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Are PBMs Unjustly Profiting from 340B Drug Pricing Program?

June 2, 2022
Revcycle Intelligence
By Victoria Bailey

The Community Oncology Alliance (COA) has raised concerns that the high volume of contract pharmacies participating in the 340B drug pricing program allows pharmacy benefit managers (PBMs) to profit from the savings instead of directing savings toward underserved patients.

In an amicus brief filed with the US Court of Appeals for the Seventh Circuit, COA sided with the drug company Eli Lilly in its case against HHS. The organization asserted that the 340B program and its original intentions have been warped due to pharmacies contracting with PBMs.

Under the 340B program, eligible hospitals can purchase discounted drugs from participating pharmaceutical companies. The hospitals are expected to use the savings they gain through the program to improve patient care and lower healthcare costs for underserved populations.

Contract pharmacies play a crucial role in offering access to discounted drugs, as not all safety-net hospitals operate in-house pharmacies.

However, COA’s amicus brief noted that the exponential growth in contract pharmacies is problematic.

Many contract pharmacies are affiliated with or owned by PBMs—fiscal intermediaries that administer and manage drug benefits on behalf of health insurance plans. These for-profit entities are retaining the 340B discounts as profits instead of directing them to patients, COA alleged.

“Parasitic, money-hungry PBMs have taken over and completely mutated the 340B program through contract pharmacy arrangements,” Ted Okon, executive director of COA, said in the press release. “For-profit PBM contract pharmacies siphon 340B discounts away from patients in need and the grantees that serve them, and instead line the balance sheets of some of the largest, most profitable corporations in our country.”

According to the amicus brief, the leading PBM-owned or affiliated contract pharmacies are estimated to retain $2.58 billion in 340B discounts in 2022.

The COA brief cited reports from CVS Health and Walgreens Boots Alliance in which the PBMs stated that 340B profits are critical to their business operations and that restrictive contract pharmacy policies would negatively impact their bottom lines.

COA argued that a lack of oversight from the Health Resources and Services Administration (HRSA) on the use of contract pharmacies has allowed PBMs to exploit 340B savings.

In addition, the brief alleged that the profit opportunities presented by the 340B program have incentivized PBMs to drive out non-affiliated pharmacies, impacting patient and provider access to discounted drugs.

PBMs have engaged in exclusionary tactics to direct patients toward the pharmacies that they own, COA said.

“The 340B program exemplifies how good ideas, no matter how well-intended, can easily go bad if they fall into the wrong hands and are abused,” Okon stated. “PBMs have found their newest victims in the 340B program, and patients with cancer and other serious diseases are left suffering because of it.”

COA’s amicus brief offers a new perspective on the ongoing debate about drug companies limiting drug discounts through the 340B program.

As of May 2022, 16 drug companies have imposed drug discount restrictions, such as only providing discounts at a single contract pharmacy for hospitals that do not have an in-house pharmacy.

Data from 340B Health has shown that these limits impact patient access to low-cost drugs and have led to over $2 million in losses for safety-net hospitals.

Safety-net hospitals and rural critical access hospitals largely rely on their contracts with community pharmacies, as many do not have in-house pharmacies.

HRSA has notified drug companies to restore 340B pricing, but the manufacturers—including Eli Lilly—are fighting back in court. COA has sided with Eli Lilly, claiming that the drug companies are in the right to restrict discounts from contract pharmacies due to their involvement with PBMs.

Recently, the American Hospital Association (AHA) urged the Federal Trade Commission (FTC) to increase surveillance of PBM practices. The trade organization stated that PBMs have created policies that discriminate against 340B hospitals by paying them less than non-340B hospitals for certain outpatient drugs.

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