Wednesday, July 18, 2018

Specialty Pharmacies and PBMs Penetrate the 340B Program—And How Manufacturers Should Respond

In two recent Drug Channels articles, I have documented the phenomenal growth in pharmacies participating in the 340B Drug Pricing Program and the superior profits that pharmacies earn from the program.

Today, I turn to the less well-known role of specialty pharmacies and pharmacy benefit managers, which are now significant participants as 340B contract pharmacies. Below, we present our first exclusive analysis of how independent and PBM-owned specialty pharmacies have deepened their relationships with hospitals and other 340B covered entities.

We estimate that nearly 10% of all specialty prescriptions are dispensed by 340B contract pharmacies, which makes this channel one of the fastest-growing components within the 340B program. Despite this growth, pharmaceutical manufacturers have limited transparency into the behavior of these 340B contract pharmacies. Drug makers therefore pay 340B discounts on prescriptions for which they also pay commercial, Medicare Part D, and managed Medicaid rebates.

Below, we explain why manufacturers should have access to the prescription-level data that would permit the identification of 340B claims. Playing Where’s Waldo? for 340B claims is no way for this multi-billion dollar program to operate.

SPOT THE FACTS

For context, please see our two previous analyses of contract pharmacies in the 340B Drug Pricing Program:

THE INCREDIBLE 340B CHASE

Average costs for a specialty drug are typically more than $3,000 per prescription. In some cases, they can be much higher.

The 340B program’s strange economics therefore make specialty drugs especially profitable for covered entities. It’s one reason that hospitals and health systems are opening in-house specialty pharmacies, as I discuss in Why Manufacturers and PBMs Should Worry About the Growth of Hospital-Owned Specialty Pharmacies.

External contract pharmacies can also generate oversize profits from specialty drugs dispensed under the 340B program. Participation in the 340B program shifts a pharmacy’s profit source from dispensing spreads to payments from a 340B-qualified entity. Pharmacies are sharing in the savings generated by the 340B program and can earn profits that are three to four times higher than the profitability of a typical third-party-paid specialty prescription.

Consequently, the largest specialty pharmacies are now active participants in the 340B business. The table below summarizes the involvement of the top five specialty pharmacies, as identified in The Top 15 Specialty Pharmacies of 2017. For comparison, the table also includes non-specialty pharmacies operated by the parent companies of the specialty pharmacies.

[Click to Enlarge]

Some observations:
  • As you can see, the top five largest specialty pharmacies operate a combined 183 locations that act as contract pharmacies for 340B covered entities. There are a total of 8,589 contractual relationships.
  • Each specialty pharmacy location has dozens or hundreds of contract pharmacy relationships. This makes sense because specialty pharmacies typically fill prescriptions from a central location and then deliver the products directly to the consumer’s home. For example, the typical CVS Specialty location has agreements with 214 covered entities.

    Walgreens has more than 90 stand-alone local community specialty pharmacies that are branded as “Community, A Walgreens Pharmacy.” On average, each location acts as a contract pharmacy for seven 340B covered entities.
  • The table also identifies the retail and mail pharmacies operated by the parent organizations of the largest specialty pharmacies. Data for these pharmacies appear in italics. These locations have many fewer relationships. The non-specialty pharmacies of CVS and Walgreens have three or fewer relationships per location.
In addition to the five companies shown in the table above, many other specialty pharmacies participate as 340B contract pharmacies. These include Kroger Specialty Pharmacy, Avella Specialty Pharmacy, Biologics, U.S. Bioservices, BioPlus, and many more.

Oddly, no public company provides information about its contract pharmacies’ participation in the 340B program.

WHERE’S WALDO’S PRESCRIPTION?

Manufacturers cannot readily identify which prescriptions have been dispensed to 340B patients by a contract pharmacy. This situation is ludicrous given the concentration of specialty dispensing and the nature of manufacturer relationships with specialty pharmacies.

The 340B statute prohibits manufacturers from having to provide a discounted 340B price and a Medicaid drug rebate for the same drug. The prohibition on duplicate discounts applies to traditional Medicaid arrangements as well as Medicaid programs operated by managed care organizations, also known as Managed Medicaid.

Alas, it can be difficult to impossible for manufacturers to identify prescriptions for Managed Medicaid beneficiaries in contract pharmacy arrangements, especially with the use of virtual inventory. Some states, e.g., Oregon, have developed methodologies that permit retrospective identification of these claims. Many states lack such processes, which is one reason the recent GAO report recommended changes in HRSA’s oversight of duplicate discounts at contract pharmacies.

Manufacturers also often end up paying rebates on prescriptions paid by a commercial or Part D plan for a drug that a covered entity purchased at the 340B discounted price. Unlike the provisions for Medicaid, there are no statutory protections to prevent such double dipping for prescriptions paid by commercial third-party payers or Medicare Part D plans.

Manufacturers negotiate with PBMs and payers for contract language that prohibits duplicate discounts, but there is no way to identify these claims. Manufacturers have incentives to reduce managed care formulary rebates to Part D plans and commercial payers so as to offset paying duplicate discounts on the presumed 340B-dispensed claims.

A better alternative would be for specialty pharmacies to provide transparency about the particular prescriptions that a covered entity has retroactively claimed for a 340B discount. There is no obvious barrier that prevents specialty pharmacies from providing these data.
  • Unlike a retail pharmacy, a specialty pharmacy will often submit to the manufacturer detailed, patient-specific data for each prescription dispensed. Therefore, manufacturers can reasonably require that all specialty pharmacies with such agreements provide data on all 340B prescriptions. 
  • 340B-eligible prescriptions are typically not identifiable until long after the claim has been processed. That's because when a prescription is dispensed, a pharmacy may not know if the prescription will be converted to a 340B claim by a covered entity. At some point, however, the pharmacy will know with certainty which prescriptions have been converted from third-party-paid claims to a 340B prescription for which the pharmacy earned a fee from a covered entity.
    • The top four specialty pharmacies are all owned or co-owned by a PBM. When a prescription is dispensed by a PBM’s in-house pharmacy, PBMs should always be able to provide a manufacturer with prescription-level information about claims from the PBM’s internal pharmacy.
    Apparently, some PBMs won’t provide claim-level 340B data to the manufacturer. However, the growth of the 340B program means that these data should be a non-negotiable component of all managed markets contracts. Given the 340B program’s growth, manufacturers should have complete transparency into specialty prescriptions dispensed by 340B contract pharmacies.

    Of course, it’s also possible that the specialty pharmacies and PBMs don’t want the 340B prescriptions to be found—just like Waldo.

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