3 Legal Questions About 340B and How They Can Impact Your Clients

Top 3 Things You’ll Learn

  • Can 340B covered entities use contract pharmacies?
  • Who will win the reimbursement rate debate?
  • What’s the difference between white bagging and brown bagging?

The financial struggle of hospitals and health systems offering care to rural and low-income areas is in the spotlight in the latest American Hospital Association report. The AHA found that 340B critical access hospitals with 25 beds or less lost $507K annually, and hospitals with a large number of Medicaid and uninsured patients lost nearly $3M annually.

As more and more covered entities enroll in 340B, manufacturers and pharmacy benefit managers see a significant impact on their profits too. As PBMs and pharma pushback on rebates, contract pharmacies, and drug delivery systems in the 340B space, state legislatures and courts are pulled into the debates. Though the process for meeting eligibility criteria for covered entities and each prescription is rigorous, there’s still concern about the program being taken advantage of, and record-keeping and infrastructure issues have made it challenging to prevent double dipping.

Watch these three legal battles to be ready for the next decision impacting your 340B covered entity clients.

340B Legal Battles balancing the scale

Should contract pharmacies get discounted pricing?  

340B requires manufacturers who participate in Medicare or Medicaid to sell covered entities medications at a discount. The goal of the federal program is to make these medications more accessible and affordable to low-income areas and vulnerable populations. Some 340B covered entities have a pharmacy, but they may only be able to service some of their patients at one location. Others may not have an in-house pharmacy. Because of this, the 340B program lets hospitals use contract pharmacies to deliver low-cost medications to patients. This setup can also generate significant revenue for both hospitals and their contract pharmacies.

Some manufacturers want to put a stop to the contract pharmacy practice. In 2020, six drugmakers began to restrict 340B sales to contract pharmacies, and the government responded with letters warning the companies that they would be fined. Shortly after, five of the companies sued. The rulings on these court cases have been split, with half ruling that HRSA has the authority to fine the drugmakers and two declaring they don’t. There’s still no clear federal legal decision on this issue. With Biogen being the latest manufacturer to announce restrictions on 340B pricing for covered entities with outside pharmacies, there are now 19 manufacturers limiting access to the 340B discount.

To protect contract pharmacies, Arkansas passed the 340B Drug Pricing Nondiscrimination Act, which mandates that manufacturers cannot deny contract pharmacies access to 340B medications and pricing. The Pharmaceutical Research and Manufacturers of America filed suit in September of 2021, saying the law is unconstitutional. In March of 2022, the Community Health Centers of Arkansas formally requested to intervene in the lawsuit arguing that manufacturers will profit from vulnerable patients and community health centers if the Arkansas law is struck down.

A final decision, either way, would significantly impact the bottom line of hospitals and health systems using contract pharmacies to serve their patients. Benefit advisors should be ready to jump in with solutions for both possible futures.

How much should a hospital be reimbursed?

PBMs are also pushing back on how covered entities and contract pharmacies are reimbursed for drugs distributed through 340B.  Because covered entities acquire medications for a lower price than other pharmacies, the PBMs want to reimburse those claims at a lower rate. The PBMs argue that their goal is to drive down drug costs for members using these reimbursement rates and that hospitals are double dipping when they get both lower purchasing prices through 340B and regulator network pharmacy reimbursement rates.

But these covered pharmacies argue they should be reimbursed in line with any other in-network pharmacy — especially since they’re delivering these drugs to low-income and vulnerable populations as part of the 340B program. Recent trends with state legislation have shown that states side with the hospitals on this issue. A majority of states have introduced or enacted laws that prohibit PBMs from discriminating against 340B covered entities.

The American Hospital Association has argued that PBMs use unfair tactics when it comes to the 340B program and has asked the FTC for a federal solution. Until the debate is resolved, benefit advisors should pay close attention to the rebates their clients receive now and be prepared to find other opportunities for similar savings in case they lose these rebate dollars.

Who will win the battle to fill specialty prescriptions?

Health systems have begun to add and enhance their specialty pharmacy operations to meet patient needs when delivering high-cost treatments for complex conditions. The drugs are high-touch, high-cost, high-risk medications that need special handling. But PBMs also have specialty pharmacies and steer patients toward using these instead of an outside pharmacy.

The battle for filling these prescriptions brings the practices of white-bagging and brown-bagging center stage for many who might not know about either approach.

White bagging refers to when the PBM dispenses the drug from their pharmacy to the provider to be dispensed to a patient. Hospitals dislike this practice because it raises patient safety concerns caused by delays or disrupted procedures, and they see it as possibly harmful to the hospital/patient relationship. On the other hand, PBMs argue that having the drug dispensed through their pharmacy reduces the cost for the payer.

Brown bagging refers to when the PBM dispenses the drug from their pharmacy to the patient. The patient then brings the medication to the hospital to be administered. Because these specialty drugs are infused or injected, patients need assistance getting treatment. These drugs often need careful handling, and hospitals again raise safety concerns regarding patients handling these drugs.

This year, nearly 20 states introduced legislation to prohibit the practices. But the bills were defeated almost everywhere they were introduced. Benefit advisors must keep a close eye on state legislation entering the docket in 2023 because PBM regulation continues to be top of mind at the state level.

Will there be final answers to these legal questions in 2023?

Many of these 340B legal battles around 340B covered entities have been going on for a few years. But the increased interest in regulating PBMs and the growing lawsuit list means, benefit advisors who work in the hospital space must stay on their toes. These groups are already facing tight budgets as patient volume rates slowly return to normal.

A decision on rebates, contract pharmacies, or specialty drug dispensing could significantly sway a hospital’s or health system’s bottom line. When in doubt, ask our certified 340B experts for advice to keep your clients on the path to success.

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