The 340B Drug Pricing Program was established in 1992 to enable certain safety-net providers, known as covered entities, to purchase covered outpatient drugs at substantial discounts from pharmaceutical manufacturers. Covered entities can dispense 340B drugs to their patients in-house or through arrangements with contract pharmacies. 2010 guidance from the Health Resource Services Administration (HRSA) permits covered entities to have an unlimited number of relationships with contract pharmacies. Since this guidance was released, the number of contract pharmacy arrangements has increased by more than 4,000%.

Avalere analyzed the affiliations of contract pharmacies with pharmacy benefit managers (PBMs) in the aftermath of the Federal Trade Commission’s (FTC’s) finding that mail-order pharmacies owned by the three largest PBMs now account for nearly three-quarters of dispensing revenue in the United States. The FTC report questioned whether “vertically integrated PBMs may have the ability and incentive to steer scripts toward their own affiliated businesses,” which may be an important consideration in the 340B context as well.

Previously, Avalere examined the connection between contract pharmacy locations and the income and demographics of the patients served, as well as types of 340B pharmacies. For this analysis, Avalere assessed the footprint of mail-order and specialty pharmacies in the 340B program. Understanding their role in the program is important at a time when policymakers are debating the merits of restrictions on 340B contract pharmacy relationships.

Contract Pharmacies’ Relationships with PBMs

Policymakers at the state and federal levels have introduced a range of bills focused on the 340B program and PBM reform in recent legislative sessions. Avalere’s analysis identified that 340B contract pharmacies were more frequently vertically integrated with a major PBM (“vertically integrated”) or contractually affiliated with a major PBM (“affiliated with a PBM”), than not. Specifically, 69% of 340B contract pharmacies were associated with a PBM, either vertically integrated with a PBM (53%) or affiliated with a PBM (16%). In contrast, only 16% of non-340B pharmacies were vertically integrated or affiliated with a PBM (Figure 1).

Figure 1. Relationship of Pharmacies to PBMs, by 340B Contract Pharmacy Status

Note: Counts were rounded for reporting purposes; Avalere identified approximately 34,800 contract pharmacies in OPAIS which were assessed for PBM ownership or affiliation; see methodology section for more detail.

Mail-Order and Specialty Pharmacies as Contract Pharmacies

To examine what types of pharmacies had arrangements with 340B parent sites in 2023, Avalere matched approximately 29,000 contract pharmacies between HRSA’s Office of Pharmacy Affairs Information System (OPAIS) and National Council for Prescription Drug Programs (NCPDP) data files. Within that group, 85 (0.3%) were mail-order pharmacies and 275 (1%) were specialty pharmacies, while most (93%) were community/retail pharmacies.

Mail-order and specialty pharmacies offer centralized services and may contract with numerous covered entities and ship medication across the country. Even so, mail-order and specialty pharmacies accounted for 29% (over 60,000) of all contract pharmacy arrangements with 340B parent sites, while they represented just over 1% of contract pharmacy locations (Figure 2).

Figure 2. Parent Site Relationships with Contract Pharmacies, By Pharmacy Type

CP: Contract Pharmacy
Note: Counts were rounded for reporting purposes; Avalere matched approximately 29,200 contract pharmacies between OPAIS and NCPDP data to assess pharmacy type (approximately 5,600 contract pharmacies were not matched between data sources); see methodology section for more detail

Additionally, based on the FTC finding that all six of the largest PBMs are vertically integrated downstream, Avalere assessed the share of mail-order pharmacies that were vertically integrated and found that 43% (37) of the 85 mail-order 340B contract pharmacies were vertically integrated with a PBM.

Mail-Order Pharmacies by State

At a time when Congress is considering broad 340B reform, state legislatures are also debating bills related to PBMs that may affect 340B contract pharmacies. Some states are advancing legislation that would ban PBMs from requiring patients to purchase drugs exclusively through a mail-order pharmacy or at a vertically integrated pharmacy. If enacted, these reforms could change how eligible patients of 340B-covered entities access prescribed drugs, as well as the 340B contract arrangements between covered entities and pharmacies themselves. Opponents of the bills assert that mail-order pharmacies save costs and provide better access for patients in rural areas who do not have a pharmacy nearby.

