Follow the 340B Dollar: Senator Cassidy Exposes How CVS Health and Walgreens Profit as 340B Contract Pharmacies

Two weeks ago, Senator Bill Cassidy—now chair of the Senate Committee on Health, Education, Labor, and Pensions (HELP)—dropped a must-read, eyebrow-raising report on the out-of-control 340B Drug Pricing Program. (Link below.)

The report reveals previously confidential information showing how billions are funneled to health systems and pharmacies—with manufacturers unable to follow the flow.

Below, we use these new disclosures to illustrate the 340B program’s hidden prescription economics for 340B contract specialty pharmacies operated by CVS Health and Walgreens Boots Alliance.

As you can see, the program’s participants earn substantial margins, while plans and third-party payers foot the bill.

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DIG INTO THE SOURCE MATERIAL

Back in January 2024, Senator Cassidy began asking CVS Health and Walgreens Boots Alliance some tough questions about their 340B contract pharmacy profits.

Last month, we received the first results of this inquiry:

• Chair Cassidy Releases Report on 340B Reform, Calls for Congressional Action (press release)

• Congress Must Act To Bring Needed Reforms To The 340B Drug Pricing Program (full Cassidy Report)

As always, don’t just take my word for it—read the source documents and judge for yourself. The report’s Section B provides startling evidence of how two large health systems divert 340B funds to general operating budgets rather than direct the funds to any particular “community benefit” purpose. It’s difficult to distinguish how these “community benefit” dollars differ from the general obligations of any large, nonprofit hospital. As the report makes clear, the line is very blurry.

Section D summarizes how two manufacturers provide billions in discounts, but can’t ensure program integrity. It also documents the rapid growth of 340B contract pharmacy sales compared with direct sales to hospitals and grantees.

FOLLOW THE 340B DOLLAR

Section 11.5 of our Drug Channels Institute’s 2025 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers analyzes contract pharmacy profitability from 340B-eligible prescriptions.

Here, we combine that framework with the Cassidy Report’s disclosures about CVS Health’s contract pharmacy and third-party administration fees.

On pages 128 through 160, the report details how hard Senator Cassidy’s office had to work to extract these details from CVS Health and Walgreens. After last November’s election, both companies became much more responsive—once it became clear that Cassidy would become chair of the HELP committee.

Let’s open the black box on a typical 340B specialty prescription:

• The manufacturer sets a specialty drug’s wholesale acquisition cost (WAC) list price at $5,000. A commercial plan’s PBM pays the specialty pharmacy an ingredient cost reimbursement equal to a 20% discount from the average wholesale price (AWP), or $4,800 [= ($5,000 * 1.2) * (1 – 20%)].

• The drug’s 340B ceiling price reflects a 75% discount from the WAC list price. This figure is roughly equal to the average 340B discount from WAC across a sample of specialty brand medicines. In this example, the 340B ceiling price equals $1,250 [= $5,000 * (1 – 75%)].

• The drug’s manufacturer pays service and data fees of $200 per prescription to the PBM-affiliated specialty pharmacy. A hospital-owned specialty pharmacy does not earn these fees.

• Per page 24 of the Cassidy report, CVS Health’s specialty pharmacy earns 13% of the negotiated commercial reimbursement rate for being a 340B contract pharmacy. In this example, this fee equals $624 per prescription [= $4,800 * 0.13]. This fee is comparable to the information included in the Walgreens 340B contract that I found in 2024.

Scenario [A] in the exhibit below illustrates a health system’s 340B profits from an in-house pharmacy. Scenario [B] shows a PBM-affiliated specialty pharmacy’s profits as a 340B contract pharmacy, while Scenario [C] shows the combined profits from a 340B contract pharmacy with third-party administration.

[Click to Enlarge]

WHO’S MAKING BANK

• Third-party payers fund most of the 340B program’s profits to covered entities and contract pharmacies.

  Since 340B prescriptions at contract pharmacies cannot be identified at the time of adjudication, commercial plans and Medicare Part D are responsible for the balance of the profit earned by the 340B hospital and the contract pharmacy. In this example, the net prescription cost to the payer is the pharmacy reimbursement from the PBM (Item [3] + Item [4]) plus PBM administration expenses (not shown above), minus the portion paid by the patient (Item [15]).

  Plans often lose the value of rebates on these prescriptions. That’s because PBMs may exclude 340B prescriptions from rebate eligibility. See the example in Follow the 340B Prescription Dollar: How PBMs Profit from 340B Contract Pharmacies.

• Patients covered by commercial insurance often fund a significant portion of 340B profits.

