By Anthony Lesser, MSHA
Participation in the 340B Drug Pricing Program presents many cost savings opportunities for covered entities. The obvious advantage lies in the manufacturers’ discounts—on average 51% less than the average wholesale price (AWP). However, with a deeper understanding of how the 340B program operates, participants can leverage even greater discounts and cost savings via their 340B status.
When manufacturers sell pharmaceuticals to wholesalers at the established wholesale acquisition cost, this initial price is independent of any 340B discounts. However, after selling contracted drugs to covered entities, wholesalers will charge back the difference between the original purchase price and the 340B contract price to the manufacturers. The opportunity for program participants arises because any purchase discounts that wholesalers receive are magnified when factoring in the manufacturer chargeback. For example, if a wholesaler receives a 2% cash discount for a specific product, but sells the product to a 340B customer at a 50% discount off the original price, the wholesaler keeps the original savings, which now results in a 4% benefit—as opposed to 2%—after the chargeback. Covered entities should leverage their 340B spend when negotiating wholesaler contracts and cost of goods discounts, as vendors will typically dip into this additional savings to establish or maintain business.
Because the 340B benefit is variable, it can be challenging to determine the exact value of your 340B spend. Of course a higher spend will result in higher discounts, therefore covered entities should be aware of their total 340B spend, both in dollar value and as a percentage of total purchases. Consider stipulating a minimum 340B purchase volume or sliding scale discount to make the wholesaler more comfortable with offering a higher cost of goods adjustment. If an entity has a substantive 340B spend, they will be of great value to a pharmaceutical wholesaler, and this leads to an improved ability to negotiate all contract terms. Wholesalers typically have reporting software to track 340B spend. This may come in the form of an 80/20 purchase report or contract compliance tool. If your wholesaler does not have these tools available, they should be able to honor an ad-hoc request for information.
340B Prime Vendor Program
The 340B Drug Pricing Program offers one of the deepest discounts available on drug prices in the country. However, the price—also known as the Public Health Service (PHS) price—is only a “ceiling,” meaning it is the highest price that a covered entity may be charged. Pharmaceutical manufacturers are therefore able to offer “sub-ceiling” prices, or prices below the 340B price, but customers must actively pursue these contracts. One of the easiest ways to maximize sub-ceiling contracts is through participation in the 340B Prime Vendor Program. The program was established as part of the original 340B legislation to improve affordable access to medication for covered entities and their patients. This includes negotiating sub-ceiling contracts by acting as a group purchasing organization for the 340B community. In addition to the distinct pharmaceutical cost advantage, there are several other key benefits to the program. First, the prime vendor program typically solidifies longer-term contracts, which can help alleviate some of the challenges presented by quarterly PHS contract changes. Additionally, the 340B Prime Vendor Program is the only program with authority to offer total price protection to branded pharmaceutical manufacturers, which means that entities are guaranteed the lowest possible price on outpatient purchases for these products. Finally, the program also negotiates discounted contracts on items that are not covered in PHS contracts, such as vaccines, prescription vials, ambulatory computer systems, software, and other pharmaceutical supplies.
There is no cost to participate in the 340B Prime Vendor Program. However, an entity must first register with the 340B Drug Pricing Program and then complete the 340B Prime Vendor Program application, which is available on the organization’s Web site (See 340B Resources). After an application is submitted, the entity’s 340B status will be verified and then their pharmaceutical wholesaler will be instructed to load 340B Prime Vendor Program pricing. Enrollment status can be verified on the Covered Entity Data Extract located on the Office of Pharmacy Affairs Web site (See 340B Resources).
Request for Proposal
One of the best ways to leverage any contract is through a competitive bid or proposal process. Although potentially lengthy, the process can result in vendors’ aggressive pursuit of business and a significant cost savings. This process is certainly beneficial for a wholesaler contract as 340B entities are highly coveted by pharmaceutical wholesalers, and the added competition should result in even higher discounts and contract advantages. Additionally, the bid process provides an excellent opportunity to negotiate pricing for high-volume items that are not covered under 340B Prime Vendor Program contracts. The 340B price can serve as an effective reference point for the process.
340B program participation generates tremendous savings opportunities and places covered entities in an outstanding bargaining position with wholesalers and manufacturers. Abundant resources exist to assist participants in this negotiation process, but savings must be actively pursued to maximize 340B purchasing power.
Anthony Lesser, MSHA, serves as the pharmacy inventory manager for the Harris County Hospital District, the nation’s fifth largest public metropolitan health system. He also works as a consultant for the HRSA Pharmacy Services Support Center where he provides technical assistance on 340B-related matters. His primary professional interest is the development of effective supply chain strategies to maximize patient safety, regulatory compliance, and financial performance. Anthony received a BS in microbiology from Texas A&M University and a MS in health care administration from Trinity University.
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