Contract Pharmacies’ Troubling Role in the 340B Drug Discount Program

“Contract pharmacies are a black box inside the already opaque 340B program and researchers and watchdog agencies are only beginning to scratch the surface of the profit-driven financial incentives at play… the only data that exists on whether patients see a benefit from this growing program shows that in the majority of cases, they do not.”

-AIR340B Report, 2020

Through guidance issued in 2010 by the Health Resources and Services Administration (HRSA), 340B covered entities can have an unlimited number of “contract pharmacy arrangements” in the 340B Drug Discount Program. A 2020 report released by AIR340B, “The Impact of Growth in 340B Contract Pharmacy Arrangements – Six Years Later,” reviews the implications of unlimited contract pharmacy arrangements in detail, and an overview of the issue is provided below.

Contract pharmacy arrangements are often with for-profit pharmacy chains like CVS, Rite-Aid, and Walmart. Since the guidance went into effect 10 years ago, these large chain pharmacies jumped on the opportunity to use the 340B Drug Discount Program for profit,  with the number of those participating in the program increasing from 1,300 to nearly 28,000 – that’s more than 21 times over.

Despite the fact that this safety-net program was created to support nonprofit entities that serve vulnerable or uninsured communities, for-profit corporations have been utilizing the program as a profit-making tool – at the expense of many low-income Americans. This is a huge cause for concern, and multiple government oversight agencies and Congress are not confident these arrangements are benefiting patients. We agree.

Below are key findings from reports that provide troubling evidence that 340B disproportionate share hospitals (DSH) hospitals and contract pharmacies are not improving access to medications or improving health outcomes for low-income Americans.

  • Contract pharmacies are not proven to benefit patients even when they receive discounts through the 340B program. In fact, the only data that exist on whether patients see a benefit from this growing program shows that in most cases, they do not. (AIR340B, 2020)
  • It’s estimated over half of the 340B profits retained by contract pharmacies are concentrated in four corporations—Walgreens, Walmart, Accredo, and CVS Health. (Berkeley Research Group, 2020)
  • The estimated profit margin for covered entities and contract pharmacies on 340B medicines dispensed through contract pharmacies is 72 percent. Compare that to the significantly lower 22 percent profit margin for non-340B medicines dispensed through independent pharmacies. (Berkeley Research Group, 2020)
  • In 2018, 340B covered entities and their contract pharmacies generated an estimated $13 billion in gross profits through 340B purchased retail medicines. (Berkeley Research Group, 2020)
  • In a report conducted by the Government Accountability Office, the majority of hospitals surveyed noted 340B discounts were not shared with vulnerable patients when picking up their prescription from contract pharmacies. (Government Accountability Office, 2018)
  • The expansive growth of DSH hospitals and contract pharmacies participating in 340B has not translated into measurably better health outcomes for low-income Americans and instead has increased profits for DSH hospitals through their arrangements with contract pharmacies. (Marshall University, 2018)
  • There are no direct incentives for 340B DSH hospitals to follow the spirit of the program and use financial gains to improve or enhance care for low-income patients. (New England Journal of Medicine, 2018)
  • Some 340B DSH hospitals did not offer the discounted 340B price to uninsured patients at contract pharmacies. (Office of the Inspector General, 2014)

It’s past time we put patients first. We need to increase oversight of DSH hospitals and arrangements with contract pharmacies to ensure the 340B program cannot be manipulated and so patients benefit.