Thursday, August 01, 2013

Senator Grassley Grills Walgreens About Its 340B Profits

Yesterday, Senator Charles Grassley (R-IA) sent a letter to Walgreen’s president and CEO, Greg Wasson. In the letter, Senator Grassley asks uncomfortable questions about the drugstore chain’s profits from the 340B drug discount program. Click here to read the full letter. Highlights below.

As I note in The Coming Battle Over 340B Contract Pharmacies, the 340B contract pharmacy market has exploded far beyond what was considered or intended in the drug discount program’s original legislation. It is rumored that a 340B super-regulation will be coming sometime next year. Let’s hope for substantial reform to the out-of-control contract pharmacy marketplace.

BTW, the letter will also make you double-check your LinkedIn profile. See the cautionary tale below.

Using a complex process and independent technology vendors, 340B entities are secretly profiting from drugs that are dispensed by retail community pharmacies and fully paid by third-party insurance. For a summary, see Hospitals Twist Prescription Assistance Program For Their Own Benefit. Two weeks ago, Drug Channels revealed that Walgreens Dominates 340B Contract Pharmacy Mega-Networks.

In his letter, Grassley highlights the fact that 5,400 Walgreens locations are 340B contract pharmacies. (source?) Grassley and his staff are clearly following the dollars. Here are two of their squirm-inducing questions into Walgreen’s activities:
“2) Please provide a summary of all profits generated as a result of participating in the 340B program as a contract pharmacy. When providing this information, please break down the revenue by location and participating covered entity.”
“4) For the top 100 340B drugs dispensed, please provide a breakdown of the financial arrangement, including: how much money goes to (1) the participating covered entity; (2) Walgreens; and (3) any supplemental vendor or contractor that assists in managing the relationship between Walgreens and the covered entity (i.e. split billing software vendor).”
You get the idea. The other six questions are equally pointed.

Grassley’s letter also highlights statements about Walgreen’s 340B activities that appear in the LinkedIn profile of Timothy Hong, a “Senior 340B Inventory and Reconciliation Analyst at Walgreens.” For example, Hong writes: “Optimize client’s 340B program, so they can be more profitable while lowering Walgreen’s liability.” Hmmm.

I presume Hong’s online profile  will vanish soon, so here’s a screen shot. (Click to enlarge.)

Friendly reminder: Check your LinkedIn profile for incriminating statements!


  1. Having been involved with 340B since 1999, it's long overdue the scrutiny being placed upon Walgreens. Their 340B business model is to act as both a contract pharmacy and a 340B technology solutions vendor. The problem is that they are not the latter yet they charge a percentage of net income - which is nothing more than economic diversion - plus a very large dispensing fee.

    I do take strong exception to your characterization of covered entities "secretly" making profit from 340B. First of all, safety net hospitals have every regulatory right to generate financial benefits from the 340B program including mixed use and retail pharmacy settings. There's nothing "secret" about this.

    Secondly, 340B was designed to financially assist the eligible safety net providers. Working with contracted pharmacies has been around for 15 years and has worked well for covered entities, uninsured patients and contracted pharmacies.

    Are you aware that the average safety net hospital in this country has a negative operating margin? Are you aware that revenues from the 340B program (mixed use purchase savings and incremental revenues from retail) place 61% of participating safety net providers back in the black?

    I see nothing wrong about safety net hospitals improving their difficult financial circumstances through this program. I do however have a problem with the nation's largest for-profit retail drug chain store taking a percent of the safety net's "profit" from 340B PLUS a large dispensing fee.

  2. I agree with the comments by Alexander Camby regarding the purpose of the 340B program. There is nothing secret about the financial benefits that accrue to 340B eligible entities as a result of these programs. What is the basis for your comments otherwise? There may be need for reform of the program, but I think your comments about this particular topic are simply incorrect.

  3. I disagree.

    1. There is absolutely no transparency to how 340B entities use any funds. Some may use them appropriately, some may not. No one knows.

    2. Many hospitals have formed mega-networks with 100s of retail pharmacies. There is no transparency or visibility to commercial and Part D prescriptions filled at contract pharmacies. In fact, manufacturers are likely paying duplicate discounts on these prescriptions.

    3. There is no transparency to the criteria that split-billing software companies use to identify eligible patients at contract pharmacies.

    I could go on, but hopefully you understand what I mean. The only disclosures were forced by Senator Grassley's requests, as described in Hospitals' Extraordinary 340B Pharmacy Profits from Insured Patients.


  4. Unfortunately, the term "safety net hospital" does not accurately describe all of the roughly 8,000 unique 340B entities operating 17,000 340B-qualified sites.

    Some 340B entities are very deserving of the term "safety net." Others are highly-profitable, multi-billion dollar health systems, such as Duke University Health System. (See Hospitals' Extraordinary 340B Pharmacy Profits from Insured Patients.)

    yes, I recognize that contract pharmacies have been around since the mid-1990s. The problems started in 2010, when HRSA allowed multi-pharmacy networks. Just look at the spike in contract pharmacies, shown in The Coming Battle Over 340B Contract Pharmacies.

    If what you say about Walgreens is accurate, then you can look forward to a very entertaining blog post when it becomes public!

  5. I believe that the margins derived from these discounts designed to help stretch federal resources, should not be extended to "for-profit" entities without some form of indigent patient counter balance by these for-profits. Since non-profit entities have an obligation to treat all patients regardless of ability to pay, this programs helps offset the treatments/support costs beyond that of just the pharmaceuticals.
    As for determining an entities eligibibilty to participate in the 340B program. Yes the eligibility standards were originally written in 1992, they have been modified a few times by Congress to expand the program as it deemed fit to meet their political policies of both Democrats and Republicans.

    I have seen and read interviews lately that seemed to be opinion intermingled with facts.I believe that this has fueled some in Congress to misunderstand the intent that was written up by those that created the bill in 1992. There are reports by the CBO and OIG, that state that if the 340B laws was completly revoked, the costs to Medicare and Medicaid would go up. I encourage you to reveiw these reports and add them to your reference for your readers.
    I understand that some pharmaceuticals manufacturers believe that their company's financial stability is in jeopardy under this program. So therefore I would like to challenge some of the trade manufacturers to release a report of what their average US 340B discount is compared to their foreign market discounts (I.E. 340B US discount % Vs. EU average discount %).