The federal government’s 340B Drug Pricing Program has been controversial since it was first launched in 1992. One of the main sticking points among drug manufacturers is the requirement to sell discounted drugs to contract pharmacies. They may have a valid point, if a January 2023 ruling by the Third Circuit Court of Appeals is any indication.
The 340B program requires pharmaceutical companies offering discounted outpatient drugs to government buyers to offer the same drugs and discounts to program participants. Furthermore, program rules allow covered entities to utilize contract pharmacies to purchase and dispense cover drugs on their behalf. At issue is whether they are allowed to use an unlimited number of such pharmacies.
Drugmakers Don’t Think So
At the core of the issue is the fact that drug discounts come directly from manufacturers. They are not offered to covered entities by way of federal subsidies. So when drugmakers sell a discounted drugs to program participants, they are earning less revenue and, subsequently, lower profits.
When 340B first launched, it was understood that drugmakers had to accept one contract pharmacy for covered entity. For years, it wasn’t a problem. From 1996 through 2010, one contract pharmacy was the rule everyone abided by. But HHS published new guidance in 2010, guidance that essentially allowed covered entities to utilize an unlimited number of contract pharmacies.
As you might imagine, the number of contract pharmacies registered under the 340B program exploded. Drugmakers responded by saying covered entities were using contract pharmacies to increase their profits in violation of the spirit of the 340B program. Some began creating their own policies limiting the number of contract pharmacies they would sell discounted drugs too.
The Third Circuit’s Ruling
Without getting into all the details, two court cases contesting the validity of unlimited contract pharmacies and the HHS guidelines returned opposite rulings. So the cases went before the Third Circuit for reconciliation. In a nutshell, the Third Circuit ruled that drugmakers do not have to sell discounted drugs to an unlimited number of contract pharmacies.
The court maintained that the simple language of the 340B program rules dictates only that drugmakers sell to one contract pharmacy per covered entity. That means they can sell to more than one if they so choose, but they are not required to do so.
That’s Where We Stand
The contract pharmacy issue continues to be a point of contention between program proponents and critics. As far as where we stand now, the Third Circuit’s ruling is the standard by which the contract pharmacy rule should be applied. It will take a Supreme Court ruling motivated by conflicting rulings from lower courts to change things.
As for covered entities, they might now be left wondering what to do if drugmakers refuse to sell to their contract pharmacies. It would be a good idea to hook up with 340B experts like Ravin Consultants. 340B program consultants can offer the proper guidance to help covered entities navigate the ruling.
All Eyes on Big Pharma
In the meantime, all eyes are now on big pharma and how they will utilize the ruling to their advantage. Some drugmakers could continue selling to unlimited contract pharmacies just to keep revenues flowing in. Others might decide to severely limit the number of contract pharmacies covered entities can purchase discounted drugs through. We will have to wait and see.
It should be noted that the Third Circuit’s ruling only affects one area of contention. There are other aspects of the 340B program that remain a matter of significant debate between drugmakers and program participants.
