What is a Contract Pharmacy Under the 340B Drug Program?

By lexutor Nov16,2023

Healthcare providers looking into enrolling in the government’s 340B Drug Pricing Program may be aware of the dispute between pharmaceutical companies and covered entities regarding contract pharmacies. But what are contract pharmacies, exactly? And why are they a source of dispute among pharmaceutical companies and covered entities?


For starters, covered entities are those healthcare providers currently participating in the 340B program. Most of them are designated as disproportionate service hospitals (DHSs), meaning that a disproportionate volume of their services is provided to low-income patients. Many of these entities rely on contract pharmacies to dispense the discount drugs obtained through 340B.


The Basic Concepts of 340B


The 340B Drug Pricing Program is designed to help covered entities increase the services they offer in underserved communities. The services are provided at affordable rates, at least in theory. This is accomplished by giving covered entities access to discounted prescription medications.


Pharmaceutical companies wishing to sell drugs to Medicare and Medicaid enrolled healthcare facilities are required by law to offer the discounts, some of which can exceed 50%. In turn, covered entities are required to either pass the savings on to patients or invest the money in programs and initiatives designed to provide healthcare services to those in need.


When covered entities decide to sell the drugs to patients by way of prescriptions, they have three options: do so through their own pharmacies, contract with retail pharmacies, or a combination of both. That is where contract pharmacies come in.


Selling Drugs on Their Behalf


The contract pharmacy sells discounted drugs on behalf of covered entities. The covered entities maintain ownership of the drugs in question, while the pharmacies handle drug storage and dispensing. Covered entities send their patients to the contract pharmacies to have their prescriptions filled.


Whether or not covered entities choose to sell the drugs at retail or discounted prices has little bearing on their use of contract pharmacies to handle storage and dispensing. In the case of hospitals in particular, it is easier to outsource the task to a contract pharmacy than expand on-site pharmacy space.


Establishing relationships with contract pharmacies is not as easy as you might expect. There are certain rules and requirements that need to be followed. In order to maintain compliance, a lot of covered entities rely on expert 340B consulting services. Florida’s Ravin Consultants is just one example of a firm that helps covered entities navigate the contract pharmacy issue.


Pharmaceutical Companies Don’t Agree


In the early days of the 340B Drug Pricing program, covered entities typically worked with just a single contract pharmacy. Drug companies had no problem selling discounted drugs to covered entities at the time. But things have changed.


For starters, program changes now allow covered entities to work with multiple contract pharmacies. In some cases, these contract pharmacies are purchasing drugs directly from pharmaceutical companies rather than getting them from the covered entities they work with. This has been perhaps the biggest source of 340B controversy in recent years.


Pharmaceutical companies do not agree that allowing contracted pharmacies to purchase the drugs is okay. They believe the law compels them to sell only to covered entities. Ultimately, the question will have to be settled in court.


Under the 340B program, a contract pharmacy sells discounted drugs on behalf of a covered entity that is supposed to be using its savings to improve safety-net healthcare services. Some say the contract pharmacy concept works well. Others say it only compromises program integrity. Until there is a way to quantify whether 340B is fulfilling its purpose, we will never know.

By lexutor

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