Manufacturers Strategies Leading Changes to 340B Contract Pharmacy Arrangements

AstraZeneca and Eli Lilly are taking aggressive steps to reduce the risk of paying duplicate discounts in the 340B drug program and are challenging the contract pharmacy system currently in place. The 340B program provides covered entities with significant discounts on pharmaceuticals. Pharmaceutical manufacturers are required to participate in the 340B program as an OBRA 90 Medicaid rebate requirement.

On September 1, 2020, Lilly stopped providing hospitals with 340B discounts if the hospital was ordering product for a contract pharmacy versus dispensing the product at an in-house pharmacy. Lilly’s insulin products were excluded from this arrangement. Similarly, AstraZeneca announced that changes would go into effect on October 1, 2020. Both manufacturers will continue to provide discount pricing to covered entities and their child sites. For covered entities that do not have an on-site dispensing pharmacy, AstraZeneca noted that covered entities can arrange for a contract pharmacy of their choosing to receive 340B pricing on behalf of the covered entity. Lilly has similarly announced that covered entities can apply for an exception if they do not have an in-house pharmacy.

Based on their new tactics, these manufacturers are challenging the proliferation of contract pharmacy arrangements. Contract pharmacy arrangements have ballooned in the past few years, and approximately 28,000 pharmacies act as contract pharmacies for at least one covered entity, with some acting as contract pharmacies for multiple covered entities. Walgreens alone has over 6,000 locations acting as 340B contract pharmacies. In total, about half of all US pharmacies serve as a contract pharmacy for at least one covered entity.

Before 1996, a covered entity had to have an in-house pharmacy to participate in the 340B drug program. In 1996, covered entities without an in-house pharmacy could set up an arrangement with a single contract pharmacy. However, starting in 2010, covered entities were permitted to expand their reach through the establishment of multiple contract pharmacy arrangements with an unlimited number of pharmacies. Based on the recent manufacturer-announced changes, it appears that manufacturers are seeking to return to the pre-2010 days of a single contract pharmacy arrangement.

By continuing to provide discount pricing directly to covered entities and their child sites, manufacturers view themselves as still participating in the program. HRSA may feel otherwise. In a September 21st letter to Lilly, HRSA notes that they have significant concerns with Lilly’s new policy but has yet to make a final determination regarding potential actions. The letter goes on to state that a lawsuit against Lilly is one potential consequence. Will Lilly and AstraZeneca continue to fight against providing 340B discounts to contract pharmacies? Will other manufacturers follow their lead? Did this letter prevent or slow other manufacturers from implementing similar policies? Will HRSA sue the manufacturers? As Lilly and AstraZeneca leap boldly into the future, we await the effects that this change will have not only on other manufacturers, but also on the 340B industry as a whole.

Posted September 30, 2020

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