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340B Contract Pharmacies and 'Wall Street'

As always, a few curmudgeons (and they know who they are) will criticize a comparison of 340B Contract Pharmacies and the movie ‘Wall Street’ with Charlie Sheen, Michael Douglas and Terrence Stamp.  But there can be a comparison. Some covered entities approach contract pharmacy as ‘easy money’, which can have the Michael Douglas’ Gekko Character view that ‘Greed is Good’. Unfettered, this can lead to compliance issues that can result in loss of some, if not all of the benefits you can gain from properly managed contract pharmacies.  So consider the movie ‘Wall Street’ and manage a valuable program with the care and oversight it needs. We’ll discuss how below!

340B Contract Pharmacies

Covered Entities (CE) were only allowed one contract pharmacy to dispense on their behalf until 2010, when the Patient Protection and Affordable Care Act (PPACA) enabled HRSA to allow virtually unlimited contract pharmacies for a covered entity.  From this writer’s perspective, it seemed to take almost no time for a number of companies to jump into this new marketplace.  Known as a ‘Third Party Administrator’ (TPA), these companies provide all manner of services on the covered entities behalf:

Market basket analysis: TPAs review data provided by the CE (patient information, prescriber) and match this to prescriptions filled by pharmacies considered to be in the CE’s market. The TPA then negotiates on behalf of the CE with the potential contract pharmacy.  Negotiations are normally driven by parameters defined by the CE:

Dispensing fee – these range from as low as twelve dollars per prescription to $27.50 or more with some contract pharmacies asking for a sliding scale based on the retail price of the prescription.

True Up terms – see the diagram below to understand this more fully. If a contract pharmacy cannot dispense enough of a specific NDC within a negotiated time frame (usually 90 days) then the TPA removes the dispensed quantity from the 340B accumulator for that pharmacy, and instead of the CE replenishing the drug at 340B costs, the Pharmacy charges the CE for the negotiated full cost of the drug.

Periodic match of the CE data against the contract pharmacy dispenses, filtering for:

Avoidance of dispensing to Medicaid, and growing more important, Managed Medicaid (MCO) as well. The only time contract pharmacies may dispense to Medicaid is if there is an arrangement between the covered entity, the contract pharmacy and the State Medicaid agency for the contract pharmacy to carve-in. This is rare.

Only prescriptions that result in net savings for the CE. This often results in restriction of the program to branded products only.

Potential Provision of a Voucher program for low-income or indigent patients to partner in the 340B savings.

Routine reports that show the benefits of your program.

Support when there is a HRSA audit.

With the market for TPA providers growing so large, selecting a vendor that meets your needs can be challenging.  HRSA provides an excellent workbook to guide selection of the TPA.  You can find it by clicking here. When negotiating with the TPA, consider:

Fees range from a reported low of $2.00 per prescription to a reported high of $12.00 per prescription.

Require periodic (every 12-18 months) review and refresh of the market analysis.

Negotiate for removal of the TPA fee on any reversed or ‘Trued-Up’ prescription.

The Process

Now What?

You’ve reviewed the workbook and picked a vendor.  They’ve done a market analysis and picked local pharmacies that show reasonable volume for your patients.  Now what?


In most situations the TPA deals directly with the contract pharmacy on the CE’s behalf.  Don’t let them do this without clear parameters on terms.

Have a clause that ensures you can get faxed copies of prescriptions.

This should stipulate a time frame (no more than twenty-four hours) and

A specific process for requesting and getting these copies. If, during a HRSA audit, faxed copies of requested prescriptions cannot be provided before the auditor leaves, those prescriptions will be considered un-auditable, and will result in an adverse finding by the auditor and HRSA.

Be mindful of the true-up terms.

Although these are usually set at 90 days, there are ways an unethical store employee can ‘game’ the system. See anecdotes below for more.

Be sure the amount agreed upon for true-up can be audited by the CE. AWP or WAC is a start, but some agreements are vague and leave it up to the contract pharmacy.

Avoid sliding scale fees, but if they are a deal-breaker and you really want the business, place a ceiling on the fee.

Avoid paying the contract pharmacy more than you actually save on the prescription. Some Contract Pharmacy chains will refuse to negotiate, adopting a ‘take-it or leave-it’ approach. Some of these same chains are making so much on 340B that they are jeopardizing the program from bad press.  Consider not doing business with them.

Negotiate for the dispensing fee to be removed if the drug is ‘Trued-Up’.

