In order to fully understand how we have gotten to the day when manufacturers are limiting contract pharmacy distribution of 340B drug; we need to understand the history– so let’s take a step back in time. In 1992, Congress created the 340B Drug Pricing Program to protect safety-net hospitals from paying for escalating drug prices by creating a process by which they could purchase outpatient drugs at a discount. The creation of the 340B Program was in response to the 1990 Medicaid drug rebate program (MDRP) created by Congress to lower the costs of pharmaceuticals that were reimbursed by the state Medicaid agencies. Manufacturers were asked to sign a pharmaceutical pricing agreement (PPA), with the HHS Secretary in exchange for having their drugs covered by Medicaid and Medicare Part B.  As part of the PPA, manufacturers agreed to provide up-front purchasing discounts on covered outpatient drugs to safety-net hospitals (covered entities) that serve the most vulnerable patients allowing them to take the savings to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”  The original intent of the 340B program is important to remember.

Congress appointed the department of Health and Human Services (HHS) and the Health Resources & Services Administration’s (HRSA) Office of Pharmacy Affairs (OPA) oversight of the 340B Program. The statute creating the 340B Program is only eight pages long in the 340B Public Health Service Act. This seems extremely brief given the complexity and compliance nuances associated with running a program. By definition, a statute is a written law passed by a legislative body, in this case, Congress, that provides authority and legal basis. At a high level, this statute only addresses twelve components of the program which was intentional by design. These include:

  1. Requirement for 340B participating manufacturers to offer a 340B price
  2. Calculating instruction for determining the 340B price
  3. Listing of eligible covered entities
    1. GPO Prohibition falls under this section as a condition of eligibility for certain hospitals
  4. Prohibition of diversion and duplicate discounts (The compliance foundation for covered entities)
  5. Requirement that covered entities must permit manufacturer and government audits
  6. Covered Entity potential liability to manufacturers for repayment if in violation of compliance
  7. Recertification of eligibility and compliance outline
  8. Requirement for the prime vendor program
  9. Requirement for HRSA to notify manufacturers when covered entities lose eligibility
  10. Mandates for improvement in program integrity
    1. Pricing, overcharges, recertification, database updates and monetary penalties
    1. Gives HRSA the ability to issue regulations in certain areas
  11. Dispute Resolution Process outline
    1. HRSA has the ability to issue regulations in this area
  12. Orphan Drug Exclusion

In reading the list, one should have noticed that language related to contract pharmacy is missing. There is NO requirements in 340B statute for covered entities to purchase drugs directly from the manufacturer or to dispense drugs themselves. In 1992, to participate in the 340B Program eligible covered entities needed to have an in-house retail pharmacy. Contract pharmacy arrangements originated from a Notice issued by HRSA in 1996 entitled “Notice Regarding Section 602 of the Veteran Health Care Act of 10992: Contract Pharmacy Services, “which permitted a covered entity to use a single point for pharmacy services, through an entity-owned pharmacy or a single contract pharmacy. After several years during which HRSA tested the use of covered entities utilization of multiple contract pharmacies, HRSA expanded the scope of the services officially allowing covered entities the option to register multiple contract pharmacies. In 2010, guidance entitled, “Notice Regarding 340B Drug Pricing Program- Contract Pharmacy Services, “replaced the initial 1996 policy. As stated in the Federal Registry the purpose of the Final Notice “is to inform interested parties of the final guidelines regarding the utilization of multiple contract pharmacies and suggested contract pharmacy provisions.” In addition, this guidance provided comprehensive guidelines to govern the operations and compliance of contract pharmacy arrangements for 340B covered entities and their contract pharmacies including the key message that covered entities are responsible for ensuring compliance with all 340B Program requirements when it comes to contract pharmacy arrangements to include diversion prevention, duplicate discount prevention and maintenance of auditable records. According to the guidelines, “A single covered entity that has more than one 340B eligible site at which it provides health care may have an individual contract for each such site or include multiple sites within a single contract pharmacy.” The pharmacy location included in the contract must be listed by name and address. In addition, the contract must be finalized and signed prior to registering the contract pharmacy with HRSA. Lastly, the contract pharmacy must be listed on OPAIS as active to use 340B drug. The guidance includes the 12 essential elements that are recommended to be addressed within all contract pharmacy arrangements to include maintaining title to the drug (ship to, bill to arrangement), comprehensive pharmacy services, freedom of choice for the patient to choose a pharmacy, optional additional services such as delivery services, compliance with federal, state and local requirements, customary business practices, a tracking system that established compliance with diversion and duplicate discounts, auditable records, and compliance with internal and external audits. And there it is, the guidance for multiple contract pharmacies as published in the Federal Register.

In 2014, HRSA provided a program update that emphasized the information in the 2010 guidance to include a reminder for covered entities to conduct independent annual audits, establish oversight, maintain an accurate OPAIS record, develop written policies, and restated the instruction for carve-out Medicaid at contract pharmacies unless arrangements with the state agency have been made and reported to HRSA. In 2015, HRSA released another program update related to processes around a change in contract pharmacy ownership. So, what happened in 2020 when manufacturers started limiting the distribution of drug to contract pharmacies?

Transparency to pharmaceutical manufacturers of how 340B savings are being used has been deemed lacking, however, the reporting of how savings are being used has never been officially required as part of the program. In addition, the number of contract pharmacies registered by covered entities has soared since 2010, resulting in concerns by manufacturers, in addition to providing exorbitant low costs drugs, that they also are providing duplicate discounts in the form of upfront discounted pricing to 340B covered entities and also a backend rebate to state Medicaid agencies. There are also concerns over the lack of oversight with multiple contract pharmacies. Adding to this atmosphere, are the misconceptions floating in the media about how covered entities are not passing the savings of the discounted prices of the drugs on to patients.  May I remind those, that is NOT the intent of the program as was developed by Congress.

The Trump administration played it’s part in history just prior to leaving office, issuing numerous Executive Orders seeking to curb high drug prices. One such Executive Order was filed on October 2019 entitled, “Promoting the Rule of the Law Through Improved Agency Guidance Documents.”  This aimed to prohibit federal administrative agencies from issuing binding rules through guidance documents. Which may have played a role in the new pricing trend by manufacturers in that the savvy lawyers representing the pharmaceutical companies realized that contract pharmacy language was in guidance, not statute. Biden reinstated the original guidance policy which includes that drug manufacturers are violating the 340B statute by restricting covered entity access to 340B discounts for drugs dispensed in the contract pharmacy setting. HRSA is cautious to move forward with the support from the Biden administration due to the number of lawsuits, litigation, and their previously voiced opinion that they lack regulatory authority. So here we are today, in the midst of a national pandemic trying to care for patients while dealing with staffing issues, how to get paid for the care provided, and limited distribution of life-saving drugs from fourteen profitable manufacturers who have chosen to restrict the distribution of entity owned drug to contract pharmacies.

History tells us that now, more than ever, your advocating voices are important to ensure HRSA is given administrative authority to enforce 340B Program compliance and access. Let your voice be heard.

References: February 14, 2022: 340B Winter Coalition 2022 – Congratulations on 30 Years! Continue to Share Your Story By: Jennifer Hagen

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