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Contract Pharmacy Management and 340B


Why this is a Current Topic

In the past month we’ve spoken with several people regarding their 340B Contract Pharmacy program.  In all cases, the personnel involved in the original setup of the Contract Pharmacy program had all moved on to other positions.  The staff picking up the 340B duties are trying to better understand the process, and in some cases, it’s not so easy to figure out. Also, in all cases, the new staff was not well trained in the contract pharmacy process.

What is it, exactly?

When 340B started, Covered Entities (CE’s) were allowed one contract pharmacy.  Then in 2010, the rules changed to allow an unlimited number of contract pharmacies for any CE.  Within a very short time, a number of companies got into the business of Third Party Administration (TPA) for CE’s wanting to benefit from the savings provided by Contract Pharmacy Programs.

How does it work?

The TPA contracts with the CE to manage their Contract Pharmacy Program.  Here are the subsequent steps: 

  1. The Facility (CE) provides a patient and provider file to the TPA.

  2. The TPA uses this information to scan the data from the ‘Switch’ and from that determine where the CE’s patients are going to fill prescriptions.

  3. The TPA uses this data to derive an estimate of the potential market for the CE.

  4. The TPA, acting on behalf of the CE, negotiates an agreement between the CE and the Contract Pharmacy.

  5. The OPA database is updated, and you must wait until the contract pharmacy appears on the OPA website.

  6. A start date is set from [E].

  7. You “Go-Live”

  8. The TPA filters the CE’s patients’ prescriptions from the Switch for each contracted pharmacy.

  9. The dispensed drug goes into an accumulator bucket.

  10. When it reaches a full package size, the TPA issues a purchase order instruction on behalf of the CE to be shipped to the Contract Pharmacy.

  11. This is all usually completely transparent to the Contract Pharmacy’s staff.

  12. Then it starts to get involved and complicated.

  13. All revenues from the sale of the Prescription go to the CE. The dispensing fee and the fee charged by the TPA are deducted before the CE is paid. 

  14. The CE pays for all drugs purchased to replenish the Contract Pharmacy.

  15. IF a drug does not accumulate to a full package size within a negotiated time frame (usually 90 days), then the CE is pays the Contract Pharmacy (via the TPA) the higher cost for the drug that the pharmacy would reportedly pay. This always results in a loss for the CE.

Murphy’s Law

Yes, if something can go wrong. . . The CE should set exacting parameters for the negotiation of the agreements, and of course, the CE has the final approval for any agreement, and signs the final agreement which is between the CE and the Contract Pharmacy.  Things to be sure are negotiated on your behalf:

  1. A minimum net for the CE – the CE should insist that no prescription should be filtered that does not result in some net savings for them. We’ve seen agreements that do not have this clause, and the CE may pay a TPA fee ($2-$6 per Rx or more) plus a dispensing Fee ranging from $16-$27, and only gain $4.00 for an inexpensive generic, resulting in a net loss of as much as $29 for that prescription.  We suggest setting the minimum to where the CE achieves at least a $5-$10 minimum net on any prescription.
  2. A maximum dispensing fee – some contract pharmacies will negotiate for a sliding scale for their dispensing fee. This should have a cap – a ‘not-to-exceed’ dollar or percentage amount.  In some cases, notably specialty prescriptions, a sliding scale dispensing fee can exceed hundreds of dollars.  Remember – the benefits of 340B are supposed to go to the CE, not the Contract Pharmacy.
  3. The True-Up terms – every agreement has a clause related to how to handle drug sales that do not reach a package size accumulation within a specified time frame. Most commonly, TPA’s set this at ninety days.  For example, an Ambien prescription is typically for 30 tablets, but the common package size is 100 tablets.  It will take over three Ambien prescriptions at the same Pharmacy to accumulate to one package to purchase.  IF this does not happen within the negotiated time frame, the CE is usually required to pay for the full cost of the Ambien on the Contract Pharmacy’s terms.  This inevitably results in a net loss for the CE.
  4. Access to FAXED Copies – we’re seeing HRSA auditors request 100% of all audited Contract Pharmacy prescription copies. Be certain there is a clear process defined for ready retrieval of these records for a HRSA audit.

Managing the Contract Pharmacies

Each month, review the following;

  1. Audit between 20-30 contract pharmacy prescriptions for eligibility
    1. Check that the prescription was actually written at the encounter, and the encounter was not just a lab or radiology visit.
    2. Be certain that the payer was NOT Medicaid.
    3. Be certain the Provider was eligible as defined by your Medical Staff records.
  2. How much was the ‘True-Up’? If it starts to climb higher than 7-10%, do a careful analysis of the actual net from that pharmacy.  Some lower utilization pharmacies may top 70% true-up, resulting in a net loss for the CE.
  3. Changes that Add/remove contract pharmacies must be updated on the OPA website. Do NOT begin a new Pharmacy, even a new chain pharmacy, until they appear on the OPA website following your update there.

Old Soldiers Don’t die: They Just Fade Away

We hear a lot of reports of Contract Pharmacy programs that started with significant dollars for the CE, but began to taper off over time.  This is due to several factors;

  • Patient demographics may change – where your patients went two years ago may not be where they go now. Have your TPA re-assess your market baskets and see if you need different contract pharmacies than you are signed up with today.
  • True-Ups can impact your net. – As mentioned above, watch your true-ups.

You can encourage patients to patronize your Contracted Pharmacies.  Every state has a ‘Right to Choose’ rule for pharmacy, so check with your local board first.  You may have to begin your sales pitch with the phrase, “You go to whatever pharmacy you choose.  We support XXXX Pharmacy, and hope you consider them for your prescription. . .'  Check with your legal team before you do something that could be construed as steering patients.

Things that Go Bump in the Night

There is always a story, right?  We know of one Contract Pharmacy, an independent pharmacy managed by an intelligent pharmacist with higher greed genes than ethical genes.  That pharmacy switched to package sizes of 500, which resulted in nearly 100% of all 340B prescriptions falling into a true-up status.  The resulting payment at the higher cost, plus his healthy dispensing fee, made this pharmacy more profit on the CE’s prescriptions than his regular prescriptions. And the CE lost a lot of money on that deal.

Keep an eye on your business...


Posted: Thursday, August 27, 2020

Tags: CPS,340B,Contract Pharmacies,Compliance, 340B, White Papers, CPS Blog Posts, CPS, Compliance, Contract Pharmacies