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  • Writer's pictureJoshua Free

More 340B Investigations. Somebody Help the H.E.L.P. Committee!

They need somebody. Not just anybody. Pleee-eeee-e-e-eeeeze...


If you're not singing along in you're head at this point, we can't be friends. That's as far as I'll take this unnecessary reference.


On to business...the Senate HELP committee, led by Senator Bill Cassidy, continues it's ongoing inquiry into the federal 340B drug purchasing program. I haven't commented on this in awhile, but if you follow my content you may know I'm skeptical of the nature of this inquiry. Despite my concern that the committee is staging an attack rather than a true fact finding mission, I look forward to hearing their conclusions if the inquiry ever wraps up. Criticisms of the program have often included "profiteering" by for-profit middlemen, yet past information demands have focused on 340B covered entities with demands for a very large amount of information and a short timeframe (just a few weeks, one of which was a holiday) to comply.

The questions to date have been fair, though perhaps a bit loaded. We can't see the responses, but I'm sure they added context to the strategically positioned questions that were asked. Many other parties have been missing from the conversation, until now--the committee just sent information requests to Walgreens and CVS.

I could certainly think of many other parties to request information from, but this is a good start. Hopefully they'll also question drug makers, 340B ESP, pharmacy benefit managers, state Medicaid programs, and others. At least for now, this represents a good direction for the committee, though I still think it's a path intended to paint a bleak picture rather than an unbiased inquiry.

The announcement on Senator Cassidy's Ranking Chair news page was telling in at least one regard--referencing contract pharmacy earnings of 25-35% of the 340B discounts according to a study by Drug Channels Institute. Drug Channels is well known for it's alignment with big pharma, and their criticism of the 340B program is no secret. I actually agree with some of that criticism, though frequently I disagree with the context and statistics used that mis-represent the matter. But I digress...my point here is that by referencing a

highly biased program critic, Senator Cassidy shows his hand, again. Additionally, the 25-35% figure is high. I see many of these contract pharmacy agreements that the committee is requesting, and I have never seen a 35% as a contract pharmacy fee. There may be some out there, but its not common in my experience. I've seen Walgreen and CVS agreements--they're not in that range. There's some nuance to this, however...sometimes contract pharmacy agreements are a flat fee, with or without an additional percentage fee--so on very inexpensive drugs, you might see the contract Rx fee make up a larger percentage of the discount. That is not reflective of the overall trend, however.

Stepping back a bit, contract Rx fee as a percentage of the 340B discount is a somewhat misleading statistic. The implication is that these massive for-profit corporation are accessing huge profits via the 340B program. Based on their sheer volume, their net on this is surely a very large number--everything they do is eye-popping in that regard when multiplied across thousands of pharmacies. But on a prescription by prescription basis, I'm not sure it's really all that interesting.

First, let's not forget that the contract pharmacy is providing a service to the patient, and they should be paid fairly for doing that. Unfortunately, in outpatient pharmacy, payors frequently do not pay them a fair rate. No sympathy to CVS/Caremark in that regard, but maybe a little bit for Walgreens as they aren't as vertically integrated with a PBM (though their BCBS relationship could be a study on it's own). The statistic we should be looking at is not just the contract pharmacy fee as a percent of 340B savings, but the difference in this fee versus what the pharmacy otherwise would net. The pharmacy deserves to be paid. And if they are to participate in one of these relationships (which I realize some want to debate the merits of that), the payment needs to be at least what they would otherwise get. Actually, it should be a little bit better considering the under-payment in the market for typical dispensing, and factoring in the small amount of extra work involved.

Both letters had a curious statement--that these fees, per a GAO report, range from $6-$15

per prescription, and suggested that this was a "large profit margin.". Considering that estimates of the non-inventory cost of dispensing range from $9 - $14 per prescription depending on your source, the implication here is laughable.

Though I question the nature of the investigation, I expect Walgreens and CVS will comply and take the opportunity to clarify some things about their business model. I don't expect we'll ever see their answers, but for people involved in this industry like myself, I doubt if there will be anything too surprising.

My feeling is that both organizations make a bit more off the program than I'd prefer. Certain high cost specialty meds can be way too profitable for them in terms of actual dollars, but are less interesting when viewed as a percentage--that's an area I think could be reformed. Should a contract pharmacy make 20% of the revenue on a $50,000 drug? Certainly not, they wouldn't get anything close to that in a non 340B transaction. But 20% on a $100 drug feels pretty reasonable--to me that's about what the pharmacy ought to make in a typical transaction, but usually doesn't thanks to the current state of PBMs. I don't object there, and most covered entities don't either. There are some who think these fees are a direct loss to the covered entity and misuse of the program--this is total nonsense. If the covered entity were dispensing the drug themselves, they would bear the cost of dispensing themselves. It's not free regardless of who does it. And let's further acknowledge that the covered entity frequently can't dispense the drug themselves thanks to closed networks--particularly in specialty, which makes the contract pharmacy relationships important.

I'll conclude here with a few observations:

  1. Much of what they're asking for is no secret. I'm surprised at how basic some of the questions are. Some of it is public information, though might be hard to compile. Some of the questions are redundant and illustrate a lack of understanding of the market and this program.

  2. These 2 organizations are very different. I hope the inquiry highlights the problematic nature of CVS as a PBM. Walgreens functions differently as they only use their TPA for themselves; not so for CVS's Wellpartner TPA.

  3. I don't see reference to it in the information requests, but I hope they dig in on specialty. This is where we see need for reform more so than retail drugs.

  4. The committee asks for EVERY contract pharmacy agreement, unredacted. First, that is an enormous amount of documentation. Second, I wonder if Walgreens and CVS might try to redact them anyway. I'm unclear if the committee's request has the same power as a subpoena.

  5. Three weeks isn't a lot of time to get the information. Government agencies take years to provide simpler reports than this.

I hope this information will be enlightening to the committee, though I doubt it will be as damning as the chair suspects. I do think there's opportunity for reform here--in certain cases, the fees are indeed too high. As a proportion of the overall revenue however, I'm not sure it's all that shocking. Guidance or law on contract pharmacy fees would be most welcome by the 340B covered entities. After this round, it will be interesting to see where the committee goes next. Hopefully they start asking the same tough questions of big pharma, PBMs, and others. Lost in the investigation is this key concept--340B isn't worth much if not for our sky-high drug market. So how did our drugs get so damn expensive to begin with?



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