Congress established the 340B Drug Pricing Program in 1992 to help safety net hospitals better serve the poor and needy through discounted drug purchases. Outpatient drugs purchased under the program can be dispensed to patients by program participants directly or through what are known as contract pharmacies.

Contract pharmacies have come under fire in recent years, particularly by drug manufacturers who claim they are taking advantage of the program to increase profits. Likewise, drug manufacturers have accused safety net hospitals and other program participants of using contract pharmacies to abuse the 340B program.

So what is a contract pharmacy, exactly? Furthermore, what are the pros and cons of a healthcare provider relying on such pharmacies to dispense their 340B drugs?

A Retail Pharmacy Partner

Under the 340B program, a contract pharmacy is a retail pharmacy partner that contracts with a hospital or other healthcare provider, also known as a covered entity. This pharmacy will dispense 340B drugs on behalf of the covered entity at its retail locations. Note that a contract pharmacy can be an individual retail establishment, part of a local network, or even a nationwide chain.

The interesting thing to note is that contract pharmacies do not exclusively dispense 340B drugs. They sell everything and anything you would find at any other pharmacy. But where 340B discounted drugs are concerned, they need to follow specific rules and regulations to maintain compliance.

Establishing a Contract Pharmacy

A contract pharmacy must register as an agent of a covered entity under program rules. Because the pharmacy is merely an agent, the covered entity with whom it contracts is ultimately responsible for compliance issues. Therefore, covered entities are expected to provide consistent oversight of their contract pharmacies within the scope of the 340B program.

Covered entities often turn to organizations like Florida-based Ravin Consultants to establish and oversee contract pharmacies. Note that the covered entity-pharmacy relationship is only legal with a written contract in place. Written contracts define the expectations and responsibilities of both parties.

Contract Pharmacy Advantages

Why would a healthcare provider establish a contract pharmacy to dispense 340B drugs? There are a number of reasons, including:

  • Better Access – Contract pharmacies can lead to better access for patients by giving them more retail locations to choose from. In addition, it allows covered entities to dispense drugs without having to rely exclusively on their in-house pharmacies.
  • Cost Savings – Covered entities can save money by contracting out retail drug sales. It is no different than outsourcing other services for which a covered entity is not properly set up to do.
  • Improved Efficiency – Certain types of covered entities, like standalone oncology clinics, aren’t able to dispense 340B drugs efficiently. They are not pharmacies. So to maintain efficiency and focus on their core mission, they contract with pharmacies to dispense drugs for them.

Contract pharmacies have proven immensely helpful to covered entities over the years. However, drug manufacturers are not so sure they want to do business with so many pharmacies. The pharmacies have been a point of contention among manufacturers for quite some time.

Contract Pharmacy Disadvantages

There are some disadvantages to utilizing contract pharmacies including compliance challenges and the potential for program abuse. It is possible for contract pharmacies to misuse the program in order to boost profits. Once again, it’s up to a covered entity to make sure its contract pharmacies are in compliance. Doing so is often easier said than done.

Contract pharmacies are a normal part of the 340B Drug Pricing Program. They come with their challenges, but covered entities tend to appreciate being able to utilize them.

By jarwo