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Walgreens and CVS Top the 28,000 Pharmacies Profiting from the 340B Program. Will the Unregulated Party End?

It’s time for our annual take a look at the 340B Drug Pricing Program’s booming pharmacy part.

Our unique evaluation of presidency information finds that 28,000 pharmacy places—virtually half of the U.S. business—now act as contract pharmacies for the hospitals and different healthcare suppliers that take part in the 340B program. Over the previous 12 months, the variety of pharmacies in the program has grown by greater than 3,300 places.

As you will notice beneath, multi-billion-dollar, for-profit, publicly traded pharmacy chains—Walgreens, CVS, Walmart, Rite Aid, Kroger, and Albertsons—proceed their unchecked 340B enlargement.

Despite this astonishing progress, the contract pharmacy part doesn’t have—and has by no means had—a regulatory infrastructure. That’s as a result of the subregulatory discover that created contract pharmacies wasn’t topic to any rulemaking procedures. Eli Lilly not too long ago challenged this discover, which compelled the authorities to concede that its personal pharmacy steering is “not legally enforceable.”

As you assessment our evaluation, ponder why producers nonetheless adjust to HRSA’s non-binding steering—and why traders stay unconcerned with the dangers of public corporations’ participation in the out-of-control 340B program.

340BACKGROUND

The 340B program mandates that pharmaceutical producers present outpatient medicine to sure healthcare entities—generally known as eligible lined entities—at vital reductions. The Health Resources and Services Administration (HRSA), an company of the U.S. Department of Health and Human Services, oversees the program by way of its Office of Pharmacy Affairs (OPA).

A lined entity should purchase and dispense 340B medicine by way of inside or exterior (contract) pharmacies. In 2010, HRSA determined that eligible entities (together with people who have an in-house pharmacy) might entry 340B pricing by way of a vast variety of contract pharmacies. There was no rulemaking or public touch upon the company’s unilateral choice. As far as I do know, there is no such thing as a proof that HRSA contemplated the predictable explosion in contract pharmacy preparations.

Pharmacies revenue by buying and selling their third-party prescription margins for a share of the 340B reductions earned by lined entities. These earnings can come at the expense of low-income, uninsured sufferers, per GAO Confirms It: 340B Hospitals and Contract Pharmacies Profit from Low-Income, Uninsured Patients. An enormous ecosystem of know-how distributors and consultants allows the extraction and sharing of 340B reductions.

The contract pharmacy course of is complicated and complicated. For extra particulars, see Section 11.5 of our 2020 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

In profiling the 340B contract pharmacy market, Drug Channels Institute examined HRSA’s Contract Pharmacy Daily Report, as printed on July 1, 2020. We screened out all contracts that had been terminated earlier than that date. Using our proprietary database, we labeled all contract pharmacy places by guardian group. Most chains and many PBM-owned pharmacies are listed with a number of alternate names.

340BOOM CONTINUES

Since HRSA’s 2010 change in steering, the variety of pharmacies in the 340B program has skyrocketed:

  • In January 2010, fewer than 1,300 distinctive places acted as 340B contract pharmacies.
  • As of July 2020, DCI discovered 27,928 distinctive places are performing as 340B contract pharmacies. Since our July 2019 analysis, the variety of 340B contract pharmacies has grown by 3,357 places (+14%).These pharmacies have greater than 112,000 contractual relationships with greater than 8,000 340B lined entities. About three-quarters of those lined entities are disproportionate share and kids’s hospitals.

Four giant retail chains account for about 6 out of 10 of the program’s contract pharmacy places. These companies are among the largest U.S. pharmacies.

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For the previous few years, these corporations have dominated contract pharmacies.

  • Walgreens stays the dominant 340B contract pharmacy participant. Nearly 8,000 Walgreens places act as 340B contract pharmacies. The chain due to this fact accounts for greater than one-quarter of all places. More than 80% of all Walgreens places are actually 340B contract pharmacies.
  • CVS continues to extend its participation in the 340B program. The firm has added greater than 1,900 places over the previous 12 months. This implies that half of all CVS places are actually 340B contract pharmacies. The firm’s progress has been facilitated by CVS Health’s acquisition of Wellpartner, a supplier of 340B contract pharmacy providers.
  • The different main retail chains—Walmart, Rite Aid, Kroger, and Albertsons—account for greater than 6,000 extra 340B contract pharmacy places. Thousands of impartial pharmacies and small chains take part, too.

The chart beneath reveals the progress in 340B participation for the 4 largest chains since our first analysis, in 2013. In line with total program progress, the largest chains have dramatically elevated the variety of places performing as 340B contract pharmacies.

[Click to Enlarge]

In upcoming articles, I’ll look at pharmacy profit supervisor (PBM) and specialty pharmacy participation in 340B. I’ll additionally delve into how hospitals are utilizing their in-house specialty pharmacies to extend 340B earnings.

SUBREGULATORY MISCHIEF

The 340B program’s gross sales have grown to turn into virtually as giant as the Medicaid program’s outpatient drug gross sales. According to information supplied to Drug Channels by HRSA, purchases beneath the 340B program have tripled since 2014. Details right here: New HRSA Data: 340B Program Reached $29.9 Billion in 2019; Now Over 8% of Drug Sales.

However, 340B lacks Medicaid’s regulatory infrastructure and controls. There’s no requirement that the reductions supplied beneath the 340B program be utilized appropriately, no honest market worth requirements for pharmacies’ charges, no restrict to the dimension of a contract pharmacy community, and zero transparency into the earnings earned by billion-dollar, public corporations.

That’s proper. HRSA hasn’t bothered to problem steering or notices on these and different essential matters. Its inaction has enabled profiteering by public pharmacy and PBMs.

What’s extra, HRSA has successfully conceded that it may’t implement its steering. The not too long ago launched HHS Guidance Repository incorporates quite a few steering notices from HRSA. However, the repository incorporates disclaimers stating that the paperwork “do not have the force and effect of law and are not meant to bind the public in any way.”

Perhaps that’s why Lilly not too long ago started limiting distribution of sure Cialis formulations. (Click here to read the notice.) External 340B contract pharmacies will now not be capable of dispense brand-name Cialis on behalf of lined entities. This transfer is smart on condition that there are greater than a dozen generic variations of Cialis on the market.

Lilly’s actions compelled HRSA to acknowledged that its contract pharmacy guidance is “not legally enforceable.” D’oh!

The 340B program continues its unbridled takeover of the pharmacy business. Considering the {dollars} concerned, I’m skeptical about the prospects for acceptable legislative and regulatory reform of the 340B program. Only a direct authorized problem to HRSA’s irresponsible and incomplete oversight will get 340B on monitor.

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