  Meanwhile, patients—often unknowingly—are footing part of the 340B bill themselves, thanks to coinsurance and deductibles based on the full list price for drugs that 340B covered entities purchase at discounted prices. Thus, an insured patient could pay thousands of dollars out of pocket—even as the 340B hospital and its contract pharmacy generate substantial profits from that prescription.

  In the example above, the commercially insured patient covers one-third or more of the total profit earned by the 340B hospital and its contract pharmacy. (See Item [15].) If the patient has a high-deductible plan, they could contribute 100% of the 340B savings.

  Note that the example above illustrates a single prescription. Many patients also have annual deductibles that would increase the patient’s contribution to the 340B industry participants.

• PBM-affiliated specialty pharmacies share in a covered entity’s 340B discounts.

  The Cassidy Report confirms that contract pharmacies are compensated with a percentage of the gross reimbursement. Consequently, specialty pharmacies can earn profits (Item [13]) that are three to four times larger than a specialty pharmacy’s typical gross profit from a commercial third-party payer.

  Of course, no one knows whether these companies keep the profits or share them with payers by accepting lower reimbursement rates for preferred participation in narrow networks.

  Meanwhile, a 340B hospital earns thousands of dollars from a specialty prescription that it never dispenses. As shown in Item [11], the health system earns $2,429 from the prescription in this example. Hospitals have long relied on 340B contract pharmacies to profit from prescriptions dispensed by external pharmacies—especially when a hospital has been excluded from payers’ or manufacturers’ networks.

• Thanks to vertical integration, third-party administration adds millions in additional fees.

  Organizations that own the largest contract pharmacy participants also operate third-party administrators (TPAs) of 340B contract pharmacy services. Walgreens owns 340B Complete, which it operates only for its own pharmacies. CVS Health owns Wellpartner and requires covered entities to use it for 340B drugs dispensed through CVS retail pharmacies.

  Consequently, CVS and Walgreens earn additional fees through their 340B TPA businesses. Why settle for one profit stream when you can have two?

  Per page 28 of the Cassidy report, CVS Health’s Wellpartner business charges an administrative fee in the first year of a TPA contract that starts at the greater of (1) $4, or (2) 10% of the total prescription reimbursement minus the 340B ceiling price. By the third year of a contract, the second component rises to 14% of the total prescription reimbursement minus the 340B ceiling price. In this example, the per-prescription fee for the third contract year equals $497 [= ($4,800 – $1,250) * 14%].

  In 2023, Wellpartner earned $382 million in total TPA fees.

  Walgreens didn’t disclose its total fees. However, it charges covered entities an administrative fee of 8% to 20% of the contracted reimbursement rate (item [3]).

• Hospitals earn the greatest gross profits from direct specialty fulfillment.

  Scenario [A] shows the increasingly common situation when a health system operates an internal specialty pharmacy.

  If a hospital used its own internal specialty pharmacy, then its gross profit would equal $3,550 (item [3] minus item [7]). This outsized margin has sparked a gold rush among hospitals to launch their own specialty pharmacies. See the details in Section 3.3.5 of DCI’s 2025 pharmacy/PBM report.

  Note that this profit figure excludes the hospital’s pharmacy operating expenses, either as direct expenses or as fees to third-party operators owned by big healthcare conglomerates. Examples include Shields Health (owned by Walgreens), CarePathRx (partially owned by Cigna’s Evernorth business), and CPS Solutions (owned by UnitedHealth Group). A hospital’s internal specialty pharmacy can coexist with external 340B contract pharmacies.

FINAL THOUGHTS

Cassidy’s report doesn’t just confirm what many of us have long suspected. It shows, in painful detail, how the 340B program has morphed from a safety-net mechanism into a high-margin revenue stream for hospitals, pharmacies, and their corporate cousins.

The report concludes with five common sense suggestions for Congressional action:

• Requiring covered entities to provide detailed annual reporting on how 340B revenue is used to ensure direct savings for patients, providing a more transparent link between program savings and patient benefit.
• Addressing potential logistical challenges caused by increased administrative complexity, leading to burdens that may impede patient benefit from the program.
• Investigating the types of financial benefits contract pharmacies and TPAs receive for administering the 340B Program to ensure that increasing fees do not disadvantage covered entities and patients.
• Requiring transparency and data reporting for entities supporting participants in the 340B Program (i.e., contract pharmacies and TPAs).
• Providing clear guidelines to ensure that manufacturer discounts actually benefit 340B-eligible patients, including examining legislative changes to the definition of eligible patient and contract pharmacies’ use of the inventory replenishment model.

Last December, I predicted that we may finally see 340B reform in 2025. The Cassidy report brings us one important step closer.