Industry Voices—It's time to reevaluate 340B intermediary relationships and ask who they serve

Drug prices
The latter half of 2020 has seen the 340B program in turmoil. (Getty/Tero Vesalainen)

The latter half of 2020 has seen the 340B program in turmoil.

Citing compliance concerns, specifically duplicate discounts, several drug manufacturers took steps to reduce contract pharmacy access to 340B-priced drugs. The move has caused an outcry from covered entities, many of which depend on contract pharmacies to expand patient access, particularly in rural areas.

Pro-covered entity advocacy groups such as the American Hospital Association have condemned manufacturer actions. Meanwhile, the Health Resources and Services Administration strongly encourages manufacturers to continue making 340B-priced drugs available to contract pharmacies but believes that it lacks the regulatory authority to enforce this guidance.

As this conflict plays out, it’s drawn significant media attention to current challenges in the 340B program, particularly those involving intermediary organizations and contract pharmacies. It has also illuminated the dominant role that these entities have come to play in a program that was designed to benefit safety net providers who serve vulnerable patients. It’s a key time to ask: Does that role help or harm covered entities and the patients they serve? 

By all rights, the covered entities should hold the power in their relationships. After all, the 340B program was created to support covered entities so they could better support their communities. There is no 340B program without covered entities at the center of it, providing essential care to the patients that need it most.

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Instead, as national retail chain pharmacies have become increasingly powerful participants in the 340B program, that dynamic has changed. In 2010, there were only 1,300 contract pharmacies participating in the 340B program, the vast majority of which were small and independently owned. Now, that number has grown to 28,000, most of which are national chains.

More than half of all 340B contract pharmacies are represented by a handful of major brands. Some of these are vertically integrated with health insurance companies. As a result, they wield massive power over the covered entities with whom they contract. What can a tiny community health center that’s fighting every year to stay afloat say to a multibillion-dollar company?

I’ve heard these stories directly from leadership at covered entities large and small. For instance, in a meeting with an industry group representing covered entities in Florida, we learned that the covered entities were hesitant to express their desires for change to their contract pharmacy chain. They feared that if they spoke up, this household-name company would end the relationship, leaving them without the financial resources the contract pharmacy arrangement provides.

Yet, even as these powerful and influential companies have begun to dominate the program, covered entities have still continued to assume all responsibility for 340B compliance. Some of these intermediaries have now placed covered entities in a particularly precarious position—the covered entity remains responsible for compliance under 340B, and the well-being of their patients, but the intermediary now controls 340B claims data as well as the revenue.

Over the last few years, many retail chain pharmacies, pharmacy benefits managers and third-party administrators have begun imposing higher fees for 340B dispenses, charging the covered entity a percentage of the total amount collected from the health plan and patient instead of the conventional flat fee. All these third parties are taking their fees first, with the covered entity last to receive whatever is left over from the sale of the discounted drug.

This cuts directly into covered entities’ 340B financial resources, funneling cash toward contract pharmacies and vertically integrated health insurance companies instead of the vulnerable communities that the 340B program was designed to aid.

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Without outside pressure, it is not likely that contract pharmacies and third-party administrators will be willing to give up the high fees they’ve been able to push on covered entities. That’s because, as publicly traded, for-profit companies, Wall Street demands their constant growth. This means they will be incentivized to keep extracting more and more fees from their participation in the 340B program, even at the expense of covered entities and their patients.

But the fact is that private, for-profit companies do not require support from either the government or the drug manufacturers. The 340B program was never intended to subsidize their business model, and it shouldn’t be used in that way.

Likewise, covered entities should not be put in the position of fearing these for-profit companies. That harms the covered entities’ valuable mission of caring for their patients.

It’s time for covered entities to reevaluate their relationships with certain intermediary organizations, as they are giving power over the 340B program to big companies that were never intended to benefit from it.

At a time when covered entities and vulnerable U.S. communities are struggling to survive a historic public health crisis, the question is more urgent than ever: Is that in the best interest of covered entities—or their patients?

And if not, then just whom do these relationships serve?

Jeremy Docken is CEO of Kalderos.