What Are Contract Pharmacies Under the 340B Drug Program?

In the 30 years since the federal 340B Discount Pricing drug program first went into effect, hospitals and other covered entities have saved hundreds of billions of dollars on outpatient prescription medications. But the program hasn’t been without its controversies. One of the more pressing currently under review is the use of contract pharmacies.

Federal rules allow 340B program participants to utilize contract pharmacies. However, there are strict rules governing the practice. In recent years, a number of pharmaceutical manufacturers have challenged both those rules and the contract pharmacy principle altogether. They insist that 340B drug savings should not have to be passed on to the contract pharmacies.

How the 340B Program Works

In its simplest form, the 340B drug program requires that pharmaceutical companies offer the same discounted outpatient drugs that government agencies get to healthcare providers enrolled in the 340B program. Those healthcare providers are known as covered entities. In turn, covered entities are expected to use their program savings, and any profits they make from selling discounted drugs, to enhance healthcare services targeting the uninsured and underinsured.

Covered entities can utilize 340B consulting services from firms like Ravin Consultants, to set up their programs and manage them. But they can also handle everything in-house. As long as they follow the rules, they can remain enrolled in the program indefinitely.

How Contract Pharmacies Come into Play

The vast majority of 340B covered entities are disproportionate service hospitals. These are hospitals that offer a disproportionate amount of their services to underserved communities. They may choose to use contract pharmacies to dispense the drugs they purchase under the 340B program.

Why would a hospital hook up with the contract pharmacy? There are plenty of reasons, including the following.

• Expanding Access – A covered entity might want to expand access to the discounted drugs they purchase under the program in an underserved community. Rather than expanding their on-site pharmacy, they rely on a contract pharmacy to handle distribution for them.

• Reducing on-Site Demand – A covered entity may choose to work with a contract pharmacy in order to reduce the demands on its own pharmacy. Hospital pharmacies are not necessarily large organizations capable of handling large volumes of prescriptions. Shifting some of the burden to a contract pharmacy can lighten the load.

• Other Services – A contract pharmacy might offer other services the covered entity is interested in. By partnering with a pharmacy, the covered entity can both dispense the discounted drugs and offer patients those extra services.

Critics of the 340B program have been known to suggest that covered entities are using contract pharmacies as a way to procure more discounted drugs that can be sold at higher profits. Covered entities and their pharmacies typically deny such allegations.

Pharmacies Must Be Registered

Among the many criticisms of the contract pharmacy program is a supposed lack of oversight. But under the law, all contract pharmacies utilized by 340B participants must also be registered with the program. An unregistered pharmacy cannot purchase or sell discounted drugs on behalf of a covered entity.

Furthermore, a covered entity is ultimately responsible for making sure its contract pharmacies comply with the law. This is yet another reason for hooking up with a 340B consultant. Through mock audits and other means, consultants help their clients identify any potential areas of noncompliance.

Through covered entities and contract pharmacies, the 340B discount drug program saves a ton of money on certain outpatient drugs, money that should be going back into enhancing healthcare services for those in need. At least that’s the way it’s supposed to be.