Thursday, July 18, 2019

Walgreens, CVS, and Walmart Lead the 25,000 Pharmacies Now Profiting From the 340B Program

It’s time for our annual look at the booming pharmacy component of the 340B Drug Pricing Program. Our latest, exclusive analysis finds that:
  • About 25,000 pharmacy locations now act as contract pharmacies for the hospitals and other healthcare providers that participate in the 340B program. Contract pharmacies now account for almost 40% of all pharmacy locations in the United States. Wow.
  • The total number of pharmacy locations has grown by 14% over the past 12 months and has almost doubled since 2013.
  • Six large retail chains—Walgreens, CVS, Walmart, Rite Aid, Kroger, and Albertsons—account for two-thirds of 340B contract pharmacy locations. CVS added 1,200 locations—as many as the other five chains combined.
Clearly, multi-billion-dollar, for-profit, publicly traded pharmacy chains are benefiting from the 340B discounts intended for covered entities. Below, I offer some policy suggestions so that we can better understand what's going on here.

In upcoming articles, I’ll examine pharmacy benefit manager (PBM) and specialty pharmacy participation in 340B and explain the oversize profits that pharmacies can earn from the program.

For now, you should ponder how and why the 340B program continues its unbridled takeover of the pharmacy industry...and beyond.

340BACKGROUND

The 340B program mandates that pharmaceutical manufacturers provide outpatient drugs to certain healthcare entities—known as eligible covered entities—at significant discounts. A covered entity can purchase and dispense 340B drugs through internal or external (contract) pharmacies. In 2010, the Health Resources and Services Administration (HRSA) permitted eligible entities (including those that have an in-house pharmacy) to access 340B pricing through multiple contract pharmacies.

The contract pharmacy process is complex and sometimes confusing. For more details, see Section 11.5 of our 2019 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

The 340B program has grown to account for 7% to 8% of the total U.S. drug market. According to data provided to Drug Channels by HRSA, discounted purchases made under the program via Apexus, the HRSA-designated Prime Vendor, totaled $24.7 billion in 2018. What’s more, purchases under the program have grown at an average rate of 28% per year since 2014. Details here: 340B Program Purchases Reach $24.3 Billion—7%+ of the Pharma Market—As Hospitals’ Charity Care Flatlines.

To profile the 340B contract pharmacy market, Drug Channels Institute examined HRSA’s Contract Pharmacy Daily Report, as published on July 1, 2019. We screened out all contracts that had been terminated before that date. Using our proprietary database, we classified all contract pharmacy locations by parent organization. Most chains are listed with multiple alternate names.

340BOOM CONTINUES

The chart below shows that since HRSA’s 2010 change in guidance, the number of contract pharmacies has skyrocketed. As of July 2019, there were 24,571 unique locations acting as 340B contract pharmacies. Since our July 2018 analysis, the number of 340B contract pharmacies has grown by 2,973 locations (+14%).

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THE BIG THREE

Three large retail chains account for a majority of 340B contract pharmacy locations. These companies are among the largest U.S. pharmacies.

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For the past few years, these companies have dominated contract pharmacies.
  • Walgreens remains the dominant 340B contract pharmacy participant. Nearly 7,800 Walgreens locations act as 340B contract pharmacies. The chain therefore accounts for about one-third of all locations. What’s more, more than 80% of all Walgreens locations are now 340B contract pharmacies. Amazing.
  • CVS has sharply increased its participation in the 340B program. The company has added 1,200 locations over the past 12 months. Its growth has been facilitated by CVS Health’s acquisition of Wellpartner, a provider of 340B contract pharmacy services.
  • The other four major retail chains—Walmart, Rite Aid, Kroger, and Albertsons—account for almost 5,500 additional 340B contract pharmacy locations. These companies added almost 750 locations over the past twelve months. Thousands of independent pharmacies and small chains participate, too.
The chart below shows the growth in 340B participation for the three largest chains since our first analysis, in 2013. In line with overall program growth, the largest chains have dramatically increased the number of locations acting as 340B contract pharmacies.

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DON’T ASK?

I remain puzzled as to why Congress has shown so little interest in addressing this growth.

A 2018 GAO report explained how pharmacies profit by trading third-party prescription margins for a share of the 340B discounts earned by covered entities. These profits can come at the expense of low-income, uninsured patients. See GAO Confirms It: 340B Hospitals and Contract Pharmacies Profit from Low-Income, Uninsured Patients.

In my testimony to the National Commission on 340B, I put forward commonsense policy recommendations to heighten accountability and transparency for contract pharmacies:
  • Mandate that contract pharmacies for 340B covered entities charge no more than the discounted 340B price to uninsured, underinsured, and vulnerable patients.
  • Require contract pharmacies to identify 340B prescriptions at the time of adjudication (payer prescription approval). This change would make manufacturers more willing to offer larger rebates to third-party payers.
  • Require greater transparency as well as the disclosure of fees and profits generated by 340B contract pharmacies. Such a requirement would ensure that discounts provided under the 340B program are being utilized appropriately.
  • Require that contract pharmacy fees be based on fair market value standards. This would prevent for-profit pharmacies from capturing 340B discounts. It would also protect smaller covered entities that lack negotiating clout with the larger 340B contract pharmacy providers.
  • Limit the number and geographic scope of contract pharmacy arrangements. Covered entities are permitted to build large contract pharmacy networks—without demonstrating access needs for vulnerable populations.
Our latest data analysis shows that the 340B program continues its unchecked expansion. It’s time for Congress to make sure that the 340B program does not enrich billion-dollar pharmacies at the expense of needy patients.

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