Amidst Ongoing Manufacturer Restrictions, 340B Covered Entities and Contract Pharmacies Get Creative

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Although 340B-participating covered entities likely don’t need the reminder, numerous manufacturers continue to significantly restrict 340B pricing available via traditional “bill to/ship to” contract pharmacy models, with some restrictions being in place for nearly three years. Many of these manufacturer policies have become more restrictive over time, further reducing the availability of a once-potentially significant 340B benefit for covered entities. Although these policies (and HRSA’s authority to regulate these policies) are the subject of fierce debate and ongoing litigation, the restrictions remain in place and will likely remain so for the foreseeable future.

With no immediate resolution in sight, covered entities and their contract pharmacy partners have been increasingly willing to implement creative arrangements that still comply with existing manufacturer policies while opening up alternative avenues for 340B benefit realization.

As alluded to above, most current manufacturer 340B contract pharmacy policies restrict a covered entity’s ability to purchase a 340B-priced replenishment drug via a contract pharmacy arrangement if that drug is shipped to a non-covered entity location (i.e., a contract pharmacy). In response, some covered entities and their contract pharmacies have opted to implement various types of alternative distribution models, most of which involve the 340B replenishment drug being initially delivered directly to a covered entity pharmacy, then subsequently transferred to the contract pharmacy for dispensing.

Although these types of models are becoming increasingly prevalent in the 340B space, they are not without risk. The level of risk will vary greatly based on (1) where the covered entity and contract pharmacy are located and (2) what type of licensure the covered entity holds. Although far from comprehensive, some key regulatory and contractual factors to consider when designing and implementing an alternative distribution model are as follows:

  • 340B Considerations
    • While not prohibited, this type of model is also not directly contemplated by the 340B statute or associated HRSA guidance (although HRSA generally permits a replenishment drug to be delivered to a location that did not initially dispense the drug being replenished). Therefore, any covered entity that implements an alternative distribution model for a contract pharmacy arrangement should have the process detailed within its 340B policies and procedures and be prepared to demonstrate how it complies with all applicable 340B requirements if reviewed during an audit.
  • State-Level Considerations
    • In most states, the transfer of medication by the covered entity to the contract pharmacy constitutes “wholesale distribution” and therefore likely requires that the covered entity hold appropriate wholesale licensure to make the transfer. This licensure will likely be needed in both the covered entity’s home state and in the state where the contract pharmacy sits (if different). Requirements for acquiring and maintaining a wholesale license can be extensive, vary by state, and should be carefully reviewed by the covered entity to ensure it can comply.
    • Alternatively, some states have certain exceptions to wholesale licensure, such as pharmacy-to-pharmacy sales provided the sales stay below a certain threshold of total sales (typically 5% over a 12-month period). Importantly, however, many of these 5% requirements are not necessarily applicable to these type of drug sales (e.g., they are only permitted if the sale is for an emergent need, or are limited to sales to a practitioner for office use). These transactions also likely trigger federal Drug Supply Chain and Security Act (DSCSA) requirements (further highlighted below).
    • The covered entity should also ensure it can appropriately handle the medications being initially delivered to its pharmacy, particularly if the deliveries involve specialty medications not normally handled by the pharmacy staff that may be subject to certain temperature controls.
    • The state-level risk does not sit solely with the covered entity. Contract pharmacies should ensure that its covered entity partner is appropriately licensed to make such a transfer.
  • DSCSA Considerations
    • Although (as mentioned above) several states permit a pharmacy to distribute limited quantities of prescription drugs without a wholesaler license so long as the amount sold/distributed makes up 5% or less of the pharmacy’s total units sold or dispensed, these laws do not align with DSCSA requirements. The DSCSA does not include a similar pharmacy-to-pharmacy 5% exception and generally requires that an entity be appropriately licensed as a wholesaler in the state(s) of distribution ahead of distributing any amount of medication. Therefore, operating under state-level licensure exceptions could introduce risk from a DSCSA perspective.
    • Entities should also consider whether the contemplated delivery model allows them to meet DSCSA’s current “3 Ts” requirements during the transfer process and other requirements for wholesalers, fully comply with future enhanced drug distribution security requirements, and appropriately meet internal DSCSA policies.
  • NABP Accreditation
    • NABP accreditation standards are often stricter than state laws and the DSCSA in certain areas. NABP has historically been heavily skeptical of pharmacy-to-pharmacy transfers of medications if the transferring pharmacy does not also hold a wholesaler license regardless of whether it is permitted under an exception to the definition of “wholesale distribution” in the states involved.
    • Therefore, if NABP accredited, a model that relies on utilization of state-based wholesale licensure exceptions holds greater risk from an NABP perspective and could impact or threaten existing accreditation.
  • Payor Contracts
    • Many payor contracts precondition network participation upon being appropriately licensed and following statutory/regulatory requirements related to pharmacy operations. Therefore, Board enforcement that would encumber or otherwise threaten the entity’s pharmacy license could potentially lead to suspension from or even removal from a particular payer network.
    • Relatedly, payer contracts may include provisions that stipulate only billing for medications received from appropriately licensed entities. In the event of an audit, reimbursement tied to medications received from an improperly or unlicensed entity could lead to recoupment.

The considerations detailed above only scratch the surface of regulatory and practical considerations to take into account when considering an alternative distribution model for 340B contract pharmacy relationships. If you have questions or would like to discuss potential options and associated risk profiles in more detail, please reach out to your Quarles attorney or:

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