Thursday, July 13, 2017

10 Hospitals With 340B Contract Pharmacy Mega-Networks

For a follow-up to The Booming 340B Contract Pharmacy Profits of Walgreens, CVS, Rite Aid, and Walmart, let’s examine covered entities’ contract pharmacy networks in the 340B Drug Pricing Program.

Many covered entities have relatively small 340B contract pharmacy networks. However, some have built large networks seemingly designed not to help needy and uninsured patients, but to enrich hospitals and pharmacies.

The top 10 hospitals, listed below, have built mega-networks averaging 277 pharmacies. The largest retail chains and pharmacy benefit managers (PBMs) are active participants in these networks. That’s right: PBMs have joined the 340B party!

Yesterday, the House Energy and Commerce Committee announced a July 18 hearing: Examining HRSA’s Oversight of the 340B Drug Pricing Program. Also below, I pose four questions that committee members should consider about 340B contract pharmacy mega-networks.


Please see my previous post for details on data.

The table below profiles the 340B contract pharmacy networks for the entire market as of July 1, 2017.

[Click to Enlarge]

Observations on the market:
  • As of July 2017, there are 6,059 340B covered entities with 52,613 contract pharmacy relationships.
  • Of that total, 4,846 (80.0%) have small networks, with fewer than 10 pharmacies. These covered entities account for only 29% of total contract pharmacy arrangements.
  • About 1,000 providers have networks with 11 to 50 pharmacies, accounting for 45% of contract pharmacy arrangements.
  • A mere 156 healthcare providers (2.6% of covered entities with contract pharmacies) account for more than one-quarter of all contract pharmacy relationships. This small group has built networks averaging 89 pharmacies. Of the 156, 98 are disproportionate share hospitals (DSH).
  • Central-fill mail and specialty pharmacies have become much more significant industry participants. For instance, four different Walgreens’ specialty pharmacy locations each act as a contract pharmacy for more than 250 340B covered entities. 

    The table below highlights the 10 DSH entities with the largest 340B contract pharmacy networks. It also shows the most significant partners in each of the networks.

    [Click to Enlarge]

    Observations on the top 10:
    • These 10 hospitals collectively account for 2,267 (4.3%) of the total 52,613 contract pharmacy relationships in our database.
    • Each hospital’s network has an average of 227 pharmacies. (Top 10 range = 164 to 436)
    • The major chains—Walgreens, CVS, Rite Aid, and Walmart—account for 1,751 (77%) of total contract pharmacy relationships. Kroger and Albertsons, the two supermarket chains that are most active in the 340B program, are also part of these mega-networks.
    • The biggest PBMs are becoming far more active as 340B contract pharmacies. The mail and specialty pharmacies of Express Scripts and OptumRx are included in the table above. Express Scripts collectively has more than 1,500 contract pharmacy relationships. (This figure includes all 340B covered entities, not just the top 10.)

    Defenders of the 340B program’s status quo prefer to ignore the data above. Nothing to see here. Move along!

    But the four questions that I asked in 2014 are still relevant:
    • Do covered entities need such large networks to reach their vulnerable patient populations? Covered entities are not required to justify such large networks on the basis of access needs for uninsured, underinsured, and needy populations.
    • To what extent are these providers creating broad networks to generate revenue from as many fully-insured prescriptions as possible? I illustrate the process in this 340B follow-the-dollar flow chart.  As a 2014 AIR340B report sensibly recommended: "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? No one knows. 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.
    • How are 340B entities monitoring these large networks? How (if at all) do they monitor out-of-state mail and specialty pharmacies?
    At next week’s hearing, the Office of Inspector General (OIG) and the General Accounting Office (GAO) will testify about the 340B program. Both agencies have been highly critical of the 340B program’s operations and oversight. I look forward to their comments on the booming contract pharmacy business.

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