Adding Contract Pharmacies to the HRSA website

In most situations the TPA adds the contract pharmacies to the HRSA website.  Other times the contract pharmacy provider does it themselves.  You can see the process by clicking this link.  Regardless of who actually loads the data, the CE must verify the accuracy.  This includes:

Check, double check, walk away and then check once more to be sure the pharmacy(ies) are included on the formal signed agreement between the CE and the contract pharmacy. With multiple stores, these are often in an addendum. Failure to have them on the agreement results in a diversion finding that required repayment of all discounts for prescriptions from that pharmacy.

Ensure the name and address are accurate. Inaccurate information here may only result in a HRSA finding of a database error.


Now that you are in the 340B Contract Pharmacy business, you are required by HRSA rules to manage it properly, including the following:

Contract Pharmacy Oversight Requirements


1. Conduct independent annual audits and/or adequate oversight mechanism.

Examples of self-audit protocols (by entity type) diversion

Considerations when working with contract pharmacy vendors


2. An expectation to develop written 340B Program policies and procedures involving contract pharmacy oversight; maintain auditable records at both covered entity and contract pharmacy; ensure written contract pharmacy agreement lists each contract pharmacy individually and is in place before registering contract pharmacy in 340B Program; and contract pharmacy may not be utilized for purposes of the 340B Program until it has been registered, certified, and pharmacy is listed on the covered entity’s 340B database record.

Sample policies and procedures (by entity type)

Examples of auditable records are discussed at every 340B University session.

Maintain a written contract that adheres to the contract pharmacy compliance elements discussed in the published contract pharmacy guidelines


3. Ensure that 340B drugs are only provided to 340B-eligible patients.

Definition of an eligible patient

Referral FAQs


4. Carve-out Medicaid at contract pharmacies – or develop an alternative arrangement to work in collaboration with the state Medicaid agency to ensure duplicate discounts do not occur and report this to HRSA.

Contract pharmacy guidelines, which state that 340B drugs should not be dispensed to Medicaid patients via a contract pharmacy, absent an arrangement to prevent duplicate discounts

The Apexus Answers Call Center provides state Medicaid contact information

Checklist for Covered Entity Contract Pharmacy Carve-In Request


5. Maintain accurate information in the HRSA 340B database, including covered entity contact information, contract pharmacy information, and Medicaid billing information.

Update existing 340B database information by submitting a change request

Register new contract pharmacies during a quarterly registration period

Recertify annually


I don’t think it’s possible to emphasis the oversight enough. . .

Manage it like a Business Unit

Too many CEs consider Contract Pharmacies as if they manage themselves.  I think this thought process stems from the sudden intake of 340B Savings with what looks like all the work being conducted by the TPA.  This can be a valuable source of 340B savings for a CE, and as such, deserves to be managed carefully.

Review the results monthly.    Review the individual performance of each contracted pharmacy;  Is it generating the number of prescriptions expected?   Do net savings exceed costs?  Review the ‘True-Up’ amount  Is it higher than expected (I used to use 7% of total savings for   that pharmacy as a barometer – your own number may be higher).

Is it changing? Maybe patients are not going to this pharmacy as much as in the past, resulting in higher true-ups.

  • Are the package sizes affecting true-up?

Story Time: We know of an independent contract pharmacy manager who figured a way to game the 340B system.  He began purchasing in the largest package size possible for each drug.  This created an abnormally high true-up.  His negotiated true-up cost was AWP, the highest cost assessed on any drug.  The resulting costs turned his pharmacy into a total loss for the CE, and in fact, cost them so much they almost got out of the business.

Present your monthly findings to your oversight committee.

Use your audit results as part of your performance improvement process and get Joint Commission brownie points.

Consider the benefits of your voucher/indigent care program and create win-win stories about how 340B savings kept a patient healthier.

And this is like the movie ‘Wall Street’ how?

In ‘Wall Street’, there is the acquisition of value without oversight. There are a number of Contract Pharmacy programs in place with limited or no oversight.  So there’s the link.

Be proactive and take a fresh look at not only your contract pharmacies, but the entire program.  Review the agreements in place for all of your contract pharmacies as well as your TPA(s).  Consider their performance: are they meeting expectations?

In Closing

As always, call your Comprehensive Pharmacy Services 340B Consultant if you have any questions about this or any other 340B issue.

Posted: Wednesday, June 13, 2018

Tags: 340B, CPS Blog Posts, CPS, 340B Contract Pharmacies