much For 340B Programs
Specific examples impacting 340b hospitals. Recommended responses.
1. Manufacturer policies and restrictions
While the number is constantly changing, the following manufacturers have imposed (or are currently imposing) some form of restrictions that violate the intent of the 340B law as written: AbbVie, Amgen, Astellas, AstraZeneca, Bausch, Bayer, Biogen, Boehringer Ingelheim, Bristol Myers Squibb, Eli Lilly, EMD Serono, Exelixis, Gilead, GlaxoSmithKline, GSK, Jazz Pharmaceuticals, Johnson & Johnson, Merck, Novartis, Novo Nordisk, Organon, Pfizer, Sanofi, Teva, UCB, United and United Therapeutics.
RESPONSE: In addition to taking necessary actions to overcome manufacturer restrictions, many hospitals are litigating or joining amicus briefs supporting HRSA’s enforcement of their legal rights to 340B discounts.
3. Compliance and operational strategy
Hospitals with in-house specialty pharmacies are in a stronger position than those using contract specialty pharmacies — both with compliance and operational strategy — but it’s critical to stay proactive.
Another tactic for defending programs during audits or legal scrutiny is taking steps to improve Patient-Centered Services, demonstrating that specialty pharmacies provide improved adherence, lower total cost of care and better outcomes supports 340B’s intent. One proven step 340B hospitals can take in that direction is implementing programs to reduce readmissions. At the same time, a 340B program that’s fully integrated into a health system’s continuum of care can improve its overall mission of ensuring better health for the entire community.
Finally, a proven strategy for protecting your specialty pharmacy’s access to 340B discounts is to forge research partnerships with the very manufacturers seeking to restrict its access to eligible prescriptions.
For Further Reading:
Best Practices For A 340B Hospital Looking To Build An Onsite Specialty Pharmacy
How To Achieve Readmission Reduction, One Patient At A Time
How To Use Your 340B Program As a Community Health Engine
Partnering With Manufacturers To Overcome 340B Specialty Drug Restrictions
| Area | Recommendation |
| Legal | Monitor circuit court decisions; prepare for potential SCOTUS outcome |
| Operational | Audit internal 340B workflows for specialty drugs |
| Strategic | Develop long-term plan to bring specialty dispensing in-house |
| Advocacy | Participate in policy discussions through 340B Health or state hospital associations |
Custom Action Plan for 340B Hospital Systems With Specialty Pharmacies
Strategic goal:
Defend access to 340B pricing, optimize operations for compliance, and expand services for long-term sustainability.
Action plan & checklist:
| Category | Action Item | Notes |
| Program Integrity | Maintain robust split-billing and inventory control systems | Use advanced platforms that integrate with EHR and pharmacy dispensing |
| Validate patient eligibility regularly | Ensure definitions align with the 340B statute’s interpretation post-Genesis case | |
| Manufacturer Distribution | Identify all limited distribution drugs and manufacturers | Reach out for inclusion in LDNs if not already listed |
| Partner with GPOs or advocacy groups to negotiate access | Specialty pharmacy consortiums can help negotiate network access | |
| Licensing/Accreditation | Maintain URAC or ACHC specialty pharmacy accreditation | Required by many payers and manufacturers |
| Stay current with state pharmacy board licensing for remote dispensing | Especially if servicing patients across state lines | |
| Data & Reporting | Invest in outcome tracking: adherence, refill rates, clinical interventions | Use these to demonstrate value of your specialty pharmacy program |
| Prepare for HRSA or manufacturer audits with preassembled documentation binders | Include claims logs, patient eligibility proof, and compliance policies | |
| Growth Strategy | Evaluate therapeutic class expansion (e.g., oncology, HIV, MS) | High-impact for both care and 340B savings |
| Align specialty pharmacy outcomes with hospital value-based care goals | Helps secure internal support and external payer contracts |
ProxsysRx is here to help.
To learn how we can help your health system fund, launch and manage a successful specialty pharmacy — while integrating your 340B program throughout the continuum of care — contact Howard Hall any time. howard.hall@proxsysrx.com | 214.808.2700
URAC Accredited
The ProxsysRx specialty pharmacy team is accredited by URAC (Utilization Review Accreditation Commission), the medical profession’s gold standard for third-party validation of high-quality health care.
ProxsysRx is the only accredited company that offers hospitals a comprehensive range of consultative and hands-on pharmacy-related support services.
The single greatest benefit URAC’s validation offers your health system is a significant reduction in the calendar time, and in the personnel time-investment, required to earn the accreditation you need to own a successful specialty pharmacy.
