Wednesday, July 16, 2014

One Percenters: The Real Facts Behind Hospitals' 340B Contract Pharmacy Mega-Networks

As a follow-up to yesterday's article on the explosion in 340B contract pharmacies, let's look at the covered entities that build 340B networks.

As the table below shows, just 290 healthcare providers—only 1.2% of all 340B covered entities—account for nearly half of the program's 35,000 contract pharmacy agreements. These providers (mostly hospitals) have built mega-networks seemingly designed not to help needy and uninsured patients, but to enrich hospitals and pharmacies.

Simple math suggests that any contract pharmacy abuses are concentrated with the top 1% of 340B providers. How long will the program’s defenders (and the other 99%) ignore the facts? My questions below highlight the challenges facing manufacturers, managed care, and policy makers.


For background on 340B contract pharmacies, I again recommend the new AIR340B report The Impact of Growth in 340B Contract Pharmacy Arrangements. (Free download.)

To profile the 340B contract pharmacy market, Pembroke Consulting examined the Health Resources and Services Administration’s (HRSA) Contract Pharmacy Daily Report, as published on July 1, 2014. We screened out all contracts that were terminated earlier than 6/30/14 (n=10,466).


The program’s defenders correctly argue that a small minority of 340B covered entities use contract pharmacies. While technically true, this statement ignores the small proportion of hospitals that are aggressively expanding 340B pharmacy networks.

Apexus, 340B’s prime vendor, counts 24,768 total covered entities. Our analysis reveals that 19,967 (80.6%) do not utilize contract pharmacies. (See table below.) An additional 3,505 (14.2%) have small networks, with fewer than five pharmacies. About 1,000 providers have networks with 6 to 25 pharmacies, accounting for one-third of contract pharmacy arrangements.

[Click to Enlarge]

Thus, a mere 290 healthcare providers (1.2% of total covered entities) account for nearly half of all contract pharmacy relationships. Of the 290, 140 are disproportionate share hospitals and 120 are children’s hospitals. This small group has built networks averaging 59 pharmacies, but are as large as 276 pharmacies.


Our new analyses suggest key questions that need to be answered:
  • Do covered entities need such large networks to reach vulnerable patient populations? Covered entities are not required to justify such large networks on the basis of access needs for uninsured populations. A BRG analysis found that just 16% of contract pharmacies were located in low-income areas.
  • To what extent are these providers creating broad networks to generate revenue from as many fully-insured prescriptions as possible? I describe the process in Hospitals Twist Prescription Assistance Program For Their Own Benefit. The new AIR340B report sensibly recommends: "Contract pharmacies should be located where vulnerable patients qualifying for assistance live, rather than in distant communities selected on the basis of how many people have insurance that can be billed at the largest margin above 340B-acquisition cost."
  • How much of the 340B savings are shared with uninsured and needy patients? Covered entities are not obligated to share any 340B savings with financially needy or uninsured patents, nor are they required to disclose how they use profits from the 340B contract pharmacy programs. According to February’s Office of Inspector General (OIG) study, two-thirds of hospitals’ contract pharmacies required uninsured patients to pay the full, non-340B price, even though hospitals were purchasing the drugs at the deeply discounted 340B price. See New OIG Report Confirms Our Worst Fears About 340B Contract Pharmacy Abuses
  • How are 340B entities monitoring these large networks? How (if at all) do they monitor out-of-state mail pharmacies? Walgreens’ Tempe, Arizona, mail pharmacy is a contract pharmacy for 505 different 340B entities.
HRSA was supposed to release long-overdue comprehensive regulations for the 340B program. It’s no longer clear when (or even if) that will occur. HRSA could do a lot to clean up the contract pharmacy abuses by reining in providers with mega-networks.

Meanwhile, will the 99% of 340B entities with no contract pharmacies or smaller networks allow the 1% to continue creating controversy and questions?


  1. Interesting articles and study, bu you do your readers a huge disservice by not noting that AIR340B is 'owned' by PhRMA and a small group of large drug manufacturers. As all us who understand the 340B program know, these firms are the 'losers' under 340B and the 'winners' are the safety net providers and their patients. To be sure, there well may be some abuses but they pale when compared to those of these 'too-big-to-fail drug companies, many of whom have been found by the Federal Government to lack integrity. (

  2. You are making a false equivalency. A dislike of pharma manufacturers doesn't mean that 340B abuses should be ignored or tolerated.

    You and I have a different definition of how so-called safety net providers should behave. I'm personally disgusted that some hospitals take the 340B money and use it to pay multi-million dollar executive salaries. Consider Barnabas Health, a 340B-covered entity. In 2012, its CEO was paid $22 million. (source) Even more shocking is the GAO finding that 2 out of 3 hospitals happily cash the 340B checks, while forcing poor patients to pay full price.

    FYI, here's the membership of AIR340B, which includes more than manufacturers (source):

    Baxter Healthcare
    Biotechnology Industry Organization (BIO)
    Colon Cancer Alliance (CCA)
    Community Oncology Alliance (COA)
    Eli Lilly and Company
    Pharmaceutical Care Management Association (PCMA)
    Pharmaceutical Research and Manufacturers of America (PhRMA)
    Society for Women's Health Research (SWHR)
    The Grange

  3. Valid response! Thanks for correcting my characterization of the AIR340B membership. ( I do wonder about the variability in their contributions...)

    But, respectfully, you and I have a sharply different view of the use and abuse of the 340B program. I urge all to be careful in reining in the bad actors you describe to not 'throw out the baby with the bath water'. Many of these safety net providers survive on very limited budgets and perform a much needed public service. They need the 'Advantage Dollars' they get through 340B discounts!

  4. We agree more than you might think.

    Many 340B entities truly require additional financial support. However, there are also some well-funded health systems that appear to be taking advantage of the program by using 340B revenues in ways that don't benefit needy or uninsured patients.

    To ensure that the neediest patients can access valuable medicines, hospitals should stop hiding behind vague language about “stretching scare federal resources” and be more open to modernizing the 340B program.

  5. I listed all of the names on the web page linked above. If there are other members, then they were not listed on the AIR340B website.

  6. The OIG report (discussed here) clearly documents that the 340B price is not being shared with uninsured patients who use contract pharmacies. See page 14.

  7. Of course within any large subset of any kind, there will always be outliers and abusers. Due to this, and knowing that there are hundreds of hospitals who do use the money for the purpose that it is intended, what do you feel should be done to amend the current 340B program?