Contract pharmacies are retail pharmacies that contract with covered entities (hospitals, healthcare clinics, etc.) to dispense deeply discounted drugs under the federal government’s 340B Drug Pricing Program. The pharmacies are not program participants per se. Rather, they are agents of registered program participants.
That being the case, contract pharmacies do not tend to purchase the discounted drugs directly. Except under special circumstances that have to be justified and documented, contract pharmacies leave placing orders for discounted drugs to the covered entities with whom they work.
340B in a Nutshell
The 340B Drug Pricing Program gives covered entities access to thousands of outpatient drugs at considerable discounts. Covered entities can save as much as 50% over retail. They purchase the discounted drugs directly from drug manufacturers. Covered entities often rely on 340B consulting agencies like Ravin Consultants to set up and manage their 340B programs.
As for drug manufacturers, those that want to participate in Medicare and Medicaid must offer discounted pricing to eligible covered entities. They do not have a choice. The only way to avoid participating in 340B is to also not participate in Medicare and Medicaid.
Covered Entities Place the Orders
In the vast majority of cases, covered entities place 340B drug orders with manufacturers. That makes perfect sense given the fact that contract pharmacies technically are not program participants. Still, they receive the drugs that covered entities purchase. Think of it as the 340B equivalent of drop shipping.
When placing an order, a covered entity can arrange to have the purchased drugs shipped directly to a contract pharmacy. The covered entity places the order and makes payment, but shipping goes to a separate location. Given that contract pharmacies can be anything from a local store to a nationwide chain, drugs could be shipped virtually anywhere in the country.
Pharmacies Dispense the Drugs
Contract pharmacies receiving the discounted drugs are then obligated to dispense them to the covered entity’s patients. The contract between pharmacy and covered entity determines price point. In some cases, covered entities pass their savings on to patients through lower retail prices. In other cases, they sell the drugs at retail but use their savings to provide healthcare services to the poor and indigent in other ways.
Because they dispensed the drugs, contract pharmacies are able to make some profit in exchange for their services. They also collect copays, submit insurance claims, and do all the same things they would do for non-program patients purchasing retail prescription drugs.
Exceptions to the Rule
The 340B Drug Pricing Program is set up in such a way as to ensure that covered entities maintain control over the discounted drugs they buy. This explains the third-party arrangement through which contract pharmacies receive discounted drugs. But there are a couple of exceptions to the rule.
First is an exception for emergency situations. In a case in which a drug is urgently needed and neither the covered entity nor contract pharmacy could wait to utilize normal procedures, a pharmacy can be authorized to purchase the drug directly. This speeds up the process.
A second exception is found in some types of specialized drugs that are limited in their distribution. A covered entity could authorize its contract pharmacies to purchase such a drug directly.
Inclosing, note that the use of contract pharmacies is a point of contention among drug manufacturers. Nonetheless, the government has gradually relaxed its previously tight restrictions against contract pharmacies considerably. Whether drug manufacturers like it or not, contract pharmacies are part of the deal. Until Congress or regulators say otherwise, that is just the way it is.