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?

Originally published on Dec 16, 2022 | Updated on Feb 13, 2023

The financial struggle of hospitals and health systems offering care to rural and low-income areais in the spotlight in the latest American Hospital Association (AHA) 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 are seeing a significant impact on their profits, too. And pushback by PBMs and manufacturers on rebates, contract pharmacies, and drug delivery systems in the 340B space is drawing state legislatures and courts 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.

Keep an eye on these three legal battles to be ready for the next decision impacting your 340B covered entity clients.

340B Legal Battles balancing the scale

Contract Pharmacies: Should contract pharmacies get discounted pricing?  

The 340B program requires manufacturers who participate in Medicare or Medicaid to sell medications to covered entities at a discount. The goal of the program is to make these medications more accessible and affordable to vulnerable populations and patients in low-income areas. Some 340B covered entities have an in-house pharmacy, but they may only be able to service some of their patients at that one location. Others may not have an in-house pharmacy at all. 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 for placing the restrictions. Shortly after, five of the companies sued. With Biogen being the latest manufacturer to announce restrictions on 340B pricing for covered entities with outside pharmacies, 19 manufacturers are now limiting access to the 340B discount.

The rulings on these court cases haven’t been unanimous. Two courts ruled that the Health Resource Services Administration (HRSA) has the authority to fine the drugmakers, and three ruled that they don’t.  In late January, the Third Circuit Court of Appeals decided that three of the drug companies involved are not required to offer 340B discounts to covered entities. With contract pharmacy channels accounting for 30% of 340B prescription fills, this decision could significantly reduce the amount of 340B savings generated by covered entities. Two more federal appeals courts have yet to make rulings.

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.

It remains to be seen how the remaining court cases will be decided. 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 outcomes.

340B Reimbursements: 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 the 340B program. Because covered entities and their contract pharmacies acquire medications for a lower price than other pharmacies, the PBMs want to reimburse those claims at a lower rate. The PBMs argue their goal is to drive down drug costs for members using these reimbursement rates, and that hospitals are double dipping when they get lower purchasing prices through both Medicaid drug rebates and the 340B program.

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 generally 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 AHA 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 those rebate dollars.

Specialty Prescriptions: 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 often have their own specialty pharmacies and steer patients toward those instead of a pharmacy of the patient’s choice.

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 own pharmacy to the healthcare 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 directly to the patient. The patient then brings the medication to the hospital to be administered. Because these specialty drugs are often infused or injected, patients frequently need help from their healthcare provider in actually receiving their 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 legal battles around 340B covered entities have been ongoing for several years. But the increased interest in regulating PBMs, and the ever-growing list of lawsuits, means benefit advisors who work in the hospital space have to 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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