The 340B Program: How Manufacturers, Plan Sponsors, and Brokers Should React

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What is the 340B program?

340B is a government program in the United States designed to connect low-income communities with affordable prescription drugs. 340B is formally known as Section 340B of the Public Health Service Act, originally passed by Congress in 1992. In order for a pharmaceutical manufacturer to participate in the Medicaid program, they agree to provide outpatient drugs to “covered entities”, which are community health centers supporting the underserved, at significantly reduced prices.

How does the 340B program work?

If a drug manufacturer would like their drug to be covered by Medicaid, they enter into a “pharmaceutical pricing agreement” (PPA) with Health and Human Services. The PPA states that in exchange for Medicaid coverage, the drug manufacturer is required to sell outpatient drugs at discounted prices to covered entities. According to 340B Health, covered entities can include “disproportionate share hospitals, children’s hospitals, cancer hospitals…sole community hospitals, rural referral centers, and critical access hospitals.”

Depending on the drug type, the covered entity receives approximately a 25-50% discount on the average manufacturer price of the medication, according to the American Hospital Association. This discount is expected to be reinvested back into the covered entity, in the form of patient support services like prevention programs, home services, housing, transportation, and more.

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Why is 340B increasingly a part of the conversation?

The 340B program began with the requirement that all drugs in the program be filled within a pharmacy that was a part of the covered entity administering the drug. However, not every covered entity had an internal pharmacy. Therefore, the program then allowed covered entities to use one external, for-profit “contract pharmacy” to fill this need.

In 2010, 340B expanded to allow covered entities to use multiple external, for-profit contract pharmacies. This change led to a dramatic increase in the number of players in the 340B program. Drug Channels reports that today contract pharmacies include “an astonishing 30,000 pharmacy locations – half of the entire pharmacy industry.”

Contract pharmacies charge a fee to the covered entity for 340B services. In this way, contract pharmacies can profit significantly from the 340B program. As the program has evolved, contract pharmacies have shifted from small, internal, not-for-profit pharmacies to large, for-profit retail pharmacies.

Another concern with the program is that there is very little regulatory oversight. For example, there are no requirements to track how drug savings are applied back into the covered entity and if those savings are supporting the intended effect of the program. This lack of transparency is a major point of contention with the program and has left players with operational ambiguity, an ability to interpret the rules, and an increased concern of legal action.

Finally, as with much of today’s market, specialty drugs are now key components of 340B, which adds complexity to the program. Hospitals have opened their own internal specialty pharmacies using 340B dollars, but PBMs limit access to these specialty pharmacy networks. This prevents hospitals’ specialty pharmacies from having their intended impact.

What should stakeholders do in reaction to 340B?

The 340B program has become highly visible and is under growing scrutiny. It is therefore a prime target for future legislative and regulatory changes. For this reason, drug manufacturers should follow the changing regulatory landscape for the program. Some manufacturers have preemptively taken counteractions such as requiring on-site pharmacies or limiting the geographic scope of contract pharmacies. At a minimum, manufacturers should work with their internal counsel on a regular cadence to ensure continual compliance with the 340B program.

In addition, drug manufacturers should seek to understand 340B’s impact on their overall market access strategy, their channel dynamics, and their gross-to-net margins. As manufacturers design their copay assistance programs, there should be an understanding of the 340B program and how it will affect leading patient access strategies. In a similar fashion, having a 340B strategy in place before a drug launch will also serve as an important milestone for manufacturers moving forward.

As for payers, brokers and plan sponsors should also seek to understand the 340B market dynamics, specifically in relation to pharmacy benefits managers (PBMs). The pharmacies that now participate in 340B are vertically integrated with PBMs and mail and specialty providers, which creates more complexity and opaqueness to the program. It is thus increasingly critical that brokers and plan sponsors have a transparent pharmacy partner to provide agnostic recommendations as the 340B program continues.

As 340B continues to play out in the pharmacy ecosystem, stay up-to-date by subscribing to the Truveris newsletter – your source of truth for pharmacy insights.

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