340B contract pharmacy arrangements


Pharmacies that want to keep their 340B Medicaid contracts had better police themselves for compliance irregularities and prepare for increased audits and oversight.

Ned MilenkovichUnder the 340B Drug Pricing Program, pharmacies are permitted to dispense discounted drugs purchased by covered entities from Medicaid-participating drug manufacturers. As covered entities increase use of contract pharmacies for dissemination of these drugs, accountability for distribution of the discounted drugs, pricing of these medications, and compliance with federal mandates will continue to escalate and to require ongoing attention and oversight. At a minimum, failure to provide accountability for dissemination of 340B drugs will jeopardize the continuation of the noncompliant pharmacy’s 340B contract.

The first report

While the Office of Inspector General (OIG) for the Department of Health and Human Services (HHS) continues its 2014 investigation into the 340B drug discount program, the first report of its findings, published in February, signals that contract pharmacies will be subject to increased regulation and scrutiny.

After review of 30 covered entities - an even split between community health centers and disproportionate-share hospitals - the report showed an inconsistency in identification of 340B eligible prescriptions, as well as either duplicative discounts awarded to Medicaid beneficiaries without any process in place that would identify improper multiple discounts, or in contrast, a complete failure to offer the 340B pricing to uninsured patients.

The report also described an unwillingness or inability to implement, maintain, and conduct all oversight activities recommended by the Health Resources and Services Administration (HRSA).



Interestingly, despite the seemingly clear objective of providing 340B drug pricing to intended recipients, the methodology used by individual covered entities for determination of eligibility for 340B pricing was discovered to be inconsistent across different organizations.

This variation was a matter of concern to the OIG, because application of the 340B drug-pricing program was and is not uniformly applied. Trouble areas noted in the report included prescriptions written by part-time prescribers; repeated refills from covered entities that have no contact with the patient; and prescriptions filled for conditions other than those qualifying for treatment under the covered entity program.

Industry-watchers expect to see future implementation of restrictions and guidelines designed to prevent these and other discrepancies observed by the OIG.



Another concern noted was the irregular application of drug discounts, including duplicative discounts and an absence of entitled discounts.

In some cases, it was noted that beneficiaries did not receive 340B pricing, despite being eligible, while in others, the OIG observed the potential for covered entities to award duplicative discounts.

Integration of all discounting programs to prevent duplicate discounts is mandatory and should be implemented by all entities wishing to remain compliant with the 340B contract pharmacy arrangement. In addition, programs should be maintained that ensure application of discounts to which beneficiaries are entitled.



Contract pharmacies offer a valuable service to covered entities, as long as compliance with the mandates of HRSA’s Office of Pharmacy Affairs (OPA) is achieved. OPA leaves the implementation of oversight to the covered entities, but it has indicated that, at a minimum, each pharmacy should undergo an independent audit annually.

An absence of the oversight activities recommended by the HRSA and an inability to comply with the required oversight activities may threaten a pharmacy’s participation in the program.

OPA is expected to issue regulations to govern 340B contract pharmacy arrangements as early as June 2014. In light of the previous OIG report, stakeholders believe that accountability will be increased and compliance with the regulations mandated.

While the exact regulations are unknown, if the February 2014 OIG report is any indication, increased monitoring, compliance, and consistency of application will be paramount.

Ned Milenkovichis a partner and head of the health, drug, and pharmacy legal practice at Roetzel and Andress LPA. He is also a member of the Illinois State Board of Pharmacy. Contact Ned at 312-582-1676 or atnmilenkovich@ralaw.com.

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