In a previous analysis, Avalere found that 340B pharmacy arrangements are disproportionately in non-rural areas. Based on the proposed legislation and disproportionate share of arrangements with mail-order pharmacies described above, Avalere analyzed mail-order 340B contract pharmacy arrangements at the state level. While the number of mail-order pharmacies and mail-order pharmacy arrangements per 340B parent site varied by state, the arrangements did not appear to be correlated with the proportion of states’ rural residents. For example, AZ, IL, and IN had the highest number of 340B mail-order pharmacy arrangements (with over 3,000 mail-order contract pharmacy arrangements in each state). However, AZ, IL, and IN have 11%, 13%, and 29% rural residents, respectively, compared to the national median of rural residents of 27%.

Observations Among 340B Parent Sites by Type of Facility

Safety-net providers may qualify for the 340B program if they represent a 340B-eligible site type (e.g., Disproportionate Share Hospitals [DSHs], Children’s Hospitals [PEDs], and Rural Referral Centers [RRCs]). Different parent site types base their decisions on which pharmacies to contract relative to the needs of the site’s patient population, among other factors.

For each type of 340B site, Avalere assessed the frequency of parent sites contracting with a mail-order or specialty pharmacy, as well the average number of relationships with pharmacies that are vertically integrated or contractually affiliated with a PBM. DSH, PED, and RRC parent sites contracted with at least one mail-order or specialty pharmacy more often than other types of facilities (Figure 3). DSHs, PEDs, and RRCs also had more vertically integrated pharmacy relationships compared to other covered entity types, on average (Figure 4).

Figure 3. Parent Sites with Relationships to at Least 1 Mail-Order or Specialty Pharmacy

Note: The figure above shows a subset of covered entity types; Parent site counts were rounded for reporting purposes
CAH: Critical Access Hospital; CH: HRSA-Funded Health Center; RWII: Ryan White Part B

Figure 4. Average Number of Contract Pharmacy Relationships Per 340B Parent Site

Note: The average number of CP relationship per parent site was calculated based on the site having at least one CP relationship; not all parent sites have a relationship with each CP type. Counts were rounded for reporting purposes

What’s Next

The growth of the 340B program, coupled with differing stakeholder views on program intent, have led to increased interest in legislative solutions both at the federal and state levels. As stakeholders discuss options to reform the 340B program, data around the types of pharmacies participating, their integration with PBMs, and their respective business models can be used to inform the policy debate.

Avalere experts in the 340B program and drug pricing help clients understand how policy changes and market trends could affect their business strategies. To learn how Avalere can help you shape your 340B policy priorities, connect with us.

Methodology

Avalere used HRSA’s OPAIS and the NCPDP pharmacy database to analyze contract pharmacy relationships among 340B parent sites and the extent of contract pharmacy relationships with pharmacies that were vertically integrated with a PBM or contractually affiliated with a major PBM.

To identify contract pharmacies vertically integrated with a PBM, Avalere assessed contract pharmacy integration among seven major PBMs. Contract pharmacies were identified as vertically integrated if they were owned by or in the same corporation as a PBM. To identify contract pharmacies contractually affiliated with a major PBM, Avalere identified PBM-affiliated large chain pharmacies, based on desk research and company press releases, among three large chain pharmacies (each with over 750 contract pharmacies) that are not vertically integrated with a PBM, but include one or multiple PBM affiliations.

Avalere assessed the number of active contract pharmacy relationships among 340B parent sites in 2023. Contract pharmacy relationships among child sites were not included in the analysis.

Avalere characterized the pharmacies involved in these contract pharmacy relationships using data from NCPDP. The linkage to NCPDP was made through a “fuzzy matching” of pharmacy names and addresses available in OPAIS data and in the NCPDP data as these data are not well standardized in either file. Using this approach, Avalere identified approximately 84% of the pharmacies in the OPAIS data in the NCPDP data. Linkage to the NCPDP data allowed for analysis of pharmacy characteristics including chain, independent, mail order, and specialty.

Funding for this research was provided by Community Oncology Alliance. Avalere retained full editorial control.