Key Stakeholders of the 340B Drug Discount Program

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Summary

Key 340B stakeholders include the federal government, patients, pharmacies, drug manufacturers, PBMs, plans, and the 340B prime vendor.

In this installment of the 340B Insight series, Avalere will provide an overview of key 340B stakeholders.

Who Administers the 340B Drug Pricing Program?

The 340B Drug Pricing Program is administered by the Health Resources and Services Administration’s (HRSA) Office of Pharmacy Affairs (OPA). OPA is currently directed by Dr. Emeka Egwim, who was appointed to the position in February 2022.

Who Receives 340B-Priced Medications?

An individual is considered a patient of a 340B covered entity if the covered entity has an established relationship and maintains records for the patient, and if the patient receives healthcare services from a provider who is either employed by the covered entity or providing healthcare under contractual arrangements with the covered entity. Covered entities determine if 340B discounts are shared with the patient at the point of sale, resulting in lower out-of-pocket costs for patients if discounts are shared.

What Entities Participate in the 340B Program?

Covered Entities

Facilities that qualify for 340B discounts are called covered entities. Covered entities include healthcare providers and organizations that may access 340B pricing for all patients that meet the above patient definition. Eligible organizations include qualifying hospitals and federal grantees. In 2021, there were over 55,000 active 340B covered entities, of which 44% were disproportionate share hospitals (DSH), 18% were non-DSH hospitals (i.e., Critical Access Hospitals), and 29% were other non-hospital grantees.

  • Hospitals: Many 340B covered entities gain eligibility for the program by way of exceeding a DSH threshold of 11.75%, meaning that at least 11.75% of patients served by the hospital have a low income and are uninsured. The Affordable Care Act expanded 340B eligibility to additional categories of hospitals, including freestanding cancer hospitals (DSH > 11.75%), sole community hospitals (DSH > 8%), rural referral centers (DSH > 8%), critical access hospitals (no DSH requirement), and children’s hospitals (DSH > 11.75%). In addition to meeting the relevant DSH percentage threshold, a hospital must be owned or operated by a unit of state or local government; a public non-profit corporation; or a private non-profit corporation with state or local contracts to serve low-income populations. Off-campus outpatient sites owned by covered entities, known as child sites, may also enroll in the 340B program and are eligible for the same discounts as their respective parent site.
  • Federal Grantees: Specific classes of non-hospital health centers and specialized clinics are also eligible for the 340B program and are broadly classified as grantees. Eligible grantees include health centers such as Federally Qualified Health Centers (FQHCs) and specialized clinics (e.g., black lung clinics, Ryan White HIV/AIDS clinics, comprehensive hemophilia diagnostic treatment centers). Similar to hospitals’ child sites, subrecipients of federal grants may also enroll in the 340B program and are eligible for the same discounts as the primary grant recipient.

Pharmacies

340B-enrolled hospitals and grantees may elect to dispense 340B drugs to their patients through in-house pharmacies or via contractual arrangements with contract pharmacies. At the program’s inception, covered entities were allowed to use 1 in-house pharmacy. In 1996, HRSA issued guidance allowing them to contract with 1 retail pharmacy if they did not have an in-house pharmacy. However, in 2010, HRSA issued guidance allowing covered entities to have relationships with an unlimited number of contract pharmacies. In the years since HRSA’s 2010 guidance, the number of contract pharmacy arrangements in the 340B program has grown. As of 2021, there were over 145,000 registered contract pharmacies in HRSA’s Office of Pharmacy Affairs Information System database.

Manufacturers

All drug manufacturers participating in Medicaid and Medicare Part B are required to offer 340B discounts to covered entities. In most cases, wholesalers purchase inventory from manufacturers and sell drugs to covered entities at a specific 340B contract price. Once sold at a 340B contract price, wholesalers issue a chargeback to the manufacturer equal to the difference between the wholesalers’ purchase price and the 340B contract price.

Pharmacy Benefit Managers (PBMs) and Plans

Health plans and PBMs reimburse covered entities for 340B drugs based on average sales price, average wholesale price, wholesale acquisition cost, or other payment metrics based on contracts with each covered entity. In recent years, some payers have sought to align reimbursement more closely to provider acquisition cost.

Apexus (340B Prime Vendor)

The 340B prime vendor, Apexus, is contracted by HRSA to support the 340B program. Apexus acts as a group purchasing organization to negotiate prices below the 340B ceiling price between manufacturers and covered entities and provides technical and compliance support to covered entities.

Learn More

Our next insight will provide an overview of duplicate discounts in the 340B program. As policymakers consider changes to the 340B program, stakeholders can prepare by understanding how shifts in policy will impact their 340B business. Avalere’s 340B subject matter experts continue to track ongoing 340B activity at the state and federal level that could impact the broader 340B landscape. To learn how Avalere can help you qualitatively and quantitatively evaluate the impact of various developments and policy proposals related to 340B, connect with us.

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